Living beyond your means or spending more money than you make is a common mistake many people regularly encounter. If you don't know exactly how much you are earning and what expenses you have, you can easily fall into the trap of overspending, that's usually fueled by debt through credit cards or loans. The human mind has an amazing ability to ignore warning signs: that's why many people easily develop bad habits and struggle with overspending. So without further ado, let's look at the most common alarming signs indicating that you live above your means.
Your Savings Account Isn't Growing
When your savings or investment account starts to stagnate, it's time to pay a visit to the budgeting doctor. Making regular deposits into your savings or investment account is essential. Not only does it bring peace of mind knowing that you have an emergency fund, but it also helps you opt-in a pinch when you need to cover an unexpected sudden cost. If you find it hard to save consistently, it's time to review your budget and identify which expenses can be reduced or eliminated so that you can redirect them to become financially secure.
You Make Only Minimum Payments on Credit Cards
Living beyond your financial means you can only afford to make minimum payments on your credit cards. Minimum payments mean maximum interest rates for credit card companies. By racking up credit card debt at an uncontrollable rate, you are slowly building up a debt bomb that makes catching up later impossible. If you find yourself constantly buying things that take months to pay off, it's a good idea to slow down and reel in your budget.
Your Debt Balance Remains the Same
As with your savings account, when your debt balance stays unchanged for too long, it's a sure sign that you are living above your means. Unpaid debts are likely costing you hundreds or even thousands in accumulated interest so delaying your payment is never a good idea. Try to put a cap on how much debt you are accumulating, rather than avoiding your monthly payments. Put it together and kick-start your debt repayment plan.
You Have Stopped your Retirement Contribution
It's easy to start neglecting your retirement funds whenever money is tight, but planning for retirement should be at the top of your priority list unless you plan on working the rest of your life. Retirement planning and investing need to be done early and consistently in order to reap the benefits of compound interest and achieve your long-term financial goals.
You Don't Know Where Your Money is Going
Does your savings account seem to be losing money, and you have no idea where it goes? This is a clear sign that your money is most likely not being allocated correctly. The best way to solve this problem is to use a budgeting app to help you keep track of your expenses. Consequently, you can pinpoint problematic areas and reallocate your funds more appropriately to meet your goals.
You are Buying Things you can't Afford to pay for Upfront
Buying things you cannot afford is bad news when it comes to your financial health. Companies come up with enticing promotions to lure unsuspecting customers and lead them to pay two or three times the original cost once interest is factored in. If you find yourself splurging on expensive wishlist items, just remember there is nothing that you can buy that will make you as happy as a well-earned sense of financial security.
Your Credit Score is Below 600
Your credit report is a running record of your payment history and outstanding loan balances. If your credit score is below 600, it's below the level that will make it easy for you to obtain additional credit at a reasonable interest rate. Without the ability to borrow at an affordable rate, it may hinder you from getting a loan for a home or business opportunity. If you are not sure what your credit score is, you can get a free copy of your report from all three credit bureaus (Equifax, Experian, and TransUnion) once a year at annualcreditreport.com.
You are Saving less than 5% of Your Gross Income
If you are saving less than 5% of gross income, you are treading in deep water. A lack of savings leaves you in constant danger that an emergency, a job loss, or a health problem will disrupt your life, hurt your family, or both. Unfortunately, the savings rates of Americans have been steadily falling since 1975, when they saved as much as 17 percent of their income versus 8 percent in 2021. The rule that most financial advisers suggest is to save a minimum of 10% of your gross income.