It seems like having financial problems and living beyond your means is the norm these days.  We live in a time of instant gratification and “buy now – pay later” purchases where carrying a balance on your credit card is pretty normal.  Just because everyone else is living this way does not mean you have to as well.  There is a better life to be had out there and it can be a lot easier to realize than you think.

Here are eight signs that your lifestyle could be putting you in financial danger as well as some ideas on how to get back on track.

  1. You Don’t Have a Budget

Having a budget is the most critical step in avoiding a financial problem and living within your means.  People tend to stay away from setting up a budget because they think it’s some kind of financial diet where you deprive yourself to reach a financial goal.  While this isn’t entirely wrong, a good budget will teach you how to live within your means while still having the things you desire.  It may just take a little longer and require some discipline to get them.

You can’t expect to get ahead with money if you don’t have a plan.  Creating a budget can help relieve some of the stress associated with money and spending while setting clear goals and guidelines to helping you achieve your financial endgame.  A budget will tell you where your money is being spent and give you insight into ways to make it go further.  If you ever hope to achieve financial freedom or build wealth you need a plan.

  1. You Live Paycheck to Paycheck

If you are completely broke before you get to your next paycheck it’s a good sign you’re spending money on things you cannot afford.  Use the budget to make smart changes month to month and learn to have a little left over when the next paycheck comes in.

Take a hard look at the difference between WANTS and NEEDS.  Do you really need to eat out every day for lunch?  Do you really have to have the latest magazine or book?  What about that gym membership that you don’t have time to use?  Cut back on the inessentials and see how much money you’re wasting.  If you really want an eye opener about your spending try following a no spend challenge.  During the no spend challenge you are only allowed to spend money on housing, utilities, food, and everyday travel.  No extras; none!  Once you become aware of how much money you need to live it will be a lot easier to make decisions about where to change the budget later on.

  1. You Need Help Paying Bills

If you’ve lost your job due to injury or illness it makes sense that you have had to get some help in paying the bills.  These are (hopefully) temporary situations that will change with time, but if your friends or family are constantly helping you out whenever something unexpected comes along, you may have a problem.  Maybe you use a credit card or line of credit when times get tough.  Eventually these sources of money will run out and paying them back is always more costly than originally expected.

Use your budget to build a savings account for the tough times.  Cut expenses such as eating out or clothes shopping to build a savings account for those rainy days that eventually hit us all.

  1. You Carry a Balance on your Credit Cards

A good sign that you are in over your head is having a credit card balance continue to rise month after month.  This means you are taking out a high interest loan every month just to make ends meet.  If you’re only making the minimum payments on those credit cards while you continue to use them you will never get out of debt in this lifetime.

Making minimum payments on a $2000 card will cost you more than $8000 and take over 30 years to pay off.  Look at your credit card statement next time it comes in the mail.  The credit card companies have to state how long it will take to pay back the balance with only minimum payments.  This can be a great motivator to stop using the cards and get them paid off as soon as possible.  At the very least, double your minimum payment so that you are paying down the principle as well as covering the interest.

  1. You’ve bounced a Check

Not many people use checks any more, but it’s a good sign that you are in financial trouble if you have ever not been able to cover a check you wrote.  Banks almost always charge huge fees when a check bounces.  If you only have limited funds in your account the last thing you need is more money coming out for NSF fees.

If you have to post date a check because you have no money in the account to cover the purchase today, then you are living beyond your means.  Unless it is an absolute emergency, there is no reason why that purchase can’t wait until it can be made with cash.

  1. You Have a Poor Credit Rating

If you’re making money and have credit that you use responsibly, there is no reason why your credit rating should be bad.  Missing payments, carrying balances month to month, and having multiple forms of credit maxed out are all reasons why your credit rating might be less than great.  These are also signs that you are living beyond your means.

Having a bad credit rating can stop you from accessing good interest rates on your mortgage, can affect your current interest rates on debts, and can hold you back from achieving financial freedom.  Setting up a budget and getting on track with debt payments will help in improve your credit score.

  1. You’re driving a car you can’t afford

A lot of people struggle to pay their bills on time and put money away for savings because they think they don’t make enough money.  The truth is a lot of people are spending too much on car payments.  If you ask any person with wealth they will tell you that having a car payment is the worst investment you can make.  The vehicle depreciates quickly and requires costly maintenance.  Purchase a used vehicle and pay it off quickly if possible.  Not having a car payment can free up a lot of money to use elsewhere in the budget.

If you absolutely have to purchase a new vehicle keep in mind the following tips from the professionals.

  • Payment shouldn’t be more that 20% of your gross pay.
  • Put down as big a down payment as possible.
  • The loan should never be more than 4 years in length.

You should also consider how the new vehicle will change your insurance payments and what maintenance on the new vehicle is going to cost you in the future.  New vehicles with fancy electronic options and state of the art gadgets will eventually break.  What is the cost of maintaining this new vehicle going to be over the coming years?

  1. You’re not saving for Retirement

People who don’t want to work until they are a hundred need to make sure that they are not spending more than they make.  If you are not able to save anything for retirement you might be living beyond your means.  Most financial advisors say that you should have no debt (including a mortgage) by the time you retire.

The experts say you should also be saving 10% of your gross pay each month for retirement and it’s never too early to start saving.  If you were to put away $6,000 a year toward retirement at a modest return on your investment starting at 20 years old, you could realistically be looking at having close to a million dollars by the time you reach 65.

Get into the habit of paying yourself first and have that money go directly into a retirement account.  Once it’s locked in, you will be less tempted to spend it frivolously on things you don’t need and soon you won’t even miss the money at all.  Your future self will thank you for it.

The bottom line is no one is perfect when it comes to being financially secure.  We all have our challenges and areas we can improve upon.  Check your financial health regularly and make sure you are staying on track with your goals.  You can always call one of our accredited credit counselors to book an appointment to discuss your financial goals and help you get out of the pattern of living beyond your means.