In today’s society, many people want the best things life has to offer. In many cases, people will overspend or even go into debt to get these luxuries. This is especially true during the holiday season when people max out their credit cards to buy things they simply can’t afford. Many people fail to analyze their financial decisions and in doing so, find themselves in massive debt.
Here are 5 of the most common signs that you may be living beyond your means financially.
1. You Don’t Have an Emergency Fund
Let’s be honest. Bad things happen to good people. This emergency fund offers a safety net for you and your family when things go wrong. A good rule of thumb is saving $2,500. within six months to possibly pay for a damaged car or medical bill.
2. 5% of Your Income Isn’t Being Saved
A good amount of income to save is 10%-15%. If you can’t put away 5% on your earnings into savings, you have to tweak your spending and ultimately find out where your money is going. On $3,000 a month, you only need to save $150. But like I mentioned earlier, you should probably save a little more to build up that emergency fund.
3. You Lease a Car Outside of Your Price Range
This is a big financial mistake that many make. For some, it requires them to live paycheck to paycheck without putting any into savings. If leasing a luxury vehicle causes you to struggle to pay your bills, get a cheaper car. In the end, buying a pre-owned one in cash is always better in the long run and will allow you to save a lot more money.
4. You Don’t Have a Budget
This step is critical. It’s probably the only possible way to accurately track your finances to build wealth over time. Setting a budget will allow you to see where every single penny is going in every part of your life. It will allow you to see where the extra money is being lost and will reveal what expenses to cut out of your lifestyle.
(Holiday Shopping Pro Tip: Start shopping for holiday gifts in the spring and summer. This will allow you to slowly accumulate gifts and will reduce the need for you to go into debt.)
5. 30% of Your Income Goes Towards Your Mortgage
Ah, owning a house. It’s the American Dream, isn’t it? For many people, it can be a trap. If you have to contribute over 30% of your income towards your house, you can’t afford it. Period. Instead, rent an apartment or downgrade on your home. This will allow you to save more over time.