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Signs that you are living beyond your means

Financial distress often doesn’t come immediately but rather is a build-up of poor financial decisions that lead to the problem.  One of the leading causes is living beyond your means.  There are several signs that could indicate you are living beyond your means and early recognition can often help you avoid a financial disaster.
 
What is the biggest sign of living beyond your means?
The biggest sign is that your credit card balances and number of credit cards with balances are rising each month and you are only able to make the minimum payments on your outstanding card balances.  And digging deeper into this situation, if the balances are rising for everyday expenses it is an even clearer indication that one is living beyond their means.
 
What about other bills, how can they be an indicator of living beyond your means?
This is a good area to consider.  The other bills like cable, electricity, water, cell phones, and other monthly expenses like these shouldn’t be more than 8 – 10% of your income.  Anything above that percentage then you are living beyond your means and you should cut back in areas such as the cable package or cell phone costs, etc.
 
Can your credit score be an indicator of living beyond your means?
Yes, this is another sign that you might be nearing financial trouble.  If you score is has fallen more than 100 points or it less than 600, you are likely nearing a personal financial crisis.  This is especially true if you have several maxed credit cards and have judgements or liens from not paying other debts as agreed.  A great score is over 800, a good score is over 675, less than 600 and most individuals will have difficulty in obtaining a loan.
 
I would assume that not saving enough for retirement is another sign?
Yes, one’s saving rate should be at least 5% and ideally if you can grow that to at least 10% you are in great shape.  Anything under 5% means you really need to tighten up so that you can save more for retirement.  And if you don’t have college savings or emergency savings funds, then you might be on the road to more financial issues.
 
How does housing costs factor into this situation?
This can be a major indication of living beyond your means. Ideally your mortgage payment that includes taxes and insurance shouldn’t be more than 25% of your income if you want to safely say you are living within your means.  Some will suggest that up to 30% is okay but that might only be if you know you are going to have significant income boosts in the near future. Being house poor often leads to being retirement poor too. And for renters, staying within the 25% range is also helpful to be sure you are living within your means.
 
So, if we determine we are living beyond our means, what should we do?
There are three strategies, one is to cut back on spending by cutting out anything that’s not necessary, avoid taking on additional debt and work to pay down the debt.  The second strategy is look for ways to increase your income, either a second job, free lancing if you have that talent or looking for a job that pays more than your current job.  Probably the best strategy is to do a little of both as it will likely require both to be truly successful.


Posted: 4/30/2015 with 0 comments

Categories: Budgeting, Money Matters



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