Living beyond your means is usually one of the first signs indicating the worrisome nature of your long term finances. It can eventually lead to a downward spiral of debt and debt repayment. Yet it is not common. One of the many reasons for this is not even realizing that you are actually living beyond your means.
What are some signs that you are living beyond your means?
Here are 10 such signs you should watch out for:
- You have had an unnecessary debt in recent past for a non- medical reason. This can be in form of personal loan or credit card debt, but not limited to this. Gold loans, payday loans, loan against FD – all can point towards the same malaise. To add to this, you may not even halve a proper repayment plan in place, which can add to the agony.
- Spending pattern undergo a major change in second half of the month – It’s the same you who didn’t mind spending on eating out, online and offline retail therapy and what not! But this goes a change towards second half of the month. – Because you start running out of money to spend. You start worrying about your credit card hitting its limit and wondering how to repay. Maybe, a short term loan (e.g. payday loan) is something that don’t mind looking for, but then, it comes with its own challenges.
- You run out of cash by month end – Not just big purchases, but small purchases become a challenge because your bank account hits a single digit balance. Or maybe, you need an overdraft! And credit cards have anyway probably be living you worried about payment. Worse, you are unable to figure out where the money comes from and where it goes!
- You can’t handle a sudden surge in your bills if need be – Some bills may not always be predicable in terms of amount you need to pay. Imagine, you are suddenly presented with an electricity bill which is like double of your regular bill amount and you are unable to pay? And what will happen with a substantially larger unexpected bill?
- You are unable to fathom you credit card bills and the charges that come with it. You need to spend hours and days figuring out the charges levied! And then hours figuring out how to pay the bills. Maybe, carry it forward. Maybe, take a loan for that!
- Any urgent need will place strain on your budget – Emergencies can come in different shapes and sizes. It can be a medical emergency or it can be a sudden need to travel to meet parents/ relatives and more. What if that seems so affordable that you are left wondering how will yo manage it?
- You need to access your (barely existent?) emergency fund frequently – Emergency funds are for emergencies – no rocket science in that! These can be factors like medical emergencies or loss of pay or something that requires your immediate financial attention. Yet, if you feel the need to dip into it every now and then to finance your regular needs, then you are living beyond your means.
- Your affordability of things is defined by how much loan you can get for it. So, if you can get a car loan with 60 easy EMIs, it is affordable. And if you are eligible for a personal loan for your vacation, it is affordable. This is what you probably think!
- Your lifestyle is based upon your potential future income – not your current one. And that defines your affordability of things. This is sufficient enough reason to take loans to splurge on shopping, travel, dining etc.!
- You are unable to invest even a small proportion of income – Spending less than you earn and investing the difference form the basic pillars of managing your personal finances. Yet, if you are unable to do that, it indicates that you are not doing something right! Higher the number is, better it is. But if you are unable to save even, say 5 or 10 percent of your investments, then how would you rate yourself on living within/ beyond your means?
What do you do if you are living your means?
Again, no rocket science needed for identifying the solutions.
You need to either increase your income or decrease your expenses.
Increasing your income may or may not be possible in short term. Nor there is a guarantee that you will spend living beyond your means. After all, increase in income is usually followed by an upgrade in lifestyle.
Another way is – decrease your expenses.
How? The answer lies in the good old fashioned way – budgeting, identifying areas where you have tendency to spend unnecessarily, and cut down on frivolous expenses. Investing before spending can be a handy tool in it, but no guarantee that you’ll stop living beyond your means.
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