published 2022-05-26 13:00:00 2,5,8 Signs You're Living Beyond Your Means, Even If You Don't Think So /content/thumbnails/p-9-signs-you-re-living-beyond-your-means-1-small.webp signs-you-re-living-beyond-your-means You may think that you would live above your means only if you spend more money than you earn. But even if you can pay all your bills on time and have some spending money left for something indulgent - you may still live beyond your means.

Signs You're Living Beyond Your Means, Even If You Don't Think So

You may think that you would live above your means only if you spend more money than you earn. But even if you can pay all your bills on time and have some spending money left for something indulgent - you may still live beyond your means. Perhaps a better way to define "living beyond your means" would be as spending more money than you can afford. If you can't afford to include your long-, short-, and intermediate-term goals into your weekly or monthly budget - you may not be "making it" financially. Here are some signs you're living beyond your means.

Signs You're Living Beyond Your Means, Even If You Don't Think So

You're Not Paying Off Your Credit Cards

Some people rely on credit cards to keep them afloat. Others, thanks to credit cards, fall into the spending trap. Doesn't matter which category you fall in - credit cards make it far too easy to spend more than you have. The high-interest debt has negative repercussions for anyone and is an obstacle to obtaining financial security.

If you carry a credit card balance from month to month, you are likely using the credit card to "afford" things you really can't, which is a sign you may be living beyond your means. Remember, if you constantly have an outstanding balance, you are giving away a part of your paycheck to pay interest, and with each new purchase, even a small one, the debt continues to creep up.

Credit cards are okay for earning rewards and building a strong credit history. When things are extra tight, credit cards may be a temporary solution for emergency expenses that you should be able to pay off quickly.

Explore ways to tame your spending habits and try to get rid of all credit cards and other high-interest debt. For example, you may want to cut back on nonessential spending and direct the money to pay off your balances.

You Don't Have an Emergency Fund

An emergency fund is your first line of defense against the unexpected. If unplanned expenses like a car repair, medical emergency, or job loss would severely alter your future - it is a sign that you may be living beyond your means.

It is not a good idea to gamble on the fact that everything has been going well and will continue to be that way. Life is unpredictable. If missing even just one paycheck would result in missed payments, late fees, or credit card debt - it's time to start building up your emergency fund. An emergency fund will help you prepare for unexpected events and avoid a financial crisis.

A Large Part of Your Income Goes to Housing Expenses

A common rule of thumb is that your housing expenses - your mortgage, property taxes, and insurance, or your rent and utility costs - should be no more than 30% of our monthly pre-tax income. The remaining two-thirds of your income is for covering your living expenses and strengthening your financial situation by saving and investing. Spending more than a third of your income on housing may take away from your financial goals.

Like any other personal finance rule of thumb, the 30% rule won't work for everyone. This one is especially tough. If you have an expensive mortgage or live in a place where the cost of housing is high - staying below 30% can be difficult.

But if your situation allows, you may want to consider downsizing, taking on a roommate, or finding other ways to cut down this major expense.

You are Not on Track to Retire

Retirement can seem far away right until it's imminent. If you don't have a clear plan of how much you will need in retirement and how much you need to contribute regularly to achieve the goal - you may not be living within your means. You may feel that now is not the time to worry about retirement, especially if you are young and money is tight, but the earlier you start saving, the less money you will need to put away.

Thanks to compound interest, when you start saving may outweigh how much you save. Compound interest is the interest you earn on interest. The more time your interest has to earn on itself - the less money you need to contribute.

Starting your retirement fund as early as you can and contributing just a small amount of each paycheck into a 401(k) or IRA can help you build the retirement portfolio you want.

Your Savings and Investments Aren't Growing

Besides contributing to your 401(k) / IRA retirement savings and emergency fund, you may want to contribute to your short and medium-term financial goals. These goals may include a down payment on a home or a car, money for your education or college savings for your children, or vacation savings. Saving money for your short and medium-term goals may help reduce the debt you may need to take on or avoid debt completely.

Financial experts recommend saving 20% or more of your income. If that seems unachievable, you will want to strive to save at least 5% of your earnings. If you don't have any money at the end of the month to finance your goals - it is another sign you may be living beyond your means.

You may want to trim your expenses and restructure your budget to include a minimum of 5% for savings.

You're Taking Out of Your 401k/IRA

If you need to take loans from your retirement savings to pay off other bills you may not be living within your means. In some situations these loans may be beneficial, for example, to pay off high-interest debt. But in most cases, it would be better to leave your retirement savings fully invested and find another source of cash. Borrowing against your savings is still a form of debt.

You are Leasing a High-End Lifestyle

Leasing lets you rent a high-end lifestyle, but many people end up with leases they can't afford. Even if you can make regular payments for your vacation payment plan or cover your regular payments for a leased vehicle that you can't buy or finance outright, but you can't put money into savings for all your financial goals - you may be living beyond your means.

You may want to consider saving up enough money to buy a car outright or making a solid down payment to reduce your monthly payments and the interest.

How to Stop Living Beyond Your Means

If these signs of financial troubles apply to your situation - don't despair and take it as a call to action. Create a budget that will help you to cut back on nonessential spending, focus on paying down your debts, and consider finding more income. Spending less than you make is an essential first step in achieving financial security and setting yourself on the path to financial independence. The articles below will help you find ways to stop living beyond your means.

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