Of course, the best way to have a happy, stress-free financial life is to live is within your means. However, many of us are not experiencing what you would call great financial health. There is a thing called the Trouble Tracker that measures the financial difficulties of middle-income Americans. It has gone from 32.7 to 37.5. Areas seeing the biggest increase were missed payments on major bills and the inability to afford medications or medical bills.
So, how can you know whether or not you’re living above your means? Of course, if you can’t pay for the bare necessities, that would be a big clue. However there are some other signs that you may be over your head.
Not been able to survive for at least six months
One telltale sign that you may be living beyond your means is that if you couldn’t survive financially for at least six months without your job’s income. If you didn’t catch this, that’s the emergency fund that financial experts love to advise. Whether you call these savings your emergency fund, a cash reserve fund, or rainy day fund, it’s vital that you establish it and replenish it over time.
Not saving 10% or more of your pay
While financial experts have varying opinions as to what is the ideal savings rate, a generally held guideline is 10%. You should be saving that 10% beginning when you’re about age 25. Once you reach age 35, you should be saving even more than this.
Your mortgage payment is more than one quarter of your monthly salary
If you’re wondering how much home you can afford, here’s the answer. Your mortgage payment should not be more than one week’s salary. So if your mortgage payment is more than one-quarter of your income, you’re probably living beyond your means.
Your credit card balance has not gone down over the past 12 months
If you’re just holding your own, that is your balance remains the same from month-to-month, this is a pretty good sign that you’re living above your means. If your balance grows every month, you’re on your way to big trouble. To make matters worse, card debt is generally considered to be bad debt because it’s very expensive and you can’t deduct it on your taxes.
You’re using one credit card to pay another card’s balance
Moving your balances from one or more credit cards to another with a lower interest rate might save you money in the short term but if it increases your personal debt ceiling, it’s just not a good idea. In fact, if you’re always looking for a new card to transfer your balances to but never seem to get ahead, this is a big symptom that you’re living beyond your means.
You’re using too many of those “buy now, pay no interest until next year” deals
If you’re relying on those kinds of deals or “no monthly payments for six months” deals to pay for big-ticket items, this can be deadly. While you will have to make no monthly payments for a certain period of time and no interest on the payments you make during that period, woe be unto you if you fail to pay for the item in full by the end of the promotional period. If not, you could be hit with incredibly high interest charges. And that interest is often charged from the date you made the purchase.
How to get back to living within your means
If you found yourself saying, “Yes, that’s me” to three or more of these danger signs, a good first step would be to eliminate your debts. This would free up money you could be saving to build that needed emergency fund or to build a nest egg for retirment. Debt relief is a way to eliminate debt that has helped thousands of American families. Call our toll-free number today to learn more about debt settlement and whether it could be the solution to your debt problems.