If we’ve said it once, we’ve said it a hundred times: one of the main keys to securing a financially independent future is to live within (…or below!) your means.
Put simply: control what you can control and don’t let your expenses become greater than your income.
However, despite this being a so-called “golden rule”, many individuals don’t actually follow it. In fact, studies show that nearly 40% of Americans don’t have enough saved to cover a $400 emergency expense.
Don’t be left in a lurch if the worst were to happen. Instead, it’s time to do an honest assessment of your money behaviors and determine if you’re living too far beyond your means.
How can you tell? Here are some signs that you might be needing to do a little financial “makeover”:
1. You’re relying on your credit card
There is always “something” that keeps popping up – this, we know – but if you’re having to constantly rely on your credit card to get you by, then you might need to reevaluate your spending behaviors. A credit card can be a tremendous tool for demonstrating responsible behavior and for building strong credit history, but it is not designed to be used as gift card of sorts. The next time you use your credit card for a big purchase, think to yourself: could I afford this without using the card? In other words, if you had to use cash for the purchase, would you make that same buying decision?
If you find that your credit card is “fooling you” into thinking you can afford a more lavish life than is actually possible (given your overall financial situation and various needs), then it may be time to reduce your reliance on your credit card. Our suggestion? Leave the card at home and begin using cash instead. Using cash may force you to truly recognize how often you spend, and may call attention to the habits you may need to change.
2. You have no emergency savings
Life happens and often times, it throws you curveballs when you least expect them. For this reason, it is so important to have and maintain an emergency fund of savings to cover 3-6 months of your income. This way, should the worst happen (i.e. you lose a job, are saddled with unexpected bills, or some other difficult situation), you will be able to rely on your emergency funds to cover your needs rather than having to default to opening another credit card, securing a loan, or having to borrow money from friends and family.
If you don’t currently have an emergency fund but find yourself booking travel trips all too easily or partaking in every little social event, then it may be time to revisit your money priorities. Sure, it may take quite a bit of time to build up to a substantial emergency fund and we are also certain that there are infinitely more fun ways to spend your money, but we can assure you, you’ll be glad you have the funds should you ever need them. If you don’t yet have one of these protective and cautionary funds, do yourself a favor and begin to save for one today. Adjust your budget, set up automatic transfers from your checking to your savings account each month, and make this a priority for the new year.
3. Your debt balance never seems to decrease
If you’re making payments on your credit cards each month but finding that the balance just never seems to get any lower, then this may be a sign that you’re living above your means and relying on that credit card a bit too much. Our advice? Spend a week or two physically writing down and noting every single thing you purchase. Doing so may seem dramatic, but you’ll begin to really become more mindful of your spending habits and may suddenly find the spending culprit that has been preventing you from paying down that debt balance.
Another tip? Break out that budget tool and comb through your expenses with a fine-toothed comb. Is your budget unrealistic and setting you up for failure each month? Or, is perhaps your budget too disproportionately favoring the “fun” expenses in your life and not leaving enough to cover those required expenses or make a dent in your debt.
4. You can’t meaningfully contribute to your retirement accounts
Believe it or not, the time you should be investing in and saving for your retirement is right now. Sure, it may seem like those retirement days may never actually arrive, but trust us – someday you’ll be ready and wanting to retire and those funds you’re setting aside now will come in handy.
If you haven’t had the ability to contribute to your employer-sponsored plan or, if self-employed, haven’t opened a standard IRA or other retirement account, then you could be living above your means. Don’t make the mistake of thinking that you can wait to fund these accounts or that a little contribution here and there won’t make a difference. The truth is, every contribution matters and it is better to start small than to not contribute at all.
Take some time to revisit your budget and see if you can’t find a way to contribute to your retirement accounts. Your future is counting on it…
5. You have to borrow money from family and friends
Borrowing money is never fun, no matter who you are. If you’re finding yourself relying on friends or family to routinely get you through your difficult times, then perhaps you need to rethink your spending and reevaluate your financial needs. Now, we know that there are certainly times where it can be helpful to seek the assistance of a friend or family member, but making this a routine part of your financial life is the bigger area of concern. Instead, consider working with a professional to identify some alternative options and evaluate potential ways that you can find savings or make adjustments to find yourself on more solid ground.
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