According to CNBC, the average American is now up to $38,000 in personal debt not including a home or mortgage. It makes sense that we would allow ourselves to get into so much debt when we have so little understanding of money as a country. As of February 13th, 2019 we are now 22 trillion dollar in debt. Living beyond our means as a country has us unprepared and unknowledgeable in our own homes.
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This is leading to a large number of us, living above our means. The reasoning is different for everyone, some have no choice and others do.
What really matters is that we RECOGNIZE that we are living beyond our means, and put in a plan of action to correct it.
We don’t want debt forever, ...or at least.. I don’t. I have plans to be debt free by 30 and I’m going to do everything I can to make that happen.
Not sure if you are living beyond your means?
Here’s a few signs you could be living beyond your means. If any of these apply to you, it’s worth a look at the “how to correct it” section below.
1.) If you catch yourself paying overdraft fees, regularly.
Or even just more often than you think you should. An occasional slip here or there may not be so big of a deal, but a few times a year? That’s worth investigating.
2.) Spending money before it gets here.
This is apart of the age old advice, “don’t count your chickens before they hatch.” Meaning, don’t spend money that you are not physically in the possession of. You never know what could happen, and if you spend that money before it gets here only to have it get delayed, or amount reduced… you’re in for some financial struggles.
3.) Putting vacations on credit cards
While I have NEVER been on a vacation, I know so many people who go to Hawaii on the regular. Putting everything on a credit card and paying it off throughout the year like it’s normal.
The biggest reason this isn’t okay- credit cards have such high interest rates. Let’s say that your vacation cost $6,000 for you and your family. You pay it off on a credit card with a 20% interest rate. If you break down the payments to $600 a month, you have it paid off in 12 months BUT pay $614 in interest on top of what you spend on the vacation.
The interest grows the longer it sits there, so if you slow down on your debt repayment towards this credit card- you pay even more.
4.) Getting a car loan because you can afford the minimum payments.
My husband bought our truck with this logic, we had just finished paying off our car and we needed a secondary vehicle. The logic of “we can afford the payments” made sense then, but that was several years ago and we are in completely different boats now.
The worst part of doing this is if you don’t have a savings in place for when something fails, it snowballs into a bigger issue. If you’re going to have a vehicle, you need to have a sinking fund.
5.) You don’t have a budget, you just wing it.
By not tracking your money and telling it where to go, you are not in charge of the situation. It’s important to have a good budget in place. Without a budget and set “game plan” in place, you could be over spending in any number of categories and not even realize it! Think of the money you could be saving and instead, it’s being wasted away.
6.) More than 25% of your income goes to your house.
This would make you “house poor,” meaning a large portion of your income goes towards the home, leaving you with little to nothing. You could be in a lot of trouble if a job loss or situation arises which reduces your income.
7.) You run out of money before your next paycheck.
Living paycheck to paycheck is the expression, but do you find that your paycheck doesn’t even last long enough to see the new one? Unfortunately, this is a common occurrence these days. It shouldn’t have to be, not for you anyways.
8.) Your debt has grown or remained the same this past year.
While it’s better to see your debt NOT grow in a year, it’s still not shrinking. And that is the issue here. Struggling to make more than the minimum payments, or being over taken by interest rates making any additional money obsolete.
9.) You count on tax refund to pay for things.
Every year I see the same thing on Facebook. People saying that with their taxes, they’ll pay for a new car, house down payment, vacation or another extravagant payment.
If you can’t afford it without taxes, chances are you can’t with. The smartest things to do with a large lump sum of money is pay off debt and not get sucked into that money high feeling you get when the large check is deposited into your account.
10.) You’re taking from your 401k to fund an extravagant purchase like a house.
Withdrawing money from your 401k early means taxation and loss of the interest being gained. Plus you have to pay it back within 5 years, longer if for a home purchase but faster if you get laid off from that job.
In most cases it is a better idea to never touch it, just let it sit there until you’re old and ready. Let the interest work for you and keep putting money into it as you can.
11.) You only make the minimum monthly payments.
Making minimum monthly payments means maximum interest paid in the long run. Pay more than the minimum to knock down that interest or flush money down the toilet, the results are the same.
12.) You pay others for things you could do yourself.
I’m not saying, don’t support your neighborhood teen wanting to make a few bucks during the summer. But if you find yourself pulling money off a credit card or going into debt to enjoy the luxury of having someone do something you could have done, you are definitely living beyond your means.
13.) You avoid opening bills.
If you avoid opening bills because you are scared to visually see and accept the numbers on the inside, you are in denial of your financial situation.
14.) You hide purchases either from yourself, your spouse or others in general.
As a person who shops for retail therapy when they are angry, upset or sad- I fully get it. Buying something and then hiding the evidence so as to not feel the guilty when your loved one notices your purchase is not the right way to go.
15.) You write checks date stamped in the future and ask for people to not cash them until after payday.
I did this once, hopeful it would work in my favor and it did not. Afterwards I learned that future dating a check does no good as the money can be withdrawn the moment you sign that check.
Even if the date hasn’t passed, a check is valid upon signing. Young adult factoid I learned the hard way.
16.) You’re scared of what others think about your financial situation and make up for it by continuing to uphold a social spending habit.
Being invited out by friends or coworkers is a big deal these days and in some cases the only socialization you may get outside of your immediate family.
If you didn’t budget for those coffee dates, movies or a shopping spree at the mall, it can be really hard to say no. Not everyone understands the #BudgetLife and you can feel really self conscious when trying to explain this financial situation to others.
