Intro
It’s pretty common for people to live beyond their means these days, and that can really mess up their finances. With all the online shopping and easy access to credit cards, it’s so easy to spend more than we actually make. And because everyone’s doing it, we kind of overlook the fact that it’s putting us in risky situations and keeping us in debt. But just because it seems normal doesn’t mean it’s smart.
Spending more money than you actually have puts your finances at risk immediately. It can cause you to increase your debt, struggle to pay your bills, and leave you with nothing to save or invest. So watch out for these six warning signs that indicate you’re living a life you may not be able to realistically afford.
#1 No Emergency Fund
Emergencies can be anything from a medical crisis to a car accident or job loss, and they are unexpected expenses that are bound to happen—it’s just a matter of what and when. When that time comes, you’ll need cash to handle it. Without an emergency fund, you’ll be in a tough spot, but people living beyond their means often overlook this.
If you’ve been learning about money, you already know that an emergency fund is important. But how do you assess if living beyond your means is affecting your emergency fund?
Here are a few indicators:
- Your emergency fund can’t cover at least 3 months of expenses.
- You’re not consistently setting aside money from each paycheck for emergencies.
- You don’t have an emergency fund at all.
Take a hard look at your spending habits, figure out where you’re slipping up, and start fixing these money mistakes. Even if you can’t save a huge chunk of your income right away, aim to put away 5–10% of each paycheck. Stick with it for a year, and you’ll be amazed at how much you’ve saved. As your income grows, avoid lifestyle inflation to increase your savings percentage.
#2 High Credit Card/Loan Debts
Credit cards can be handy for building credit or earning rewards, but too often, we rely on them to buy things we can’t really afford, and that starts to affect our financial well-being. Before you realize it, you’re carrying a balance month after month—a clear sign that you’re spending more than you can handle.
Even if you’re keeping up with monthly payments, chances are you’re still piling up more debt and facing those dreaded high-interest rates.
To get back on track, try making double or triple payments each month. Stash away that credit card until you’ve got a solid debt management plan in place and your spending under control. Next time you’re tempted to splurge on something pricey, ask yourself: Can I pay for this in cash right now? If not, leave that credit card tucked away and save the money instead.
#3 No Budget or Idea of How Much You Earn and Spend
A budget is the foundation of your personal finances. Without it, you’re setting yourself up for failure. People who don’t bother with a budget usually have no idea where their money’s disappearing to each month. They’re crossing their fingers and hoping for the best instead of actually planning for it.
Having a budget or spending plan gives you a clear picture of where your money is heading each month. It helps you see how much you earn, how much you spend, where you can trim down, where you need to beef up, and lets you track your goals with a good idea of when you’ll reach them.
Avoiding a budget typically leads to reckless money behavior. If you’re just starting out with your finances or need to make changes, creating a budget is a crucial first step.
#4 Not Saving for Your Future
We get it—not everyone can stash away cash for retirement immediately, especially when you’re just trying to make ends meet. For those people, this point isn’t for you.
However, if you’re jet-setting off to expensive vacations, constantly upgrading your gadgets, or cruising around in a fancy car without a dime saved for your future self, then you are living beyond your means.
Treating yourself and enjoying your money isn’t bad, but you must take care of the essentials—like having an emergency fund, investing, and saving for retirement. Once you’ve got the basics covered, splurge responsibly. Prioritize your spending wisely by setting up a savings account and consistently putting money away.
#5 Low Credit Score
Your credit score is your financial report card—it shows how responsible you are with money. Lenders check it to decide if they’ll give you credit and what interest rate to offer.
Scores range from 300 to 850. Anything over 670 is typically considered good, and 800 or more is excellent. If your score is below 580, that’s a clear sign your finances are stretched too thin.
Having a low score might make it tough to get credit or result in high-interest rates. To improve your credit score, pay your bills on time, avoid opening unnecessary lines of credit, and strive to pay off debt gradually.
#6 Housing Costs Too High
Owning a house has been part of the American dream, but it has become incredibly expensive. Don’t just take the bank’s word for what you can afford—crunch the numbers yourself. Aim to spend no more than 25–30% of your monthly income on total housing costs.
If all you can manage is to pay for housing and related expenses, you’re likely “house poor.” This leaves little room for savings, retirement, or investments—another sign you’re living beyond your means.
Owning a house shouldn’t damage other aspects of your financial life. If needed, consider downsizing, renting out rooms, or exploring ways to reduce housing costs.
What to Do?
If you find yourself living beyond your means, don’t panic. Acknowledging the problem is the first step. Here’s how to regain control of your finances:
- Create a Budget: Review your last three months of transactions to track income and expenses.
- Cut Costs: Cancel unnecessary subscriptions and negotiate lower bills.
- Downsize: Consider renting out rooms or selling items you don’t need.
- Set Goals: Track your income and expenses to focus on achieving financial milestones.
- Increase Financial Literacy: Learn about budgeting, saving, and investing to improve your money management skills.
These actionable steps require patience and a mindset shift but can help you regain control of your finances and live within your means.
Thanks for reading! If you found this helpful, share it with a friend, and stay tuned for more financial tips!
