UPDATED APR 15, 2022
Sure, money’s cool. But not having enough money to pay your bills? Not so much. And yet it’s a common thing in our world today. In fact, according to a snippet from an article posted on Clever Girl Finance only 40% of Americans could afford an emergency bill of $1,000. Which begs the question: How do you know if you’re living beyond your means?
Living beyond your means means spending more money than you make, which can immediately put finances at risk by increasing debt, not having enough money for bills, and not being able to save any money. Basically, if you’re living beyond your means, you’re spending more than you can afford. Everyone is susceptible to falling victim to this, regardless of income or individual circumstances, and it can happen slowly. It’s easy to get caught up in indulging in finer things in life until, suddenly, you’re in way over your head.
Thankfully, it’s not hard to figure out if you’re living beyond your means, and if you are, there are tips and tricks that can help you get your spending in order and your life back on track. Keep on reading to learn the 5 big signs you’re living beyond your means, and how you can fix it and get your life back on track.
5 signs you’re living beyond your means:
1. You’re living paycheck to paycheck and always worried about paying bills
When you’re living paycheck to paycheck, you’re unable to pay your living expenses from a loss of income or inability to budget. Basically, you have to wait until payday before you can pay your bills. Much like someone living beyond their means, someone can be in the position of living paycheck to paycheck regardless of skills, degrees, or income levels. Some reasons for living paycheck to paycheck include: housing costs that are too high, bad budgeting skills and being unable to save money, using a credit card in place of cash that isn’t there, paying bills late, and an overall lifestyle that’s just too expensive.
2. You have little to no money saved
When the pandemic hit in 2020, the entire world saw just how quickly (and devastatingly) jobs and money can go away. It reiterated the fact that it’s always important to have some sort of an emergency fund so you’re never in a situation where you’re unable to pay your bills.
An emergency fund is a financial safety net for future mishaps or unexpected expenses. Generally speaking, experts suggest having at least 3 months worth of living expenses in a bank account or investment account that could be liquidated (without consequences!) in an emergency. A good rule of thumb is having enough money saved that will cover your living expenses for 3-6 months, or longer if you want to be extra safe. If you’re currently in a position where, should something unexpected occur–like a job loss, medical emergency, car repairs, etc.–you wouldn’t be able to pay your bills, it may be a sign you’re living beyond your means. Additionally, not putting any money aside, saving, or contributing to an account means that you either don’t have or aren’t building your emergency fund.
Related: 8 Money Goals To Strive for That Are Totally Attainable
3. Your credit card bills are rising, and all your other bills are spiraling out of control
Every time you pay a credit card bill you have the option to make a minimum payment. That one minimum payment is akin to the kiss of death: the first time you make it because you can’t afford the total amount is the moment you’ll seal your fate, and forever be in a never-ending game of catch-up. The interest is only going to pile on, the amount is going to get bigger, and soon all of your bills will be spiraling out of control. If you continuously get credit card bills that you can’t pay off and have to keep making minimum payments while more and more bills are piling in, there’s a good chance you’re living beyond your means.
4. You spend money on fun before living expenses
This is typically a sign of poor budgeting skills. It’s nice to be able to treat yourself when you want, but it’s also nice being able to sleep at night without worrying about whether or not you’re going to get evicted from your home. An example of this would be someone who will spend their money on a weekend out but doesn’t have enough money to pay for a car repair or medical bill.
5. You make good money but have no idea where it all goes
Another sign of poor budgeting skills, this means that you’re not paying attention to your cost of living or what you’re spending your money on. If you’re making good money and have nothing to show for it, you’ll forever be stuck trying to catch up and get ahead.
How to fix it:
The good news is that this is something you have the power to take control of. A lot of it comes down to practicing smarter spending and getting better at budgeting and saving. Here are some tips to help you get back on track:
Add up the cost of your living expenses and income
The first thing you should do is add up the cost of all your living expenses and compare it with your income. From there, take the time to figure out where you can cut back. For example, you may realize you’re wasting over $50 a month on cable and you’re paying for streaming services such as Netflix or Hulu–do you really need to be spending all that money on TV, or can you get away with less? Take a look at your memberships; maybe you don’t need to pay for a gym membership and can start working out at home. The internet and YouTube have given us unlimited access to everything from at-home workouts to cooking tutorials and more for free.
Take a look at your housing costs as well. A good rule of thumb is that you should never spend more than 28% of your gross income before taxes on a mortgage or rent. If possible, downsize your living space, and sell furniture or any other home items you don’t need.
Related: Different Views on Finances: Is It a Deal Breaker?
Be honest with yourself
You also need to be honest with yourself about your spending habits and what you can afford. If you can’t afford to go out on the weekends, don’t. You may have FOMO for a moment, but trust, it will wear off. Be upfront with your friends about your budget, too, and try staying in more and making food or drinks at home. It’s amazing how much you save when you have a night-in rather than a night-out. Stop spending your money in unnecessary places; sure, it’s nice to have that fresh cup of coffee from Starbucks on the way into work, but is it a necessity? If the answer is no, don’t buy it. Having a little restraint will also make that little splurge so much better when you do finally get it.
If you can’t afford it now, don’t buy it
Another good rule of thumb is that if you can’t afford it now, don’t buy it. What does that mean? Well, it’s easy to be sold something new and shiny when the salesperson breaks it down into multiple payment installments. However, if you’re at the point where you can’t afford it outright, you shouldn’t be buying it (unless you absolutely have to). Start making bigger credit card payments to get yourself out of that never-ending money pit, and get focused on paying off your existing debt before adding more.
Start building an emergency fund
Lastly, start setting aside money in a separate account that can be used as an emergency fund. Even if it’s as little as 5% of your income, start saving now. It may sound like nothing, but over time, that little bit will add up. Keep this money in a totally separate account that can only be touched if it’s for an emergency. It’ll feel good to have some money saved, and you’ll also get better at budgeting by doing so, too. It’s a total win-win. When it comes to learning how to live within your means, think about the big picture. The steps you take now, the smart money moves you make, and the money you set aside will all come in handy in the future. You have the power to be financially independent and live the life you want, now you just have to go out there and do it!