So to avoid these awkward moments, you pull money from somewhere and make them happen. A better choice is to have an entertainment sinking fund in place to cover these expenses.
Or find a cheaper get-together alternative to suggest to your friends such as a potluck lunch or Netflix and nail painting at home. Something that still gives you girl time without the financial strain.
17.) If you cant afford to save 10% of your after tax take home pay per month then you are living beyond your means.
Remember the tv sitcom Friends? Monica Geller lost her job at the restaurant and her dad kept questioning where her savings was? Season 2 episode 5, for anyone wanting to binge watch.
This episode screams to me every time I see it. Setting aside 10% of your paychecks gives you a great cushion for moments of hardship or job loss.
Seriously, I can’t say it any better than Friends did, so watch the episode.
18.) You borrow money from friends and family.
Borrowing from friends and family for any amount of money, is cause for a strain on relationships. $20 here or there for gas, $5 for a coffee or $300 to cover utilities because something else came up. #BeenThereDoneThat
19.) You don’t have an emergency fund in place.
Emergency funds are so incredibly important. They help to relieve a ton on financial burden when an emergency arises. Driving to work, tires blow out and you lose control of the vehicle causing you to crash into another vehicle. Now you have an insurance deductible, new tires, new car seats, medical bills, and possibly missing work to recover from whiplash. $1000 emergency fund may not cover everything, but it sure would make a dent in the bills coming your way.
You can never expect or anticipate an emergency. So it’s best to always be prepared. But if you’re affording fast food several times a month and don’t have this safety net in place, you’re living beyond your means.
20.) You ignore employer matched contributions to your savings plans such as roth ira, or 401k.
Not all companies will match employer contributions. So to have one willing to do this is a blessing that shouldn’t be taken too lightly.
While you’re ultimate goal should be to contribute as much as possible, that isn’t the smartest to do when you have piling debts on your plate. So at the very least, match what your employer is willing to meet.
It’s free money! So meet them at the max match, if the company matches 5%, you put in 5%. It’s a great deal.
21.) You carry a balance on credit cards month to month.
There are so many people out there that think they can use a credit card wisely because they never pay interest and only get max fly miles and other rewards from them. Maybe they’re right, maybe they are smart enough to beat the system.
However, a majority of us are not this smart. We see a plastic card, and we spend. We think of it as a fall back, a safety net and a way to indulge on instant gratification purchases.
But carrying a balance on that card is dumb. When you max it out and look back at everything you’ve spent on it, you are left wondering where that money went.
What do you have to show for your purchases?
Was it worth the 10% Interest Rate?
Chances are, you remember having fast food, bad buys and can’t think of anything having been worth that much money spent.
22.) You aren’t saving for retirement, or you can’t.
There comes a time when you realize you need to be saving for your retirement. You can’t rely on government assistance to always be there and your best chances at affording a nice life at retirement is with whatever money you socked away.
If you can’t afford to put even just 5% of your paychecks aside into a retirement fund to gain interest over the next 30+years, you could be missing out on a nice lifestyle when you’re older.
23.) Constantly worrying about paying the bills.
It’s normal to worry about your bills to some extent, but if you have to live in fear of utilities being shut off and somehow still have that name brand handbag and latest iPhone, you are living beyond your means.
Living within your means is achievable for everyone. For me, I had to ignore my income and focus on my expenses. By focusing on what expenses I had, and making sure that they were accounted for first and foremost, I was able to get them taken care of before having any fun with my money.
Simplify your life, look at the financial benefits of minimalism.
By embracing a less cluttered lifestyle, you can reduce your personal stress and financial strain.
Make a budget and figure out where the expenses are and what can be cut.
By making a budget and sticking with it, you can take control of your money and tell it where to go instead of continuing a life where your money does what it wants when it wants.
Pay off debts
Paying off your debts will allow you to have more money in your budget as well as reduce your stress. You no longer have to worry about a debt once it’s gone from your life, and you can embrace a simpler cash-only lifestyle.
Build a good emergency fund
I mentioned why this is important earlier in this post, but wanted to remind you it’s a good idea to get one of these in place!
Negotiate bills with company’s
Some companies will lower your bills if you call and ask for a discounted package (such as cable, internet, hospitals, or phone companies.)
If you have bills in collections, you can ask for those lowered as well, but any write-off amount gets claimed as income on the taxes next year, so do this wisely.
Shop around to different companies
Finding different companies can really help to lower those monthly bills, shopping around for the best prices should be a regular thing, at least once a year.
Don’t stick with a company just because you have always had them, you could find someplace with much better customer service and cheaper rates!
Look into possibly moving to a cheaper location
While the act of moving isn’t necessarily cheap, a cheaper location can help to reduce your costs every month. Going from a home to an apartment or an RV for a few years just to save a few hundred dollars a month and pay off debt can be a wonderful short term investment in helping your financial life. Plus side, if you downsize your home- you downsize your possessions and can make additonal monies that way.
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Look for additional income and side gigs
Making more money can help in some cases, but you do first need to take control of your finances, through means of a good budget, otherwise making more money wont help. It just adds fuel to the fire, so you really have to stop living beyond your means and correct the behavior before adding more money into the mix.
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Build sinking funds
After you’ve got your bills caught up and your budget in place, you can start building emergency funds and sinking funds. These can help you to stay motivated, on track and prepared for big purchases.
[Related] A complete beginners guide to sinking funds
Live happy and free once completed
The ultimate goal. No more living beyond your means, because you’ll have everything planned out and accounted for. Happily living within a budget and feeling free and in control.