Living beyond our means has unfortunately become all too common in our consumer-driven and debt-heavy society. With the ease of impulse buying online and the reliance on credit cards, many of us end up spending more than we earn, putting ourselves in precarious financial situations and accumulating consumer debt.
This normalized behavior often leads us to overlook the financial dangers, neglect our long-term goals, and live a lifestyle that is unsustainable and too expensive for our own good. However, just because others may be living beyond their means, it doesn’t mean we have to jeopardize our own financial priorities.
To ensure that we are not living beyond our means, it’s important to watch out for warning signs.
1. You are Living Paycheck to Paycheck
One of the first signs is living paycheck to paycheck, which 78% of full-time workers reportedly experience, according to CNBC. While this may not necessarily indicate living beyond our means, it could be a result of being underpaid, living in an expensive area, or facing other financial circumstances.
However, oftentimes, it may be due to overspending or constantly upgrading our lifestyle, resulting in barely making ends meet every pay period. It’s crucial to take a step back, carefully examine our paycheck, and track our expenses to see where our money is going. This will help us identify areas where we can cut back and spend less.
By living within our means and budgeting wisely, we can gradually escape the cycle of living paycheck to paycheck. I’ve personally experienced this situation before, earning only $36,000 per year, but by curbing my overspending and implementing a budget, my financial situation could have been different.
If you feel you are not making enough money, it may also be worth considering asking for a raise or exploring ways to increase your income. It’s important to strive for financial stability and prioritize our long-term financial goals over short-term spending impulses.
2. You Have Little Saved or No Emergency Fund
It’s common knowledge that having an emergency fund is essential, but it’s surprising how many people neglect to build one. If you find yourself in any of the following situations, it may be a sign that you’re living beyond your means:
- Your emergency fund can’t cover at least 3 months of your expenses.
- You’re not consistently setting aside money from each paycheck for your emergency fund.
- You don’t have an emergency fund at all.
To address this, it’s crucial to carefully review your spending habits, identify any mistakes, and make necessary changes to your money management habits. While it may not be feasible for everyone to save a large percentage of their income, try setting aside 5-10% of each paycheck towards your emergency fund. After a year of consistent savings, you’ll be amazed at how much you can accumulate.
3. Carrying Monthly Balances on Credit Cards
Using credit cards for building credit and earning rewards can be beneficial, but it’s easy to fall into the trap of overspending and carrying monthly balances. This is a clear indication that you’re spending more than you can afford. Even if you’re making monthly payments, continuing to accumulate a balance and paying high interest rates can quickly derail your financial success.
To address this issue, consider making double or triple payments each month to catch up on your credit card balances. Avoid using your credit card until you have a debt management plan in place and have regained control over your spending. Before making any high-priced purchases, ask yourself if you have the cash to pay it off immediately. If not, it’s best to keep your credit card in your wallet.
4. Neglecting Retirement Savings
While not everyone may be able to save for retirement at certain stages of their lives, prioritizing retirement savings is crucial for long-term financial security. If you’re indulging in expensive vacations, constantly upgrading to the latest gadgets, or splurging on luxury items without saving for retirement, it’s a clear sign that you’re living beyond your means.
It’s important to strike a balance between enjoying the present and securing your financial future. Prioritize building an emergency fund and saving for retirement before indulging in discretionary spending. Consider creating a separate savings account for vacations and set aside a percentage of your paychecks for this purpose. Look for high-yield online savings accounts like CIT Bank that offer over 2% interest and are FDIC insured.
5. Constantly Worrying About Paying Bills
While it’s normal to have concerns about bills at times, constantly stressing and losing sleep over them may indicate that you’re living beyond your means. Everyone’s situation is unique, and some may worry about bills even if they’re living below their means. However, if you’re struggling to pay recurring monthly bills or get out of debt despite consistently purchasing expensive items, it’s a clear indication of overspending.
6. Overspending on Mortgage or Rent
Stretching your budget too thin by spending too much on your mortgage or rent can quickly lead to financial stress. Just because a bank approves a loan or suggests that you can afford a certain amount doesn’t mean it’s wise to take on that much debt. It’s crucial to do your own math and be proactive in managing your housing expenses.
As a general rule, try to limit your monthly mortgage payment to 30-35% of your gross income for a 30-year mortgage. Similarly, aim to keep your rent within 30% of your monthly income, and even lower if possible. Consider living with a roommate or significant other to reduce housing costs. You can use online calculators like HomeLight to determine how much house you can afford based on your financial situation.
7. You’re Trying to Keep Up With The Joneses
You may be familiar with the concept of “keeping up with the Joneses.”
If not, it’s the idea of trying to match or surpass the possessions, lifestyle, and experiences of your friends, family, colleagues, or neighbors. This urge may stem from the fear of missing out, especially with the prevalence of social media in our lives.
In today’s age of social media, we have easy access to glimpses of everyone’s homes, cars, travels, and material possessions. Many people feel the need to buy things solely for the purpose of posting about them and seeking validation from others. This can lead to overspending, making poor financial decisions, and unnecessary debt.
When you find yourself comparing your finances to others, it’s important to remember:
- Focus on your own financial goals and priorities, rather than being influenced by what others have.
- Recognize that many people who appear to have it all may also be facing financial struggles or significant debt.
- Ask yourself if upgrading your possessions or worrying about what others have will truly make you happier in the long run.
What To Do If Your Are Living Beyond Your Means?
If you find yourself living beyond your means, don’t panic or get frustrated. It’s a situation many people have experienced, and the first step is acknowledging it and wanting to improve your personal finances.
Not everyone is willing to admit they have a financial problem or take the initiative to change it. However, here are some simple steps you can take if you’re living beyond your means:
- Dedicate time and prioritize living within your means.
- Create a plan to reduce your expenses, such as canceling memberships, negotiating price reductions on bills, using coupons, or being more frugal in general.
- Consider downsizing and minimizing your possessions to save money, such as downsizing your living space, selling items you don’t need, and buying fewer material items.
- Start budgeting more thoroughly and stick to a simple budget, such as using spreadsheets to track your expenses.
- Pay yourself first by automating savings from your paycheck.
These tips require action and may require changes in mentality and patience. It’s important to be committed to making the necessary changes and understand that results may not happen overnight.
Living beyond your means can affect anyone, regardless of their income level or socioeconomic status. Stories of millionaires going bankrupt or people with modest incomes retiring comfortably are not uncommon. It’s your mindset and habits that can make a difference.