Living the lifestyle of the rich and the famous might seem like a dream come true. Just because the lavish life seems great, does mean you should live that way if you are not able to do so financially.
Many individuals are living beyond their means, and do not even realize it. There are several signals that show you are living beyond your financial means. Do not fret though, there are also many ways you can get your finances back under control.
You’re paying way too much for your rent or mortgage
One of the first signs that you’re living beyond your means is that your rent or mortgage is over 30% of your monthly income. If you are spending over 30% on rent or mortgage it does not leave an appropriate amount of funds to cover other essentials, and you’re digging yourself in a hole! If you are renting a place which is above this threshold, you may want to look for a new place to rent once your lease is up!
You’re not saving enough of your paycheck
Another red flag is if you are not saving five to ten percent of your paycheck each month. If you are living within your means you should be able to save at least five percent of your income. In reality, it is recommended to save closer to 15-20% of your income, but if you are not able to save at least five, then you need to look at where you can make cutbacks in your current budget.
Tip: If you feel you need to cut some things out of your budget, check out the Trim app. It will help you find expenses that you can eliminate. It will also help you negotiate new rates on things like cable, internet, and insurance.
You don’t have an emergency fund
A third signal of living too lavishly is that you have no emergency fund. It is important to have savings which could accommodate three to six months of all living expenses. This is very important in case you were to lose your job and are not able to find another source of income immediately.
Your credit score is too low
Having a credit score which is below 600 is also an indicator. According to Investopedia, any score below 600 most likely means you are in over your head. This can happen very quickly if you are using your credit card every month, but are only paying off the minimum amount, never paying off the full balance. You will rapidly accrue a credit bill which carries a high-interest rate. Try to avoid spending on things you do not absolutely need if your credit score is this low.
Note: If you’re unsure what your credit score currently is, sign up for Credit Sesame. It’s free to use and you can stay in the know on your credit score and the things that are affecting it.
You need to borrow to pay for things
The last sign of living above your means is that you borrow. This might be taking out a loan for a vacation, or asking friends or family for money. Before taking out a loan for anything, it might be best to ask yourself if you should really be spending the money you can’t afford.
Luckily, there are ways to improve your financial situation!
Create a budget
The first step is to create a budget. This means mapping out all of your current expenses and finding the areas where you could cut. A great rule of the thumb is the 50/30/20 rule.
This ratio means that you spend 50% of income on needs. Needs would be items like rent, car payments, food, and health insurance. 30% would be spent on wants. Wants would consist of things like vacations, concerts, and dining out. Keep in mind, if you are already in debt you might need to cut back on the wants category and keep it below 30% until your finances are back on track. Finally, the 20% is meant for saving.
Companies like Chime have a mobile banking app which makes it very easy to track where your money is being spent and stick to your budget plan.
Quit using credit cards
Another step that can be taken to get your finances back under control is to cut out the use of credit cards. If you are deep in debt it might be in your best interest to use cash when making purchases, and avoid the high interest rates of credit cards.
Also, if you already hold a substantial amount of credit card debt, you can try using the snowball method to pay it off. The snowball method is when you pay off the smallest balances on a debt that is owed, while also paying the minimum required on the larger debts.
Also read: Dave Ramsey’s Baby Steps: Is It The Path To Financial Freedom?
Furthermore, you could try setting up automatic payments. This is a perfect way to ensure your payments are always on time, and you will never owe a late fee or compile extra interest.
Start bringing in more money
Another great way to help your situation is to be a rockstar at work. Excelling at your job could lead to promotions and raises which can certainly help! A side job is an additional option for bringing in excess cash. Bringing in some extra income is a fantastic way to alleviate financial stress! Some popular side jobs include bartending, rideshare driving, and freelance writing.
Note: When you sign up to become a driver with Lyft, you can earn up to a $200 signup bonus. Alternatively, you could also become a driver with DoorDash.
