Nowadays most people are trying to improve their personal finances. Some people cut out unnecessary expenses, while others seek for some ways to increase their income. Living within your means actually makes good financial sense to be debt free. Check out these warning signs you are living beyond your means and start making some financial changes in your life right now.
1. You can’t pay bills on time
If you forget to pay your bills, it’s one thing. But, if you don’t have enough money to pay bills on time, you are overextended. Examining your spending habits and adjusting them can solve this problem. Perhaps, you can’t afford regular massages or weekly salon visits. So think it over.
2. Lack of a financial cushion
If you don’t have any savings account, it is one of the warning signs that you are living beyond your means. Money in the bank will support you after a job loss, a sickness and another emergency. When you live beyond your means, you spend all your money and you don’t think about saving them. Try to break this habit and you will free up money for a financial cushion. Eat out less, shop less and vacation less.
3. You’re constantly borrowing money
Do your family members or friends dodge your text messages and phone calls? Probably it’s because they know that you’ll ask for money. If your current income can’t support your lifestyle and you are always borrowing money, you are living beyond your means.
4. Housing ratio is higher than 28%
When you live within your means, your housing ratio is less than 28% of your income. To compute your housing ratio, divide your monthly housing expense by monthly income. You are living beyond your means if the ratio is higher than 28%.
5. Bad credit
Don’t think that the late payments are the only cause of poor credit. Too much consumer debt also affects your credit score. Even if you pay the bills on time monthly, your credit score never increases. So think of paying off your debt. Don’t rely on your credit cards since it can cause high credit card debt.
6. You’ve exceeded your credit card limit
Have you ever maxed out a credit card? It’s a bad feeling, right? And when you have exceeded your credit card limit, it’s even a worse feeling, because now you are paying your bill, interest and over-limit fees. That’s a ton of money to put towards only one bill. Plus, it can lower your credit score.
7. You use your credit card to pay bills
Using your credit card to pay off your basic bills such as utilities or other credit cards’ bills is a red flag. And transferring balances from one card to another is also a warning sign of living beyond your means because you are not paying anything down.
8. You only pay the minimum payment
If you only pay the minimum payment every month, its’ one of the biggest sign you are living beyond your means. Paying the minimum won’t help you pay off your debt and you will be paying more in interest, and this can only add to the problem.
9. Denied new credit
If you do not have the cash, but you want a new laptop or flat screen television, you might apply for store credit. You think that you have enough income and you can afford the monthly payments. However, income is not the only factor that can determine whether you’re approved. The stores also take into consideration your existing debt. Denied new credit indicates living beyond your means.
10. Your credit balances are high
It’s okay to have more than two credit cards. However, if all of the balances on your credit cards are high, you are definitely living beyond your means. Moreover, if you have high balances it will prevent you from getting a new credit and it’s more difficult to pay off, thus you will end up paying tons in interest.
11. You try to keep up with your friends
Does your best friend shop and vacation often? Do you try to keep up with her lifestyle? If so, you are probably living beyond your means. There is nothing wrong with a little fun, of course, if you can afford this fun.
12. You buy everything you want, even if you can’t afford it
Many people are guilty of this, including me. Although I write a good budget, sometimes when I get my paycheck, I spend all money on the thing I really want. Then, I end up living paycheck to paycheck, thinking where to get money to buy the essential things, including food. That’s hard to do. If you really want to buy something, try to budget for it. Don’t just buy it. You should always remind yourself that if you can’t pay for it with cash, you shouldn’t purchase it.
13. You spend more than 25% of your income on eating out each month
Do you know how much money you spend on eating out each month? If you spend more than 25% of your paycheck on eating out monthly, you are definitely living beyond your means. You might have a super busy schedule, but it doesn’t mean that you can’t cook at home. There are lots of healthy snacks and meals which are quick and easy to make at home. Meal planning can save you a lot of money.
14. You are saving less than 10% of your income for retirement
If you have not been saving at least 10% of your paycheck for retirement each month since age 25, that’s a red flag. Saving for retirement is among the most important things everyone has to do. Even if you are in your 20s, you need to start saving. The earlier you start saving for retirement the less you’ll need to put aside monthly to achieve your retirement savings goals.
15. You don’t have a budget
Finally, if you don’t have a written budget, you have a high chance of overspending your money and living beyond your means. A written budget shows if you’re spending more or less than you can afford. Start a budget now and you will see how much money you are actually spending and how much money you can save each month. This will help you live within your means without debts. If you have credit cards, make sure you keep track of the money spent with them too.