These days, it has never been easier to live beyond your means.
With tools such as Apple Pay, Amazon’s 1-Click buying, and a heavy consumer and debt-based society, spending money has never been more convenient.
Unfortunately, some people are paying for that convenience with a heavy price.
In fact, more and more Americans find themselves
- Unable to cover a $1,000 emergency expense.
- Living paycheck to paycheck just to make ends meet.
- In thousands of dollars worth of credit card debt.
If you are worried about your finances, here are five warning signs that you are living beyond your means.
5 Signs You Are Currently Living Beyond Your Means
1. You Have No Monthly Budget
If you don’t know how to properly manage your money, you could end up spending more than you are actually bringing in.
Not having financial goals, a plan for savings or retirement, knowing how much money is coming or going out of your home can be detrimental to your future.
Depending on your spending habits, you could end up with no savings, no retirement plan, and could have no security if an emergency were to happen. Not only that, you can end up in huge amounts of debt.
A simple budget helps you determine how much money needs to go towards household expenses, how much should go into savings, and how much money you are allowed to spend. If you don’t have a budget, you are likely living beyond your means.
2. You Have No Emergency Fund and Don’t Save Monthly
What would happen if your car breaks down, your pet needs an expensive surgery, or you or a loved one have to stay in the hospital for an extended stay?
Would you have the money to pay for these emergencies in cash or would you have to pull out the credit card in order to fund the expense?
Take a look at your savings account. You may be living beyond your means if
- You have no money saved up at all.
- Your savings cannot cover a basic $1,000 emergency.
- You can’t put at least 5% to 10% of income aside after every paycheck.
Ideally, you would have three to six months worth of expenses saved up so that you could pay for financial emergencies in cash. But if you are unable to save at least five percent of your income every paycheck, you are living beyond your means.
3. Your Mortgage Payment is More Than 30% of Your Income
Generally speaking, you should not spend more than 30% of your income on your mortgage if you want to pay your bills and live comfortably.
Calculate how much money you are spending on your mortgage, insurance, HOA fees, and taxes. If you are over the 30% threshold, you are living beyond your means and living what some call “house poor.”
This will make it harder to save money, pay off debt, and pay your other bills – especially if those bills ever increase.
It’s important to note that when you buy a home, it’s likely that the bank will loan you more money than you can actually afford. You should still try to calculate the cost and stay below 30%.
Just because the bank CAN give you that money, doesn’t mean you SHOULD take it!
If you are renting, you should still try to hover around the 30% rule as well. If you are spending over 30% of your income on rent, see if you can get a roommate to cut down the expense.
4. You Don’t Pay Off Your Credit Card Each Month
Credit cards can be a great way to earn extra cash through incentives and are a great tool when used correctly. However, you usually earn these rewards when you pay off the card in full after every month.
If you are only paying the minimum monthly payment and carrying a balance each month, you are spending more than you can afford.
When you pay only the minimum payment, you are costing yourself more in the long run. Not only are you still carrying a large amount of debt, which is hurting your credit score, but you are being charged interest as well.
You could end up paying more in interest than you put on the credit card!
5. Your Spending is Out of Control Trying to Keep Up with the Joneses
You may be living beyond your means in an attempt to impress other people or feel better about yourself.
Between television, social media, and even the people around us, we can often feel tempted to live in a place we can’t afford, buy things we don’t need, and drive cars way outside of our budget – all in an effort to “Keep Up with the Joneses.”
If you are trying to get your finances back on track, it may be time to cut ties with people who make you feel bad or that you need to keep up a certain lifestyle just to be around them. You may also need to turn off social media for a while if you find that you compare yourself to others.
Don’t be afraid to miss out on activities or deals or flash sales. More often than not, those specials come around again and you can partake when you financially able to do so.
You can end up ahead and financially healthy if you stop using money to make yourself feel good or impress others.
5 Ways to Live Within Your Means
If you can relate to any of the above warning signs, then you need to turn your finances around and start living within your means. Here are five ways to gain control of your finances.
1. Get Real with Your Money Habits
Gaining control of your finances means building better money habits so that you stop living beyond your means.
Here are some ways you can get real with your money habits so that you can live financially healthy:
- Stop trying to keep up with the Joneses and embrace a more simple lifestyle.
- Start living frugally so that you can save money and put more towards your debt.
- Bring in extra income to put towards savings and debt by picking up a side hustle.
- Cut down your food budget with meal prep ideas.
Building better money habits takes a lot of time and patience but is crucial to living within your means and setting yourself and your future up for success.
2. Start a Simple Monthly Budget
Learning how to budget is key to living within your means. You need to be keeping track of your income, your expenses, and making a plan to put money towards debt, savings, and retirement.
Make sure you write down any income you bring in a month from your job, side hustles, gifts, etc. Be honest with yourself about how much you are spending and write down all of your expenses, big and small.
You may find areas that you can cut – something you wouldn’t be able to do if you were ignoring your budget and living beyond your means.
If you need extra help creating a simple budget, be sure to check out our favorite budget templates here.
You will find at least ten budget templates (including one from us) that you can choose from. These templates will stop you from living paycheck to paycheck and stop stressing about money in no time!
3. Save an Emergency Fund ASAP
Saving at least $1,000 for an emergency fund is Dave Ramsey Baby Step #1 because it’s THAT important!
If you are already in debt, then you don’t want to go into even more debt if an emergency were to happen. Take any money you have been saving from cutting expenses or extra money you have earned from side hustles and put that towards an emergency fund ASAP.
You should have at least $1,000 saved up as soon as possible. Ideally, you’ll end up with at least three to six months worth of expenses in your savings account.
4. Start Crushing Your Debt with the Snowball Method
Mathematically speaking, it’s better to pay off your larger debts before paying off smaller ones because of high interest rates.
This is known as the debt avalanche method. But if you are having a hard time paying large payments, start with the snowball method instead.
Here’s how the snowball method works:
- Every month you pay the minimum balance on all your cards.
- Put all extra money towards your smallest debt first.
- Once your smallest debt is paid off, put the money that you were putting towards that debt on your next smallest debt.
- Repeat until all debt is paid off.
This method is highly motivating since you will be crushing your debt by paying off small balances first. You will also have extra money to put towards your larger debt once it comes time to tackle it.
5. Automate Your Savings
Automating your savings can help you prioritize your savings and reduce the temptation to spend the money instead.
Have your employer or bank automatically take out at least 5% to 10% of every paycheck and deposit into your savings account. Not having to think about it will ensure that you build up your savings and save you so much time and effort.
Bonus: Living Beyond Your Means Quotes
Need some help getting motivated to start living with your means? Check out our favorite powerful quotes to encourage you to save money and stop living beyond your means.
“Rich people stay rich by living like they’re broke. Broke people stay broke by living like they’re rich.” – Unknown
“Too many people spend money they haven’t earned, to buy things they don’t want, to impress people they don’t like.” – Will Smith
“He who buys what he does not need steals from himself.” – Swedish Proverb
(You can find more powerful and motivating money quotes here.)
Final Thoughts on Living Beyond Your Means
Living beyond your means can be incredibly stressful, whether you’re barely making enough to get buy or earning a generous income.
In today’s society, anyone can fall victim to feeling like they need the latest and greatest item in order to impress others to feel good about themselves.
However, it’s never too late to turn your financial situation around. With these helpful tips, you can stop living beyond your means and get back on track.
In fact, you will probably impress others and feel better about yourself knowing that you are living a financially stable life!