Could you possibly be living beyond your means and not know it? It is more common than you think. Most people don’t end up in debt all at once. It is usually a snowball effect that starts with poor spending habits or mismanagement of money. Even if you aren’t in debt yet, you still may be living beyond your means and heading down a dangerous path. Here are a few questions to ask yourself to figure out if you are living beyond your means.
1. Are you living paycheck to paycheck?
This is the first real clear sign that you might be living beyond your means. This doesn’t mean that you are struggling at the end of the month an anxiously awaiting your next paycheck, although that is another red flag. Living paycheck to paycheck might just mean that all the money from your monthly salary is spent each month. If at the end of the month you don’t have a little money left over that you can put aside, then you are living paycheck to paycheck.
The smartest way to stop this cycle is to find out what you might be overspending on and cut back. Are you buying too many clothes each month? Give yourself a budget. Is half of your income going to rent? It might be time to downsize. By cutting off the overspending before it gets out of control, you may be saving yourself a huge debt headache later that you might not be able to get out of. Here are a few good tips on managing your budget.
2. Do you feel like it’s impossible to save any money?
This goes along with living paycheck to paycheck. If you have gone over your finances and just can’t figure out how to put money aside for savings, then you might be living beyond your means. Saving not just for emergencies but also retirement is key to your financial health. Not having any savings is how many people end up in debt. One big financial event happens, like a huge hospital bill or an expensive home repair, and since they have no money saved up, they end up going into credit card debt in order to pay for the emergency, and credit card debt of any kind can easily snowball out of control.
3. Do you have credit card debt?
You don’t need a ton of credit card debt to be living beyond your means. In fact, having a little credit card debt can be a good indicator that you are heading toward a larger problem. Since credit card debt compounds interest, even a little debt can turn into a lot of debt in the blink of an eye. If you are only paying the minimum payment on your credit cards each month, you are basically only paying the interest you are accruing, plus a small portion of the debt, so it’s going to take you forever to pay off that debt.
If you are living paycheck to paycheck, it is going to be even harder to pay down that credit card debt. Figure out where you can cut some corners and get a handle on your credit card debt before the interest eats you alive. Remember, interest is charged based on your overall debt, so even if you can pay your debt down a little bit, it will help you save on interest.