The United States arguably has the most prosperous economy in the world, accounting for %20 of the world’s total income. That’s insanely huge if you think about it. But sadly, this doesn’t mean everyone living in America is rich and financially successful.
According to a Charles Schwab report in 2019, a study has proven that nearly 6 in every 10 Americans live paycheck to paycheck. However, individuals can resolve this issue by managing their income effectively and living below their means.
The main reason you are probably struggling to manage your finances is that you are living beyond your means. As a salary earner, your income is fixed; hence, you must ensure that your expenses do not exceed the amount you receive every month. If you fail to do this, you are simply living beyond your means, and that’s the beginning of several financial difficulties you will later encounter.
This post seeks to uncover the dangers of constantly living beyond your means and how you can remedy the situation.
What Does Living Beyond Your Means Mean?
To live beyond your means is a situation where you are spending more money than your earnings. This means your paycheck isn’t enough to cover your expenses, thereby causing you to run into debt and struggle financially.
How To Know If You’re Living Beyond Your Means?
You would know if you are living beyond your means when it becomes difficult for you to afford your basic needs. If your salary is becoming too small to cover your monthly expenses, chances are that you are living beyond your means.
7 Alarming Signs You’re Living Beyond Your Means
If your current income doesn’t cover all your expenses conveniently, that’s enough proof that you are not living below your means. Notwithstanding, here are 7 major signs that suggest you are living above your means.
1. Living Paycheck To Paycheck
There are multiple reasons why people live paycheck to paycheck. They could be underpaid or struggling to overcome debt trap; hence, their salary is never enough to pay for everything they need. However, another key reason you might live paycheck to paycheck is that you live beyond your means.
For example, if your monthly take-home pay is $7,500, and your expenses reach that same amount, it would be impossible to manage your salary. You’d have to keep living paycheck to paycheck without achieving any significant financial goal.
If you can drastically reduce your expenses, your income will be enough. The only reason you won’t be able to manage your salary despite being frugal is that your income is very low. At this point, you would have to increase your income to match your spending.
2. Little Or No Emergency Fund Saved
One of the biggest financial mistakes to avoid is not having an emergency fund. It’s like driving without fastening your seatbelt. To protect yourself during financial crises or an economic downturn, you need to have enough savings in your emergency fund. But sadly, this won’t be achievable if you are living way beyond your means.
You can’t possibly save any money when you keep overspending. When you break your bad spending habits and begin to live below your means, it would be easier to save between 5-10% of your salary and contribute to an emergency fund.
Remember that the money in your emergency fund isn’t enough until it can cover your expenses for at least 3 months. If you need guidance on how to get started, here’s a post that explains how to build an emergency fund in 7 steps.
3. Failure To Pay Off Credit Card Debt
If you can’t clear your credit card balance every month, that’s definitely one of the signs you are living above your means.
Credit cards can be suitable for building a good credit score, helping yourself out in emergencies, and even receiving some reward points. But the moment you start living beyond your means with credit cards, you will damage your finances by carrying a balance month to month. Even if you earn enough money, you will struggle to pay off your credit card debt.
To prevent this from happening, you must live within your means. Stop using your credit cards to make big purchases that are not essential. Try to clear your balance and prevent the debt from piling up.
4. No Retirement Fund
Aside from building an emergency fund, you can also secure your financial life by planning wisely for retirement. How much are you currently investing in a retirement fund?
If you are struggling to grow your retirement fund, that might be one of the warning signs of living beyond your means. Buying a luxury vehicle, going on vacations, and living in an expensive apartment are not terrible ways to determine your lifestyle. But these have to be done at the right time. You should not spend lavishly at the expense of your future. Learn to sacrifice temporary satisfaction to secure your future.
Create a high-yield savings account with a reputable financial institution and start saving money toward retirement. After a few decades, you will be grateful for making that decision.
5. Constant Worry About Money
Constantly worrying about money is another alarming sign of living beyond your means.
Low paycheck, credit card debt, bills, and emergencies are some of the common reasons why we always worry about money. But surprisingly, if you live below your means and manage your income wisely, you may never have to worry about these financial difficulties, let alone be anxious about lack of money. Financial anxiety usually sets in when it’s obvious that your cash flow isn’t enough to sustain you.
Try not to spend money on the most expensive things. Look for cheaper ways to entertain yourself. Look for affordable housing and make sure you aren’t overspending just to keep up with the Joneses.
If you are currently worried about money and need help pulling through, here are some helpful tips to stop worrying about money.
