Are you having trouble keeping up with all those overdue bills? Perhaps you’re using one credit card to pay off another. Whatever the case may be, living beyond your means is not only stressful, it’s exhausting.
Because you may be living a lifestyle that exceeds your budget and not even realize it, take a quick look at a few common signs to see if you’re living beyond your means.
1. Zero Savings
One of the most obvious signs that you may be living beyond their means is the absence of a financial cushion or nest egg. A nest egg is basically a rainy day fund; a fund set aside in case of financial emergency. Setting aside an allocated amount of money each month for retirement and/or emergencies will help you be better prepared for the future. (It’s also just plain good money management.)
Unfortunately, a growing number of people aren’t setting money aside for a rainy day or emergency event.
In fact, according to the Economic Policy Institute, nearly half of all elderly Americans are “economically vulnerable.”
In simpler terms, they’re in debt.
This means there are currently around 20 million senior citizens who are facing financial struggles. If you fall into this category, it is extremely important to take note.
A good money-saving habit would be to set aside 20 percent of your net income for savings.
2. Living in a Home You Can’t Afford
Paying too much for a home you can’t afford is another clear indication you’re living beyond your means. Unfortunately, it’s also a very common way in which people tend to gauge their earnings.
Instead of rushing to buy a home because you think it may be a good deal, ask yourself one question: What kind of home can you realistically afford? If more people would just ask themselves this one simple question, they’d be able to save themselves a great deal of trouble (and debt).
Remember, if your mortgage is more than two weeks’ worth of pay, you’re likely living beyond your means.
3. Constant Late Fees
Not having enough cash in the bank to pay your bills on time is another sign that you may be living beyond your means. Take a look back at a few of your more recent bank statements — paying a late fee in the past six months is a clear indicator that you need to reexamine and readjust your spending habits.
Instead of wasting money you can’t afford on fees you shouldn’t have to pay, make it a priority to pay extra special attention to your bank account.
Signing up for online bill pay can make it easier to check your account on the go — plus it’s an easier way to keep track of how much you’re spending.
4. Exceeding Your Credit Limit
Another warning sign is if your credit cards and other lines of credit have been maxed out. With your cards being maxed, the interest and over-the-limit fees can keep you stuck in that all-too-common situation where you’re making payments but not decreasing the amount you owe.
Because you’re focusing your payments on the fees and interest rather than the original amount owe, you begin falling further into debt.
As with paying late fees, it is important to monitor your spending to where you can continually save a given amount (usually around 15-20 percent) of your monthly net income.
5. Bad Credit
Are you using one credit card to pay off another card’s balance? If so, you want to rethink your financial strategy.
A good way to tackle bad credit is to target your various debts. Check and see which credit card has the highest interest rate, as that’s the one you’ll want to pay off first.
6. Credit Being Denied
Another thing to keep in mind is your income to debt ratio. When you have a high income to debt ratio, it drives down your credit score—and we all know how hard it is to improve your credit score once it’s dropped.
When you are denied for a particular credit purchase, it could be an indicator that you have too much debt.
As with everything else, practicing good money-spending habits will not only help you save, it’ll help improve your credit score as well.