How To Tell If You Are Living Beyond Your Means

A recent study has found that approximately 55% of Americans either live paycheck-to-paycheck, or spend more than their income. In addition, it’s been reported that only one third of Americans are making good or excellent progress on their savings. These trends are consistent regardless of income as many Americans find themselves unable to spend less than they make. Matt Allgeyer, Financial Planner at Wamhoff Financial Planning & Accounting, shares common signs that indicate whether you’re living beyond your means.

  • Carrying a Balance on Your Credit Card(s)
    • If you are unable to pay your balances in full each month, and the balances continue to rise, you are spending more than your income allows.
    • This includes expenditures such as paying for a vacation or major purchase on credit cards that you cannot pay off when the statement comes.
  • Incurring Overdraft Fees, or Late Fees
    • If you’ve recently overdrawn your checking account, or paid late fees on any of your bills because you were unable to pay them on time, you are spending more than your income allows.
  • Fear of Missing Out (FOMO)
    • FOMO is a state of mind that leads to emotional spending, as your social life becomes a primary focus. When you spend based on emotion, this can lead to overspending.
  • Leasing a Car You Wouldn’t Be Able to Afford Otherwise
    • While leasing can make sense in some cases, many choose leasing simply because it will get you into a more expense car than a traditional purchase payment would allow.
    • This leaves you no equity at the end, and you own nothing to show for your money.
  • You Have Never Set a Budget
    • Those who have a plan and budget know what they can afford to spend. Those who don’t fly by the seat of their pants and can be more prone to overspending.
  • No Savings, Nothing Left at the End of the Month
    • Your budget should include putting money into an emergency savings fund of at least three months’ worth of your salary.
    • You should also be saving at least 5% towards retirement
  • Having Your Tax Return Spent before It Hits Your Bank Account
    • Ideally, you want to adjust your withholding so that you’re not owed a large sum at tax time.
    • If you do use your withholding as a form of a “savings account,” then plan to put it into savings or to pay down debt when you get it as opposed to spending it all.

Sources:
http://www.usfinancialcapability.org/downloads/NFCS_2012_Report_Natl_Findings.pdf
http://www.cnbc.com/id/101441422