6. Paying Too Much For Your Rent Or Mortgage
When it comes to housing expenses, we sometimes bite more than we can chew. When applying for a mortgage, the bank shouldn’t be responsible for determining what you can and can’t afford. This means that even if you are freely offered a $650,000 loan on a house, that shouldn’t compel you to accept it. That amount could be way beyond your means, and if you accept such a loan, you will definitely struggle to pay it off.
Ideally, you shouldn’t spend more than 35% of your monthly gross income on housing, whether it’s rental or mortgage. The lower the percentage, the easier it is for you to pay.
7. Trying To Keep Up With The Joneses
“Keeping up with the Joneses” is a popular phrase that means trying to measure up with or surpass the possessions and expensive lifestyle of your friends, family members, or colleagues. You don’t have to use a $90,000 car because your friend owns a vehicle worth that amount. You don’t have the same income level as your so-called friend, which means you don’t need that validation you seek.
Kill the peer pressure and be disciplined enough to focus on improving your finances rather than ruining it through unhealthy competition.
Comparing yourself with others is one of the common signs you are living beyond your means. Learn to ignore other people’s lifestyles and focus on yours. Mind you, the set of people you intend to emulate may not even be living a picture-perfect life. They could be struggling with a debt trap, and you won’t know about it.
5 Ways To Stop Living Beyond Your Means
Living beyond your means is one of the worst financial decisions you should never make. But if you happen to find yourself in this situation, here are 5 major ways to get your finances back on track:
1. Build A Budget
Not being able to determine how much you spend in a month is a critical financial mistake. This often happens when you fail to budget your income.
Building a budget helps you to monitor your spending and prevent unnecessary expenses. Ideally, your budget is meant to take into account all income such as paychecks, tax refunds, and interest payments, while planning for outgoing expenses such as utilities, household costs, entertainment, medical bills, and clothing.
When you build a budget that encompasses all these things, you can easily control your spending and live below your means.
2. Stop Using Credits Cards
Ditching credit cards is one of the effective ways to stop living beyond your means. A recent study has shown that Americans use an average of four credit cards and can incur up to $6000 in debt within a month.
A credit card may seem like a good way to save yourself during emergencies and make big purchases, but if you cannot clear your balances on time, there will be long-term consequences. Sometimes, it can take up to 15 months to pay off a credit card balance.
Paying a debt this huge will prevent you from using your finances for other important purposes such as building an emergency fund, investing, or saving for retirement. Hence, it’s best you stop using credit cards to avoid debt and live below your means.
3. Use Cash Or A Debit Card
This is one of the best ways to stop living above your means. When using credit cards, you are usually tempted to spend without caution. But when shopping with cash, you will certainly be mindful of your expenses since you are fully aware that you are spending directly from your pocket. If your wallet goes empty, you will have to stop spending.
Using a debit card almost has the same effect as shopping with cash. This is because your debit card is tied to your checking account, and you can literally watch your balance decrease with each item you purchase. As a result, you will be careful not to overspend. Apparently, you wouldn’t want to go broke.
4. Prevent Impulse Buying
Americans spend thousands of dollars every year on impulse purchases. If you genuinely want to stop living beyond your means, you must avoid impulse buying.
When shopping online, especially in an e-commerce store, it is usually effortless to purchase anything. All you need to do is provide your card details, and your item will be bought and delivered to your doorstep. This makes it easy to be tempted to make impulse purchases.
While figuring out how to stop living above your means, take necessary measures to prevent impulse buying. Drastically reduce online shopping. Unsubscribe from the email list of retailers who are constantly sending you enticing offers. More importantly, make sure you shop with a list. Before visiting the grocery store, list all the important items you intend to purchase.
Sticking to the shopping list when you arrive at the grocery store will stop you from being tempted to spend money impulsively.
5. Cut Down Your Expenses Drastically
Cutting your living costs is probably the best method for learning how to stop living beyond your means. Reducing your spending by 5-10% a week will significantly impact your finances.
Examine all your big expenses such as your utilities, transportation, feeding, and housing. Find creative ways to reduce the amount of money you spend on these things. This will help you live below your means and save more money.
For example, if you are used to eating out, you need to break that habit and start preparing your food at home. That’s a money-saving strategy that will help you save tens of dollars every week.
Also, if you love going to the movies, you can save money by signing up on a film streaming platform instead. A platform like Netflix has all the latest and most fascinating movies in the world. You don’t need to leave your home to the movies to get entertained.
Final Notes On Living Beyond Your Means
Living beyond your means is undeniably a real financial problem. But you can prevent it by spending money on only the things you need. Focusing on only your needs allows you to build an emergency fund and plan for retirement with your income.
Thankfully, this post has examined some of the best tips to stop living beyond your means. Practically applying these tips to your financial life will enable you to live within your means and spend responsibly.
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