Living Beyond Your Means
Everyone wants to be “living their best life,” but at what cost? Of course, you would love to be able to drive a Lamborghini, and travel to Fiji five times a year, but that is probably not realistic for most of us. There are many ways to live a great life while still living within your means. First, it is important to know the signs you might be living beyond your means. Here are some of the key signals that you might be overspending.
One of the first indications that you are living beyond your means is that you have a credit score below 580. According to the iHelp Blog, “Having a poor credit score is not only a warning sign that you’re living above your means, it can also cause you major problems.
You’ll experience more fees, high-interest rates, and difficulty getting approved for loans, apartments, or even cell phone contracts.” Not to mention that most credit cards carry an interest rate of around 20 to 25 percent. So, what does this mean for you? If you are not paying off your credit card balances each month, you’ll end up spending $120 to $125 on an item that would have originally cost you $100.
Another big hint: you do not have an emergency fund. It is recommended that individuals save between 15 to 20 percent of their income. If you are not able to save at least five percent, then you are definitely living beyond what your income allows for! For some people, creating an emergency fund is time-consuming, but it doesn’t have to be.
Some banks offer an automatic savings feature that ensures you save a portion of each paycheck. This is a great tool to assist you with getting your emergency fund off the ground. A proper emergency fund should be able to cover three to six months worth of living expenses.
Another key signal: you are living paycheck to paycheck. Seventy-eight percent of full-time workers said they live paycheck to paycheck, up from 75 percent last year, according to a recent report from CareerBuilder. This could mean you are letting your bills spiral out of control, and you are blowing your available cash every month. This is when you must take a step back and reevaluate your spending habits. The sooner you are able to start correcting this issue, the easier it is to manage your money.
One final indicator: you are spending over 28 percent of your income on housing. According to this investopedia article, “conservative lenders have used the 28% threshold because their experience has told them that this is the rate at which the average person can get by, make their mortgage payments and still enjoy a reasonable standard of living.
Certainly, some homeowners can get by spending a higher percentage on their homes, particularly if they cut back elsewhere, but it’s a dangerous line to walk.” If you are spending more than this percentage on your rent or mortgage, it might be time to look for a cheaper place to live!
A budget can be difficult to stick to, but incorporating some of these tips can help you develop healthier spending habits.