In a world filled with every convenience one could desire, an increased appetite for unique experiences and a unquenching penchant for credit usage, it takes serious conviction and discipline to live within our means. Unfortunately, most of aren’t succeeding; the average American carries a credit card balance over $6,000.
Unsure if you’re living beyond your means? Here are five signs that’ll spell out your situation.
You’re Paying the Minimum Balance
Most people don’t pay off their credit card balance each month. This group, known as “revolvers” amount to 65 percent of the credit card-carrying U.S. population. These cardholders are spending more than they have or they’re not paying close enough attention and costing themselves additional money. Worse when cardholders carrying a balance fall victim to the hollow appeal of credit limit increases. Per Time Money, a 10 percent increase in credit is followed by a 1.3 percent increase in debt within one quarter, and nearly a 10 percent increase in long-term debt. Add multiple credit cards and interest rates and you have a quick recipe for personal economic ruin.
Your Debt Is Growing
This sign may go undetected, as it’s very possible you wouldn’t know the specific terms of your debt if you were living beyond your means. However, if you’re making payments on your balance(s), you can at least tell if the bill is going up or down with each new billing statement. If you’re not making headway on your balance based on your current payments, calculate how far behind you’ll be in a few months, six months, a year. Any increase in debt has the potential to quickly spiral out of control should you start missing payments.
You Don’t Have an Emergency Fund
It’s recommended to save 10-20 percent of income, but any amount is better than nothing. If you’re left with no money at the end of each month after paying your bills, thirsting for another direct deposit, you’re clearly living beyond your means. Perhaps because 69 percent of Americans have less than a $1,000 in savings—some of those people our friends, family, coworkers—we’re conditioned to think it’s more OK than it is. How will you afford the next major car repair or sudden medical bill if you have no stashed funds to your name? Saving the money we work for isn’t about depriving ourselves of the finer things in life; it means empowering us to live the life we want because of added financial protection.
You Don’t Keep a Budget
Different types of budgets will work for different types of people, but not having one is financially careless. Budgets guide our financial decisions and keep us on track toward our long-term goals. Freedom Financial Network CEO Andrew Housser regularly emphasizes the importance of budgeting and to ask ourselves where we want to be in one, three and five years. Doing so forces us to consider how our present-day actions are contributing to our goals. This usually results in more committed, purposeful budgeting and better decision-making.
In your budget, focusing on the value you’re getting for your housing, transportation, and food expenses will net you the biggest monthly savings, but it’s also important to forecast for seasonal events that will impact the budget. Attending a destination wedding? Tax bill coming up? Do you have more people to give gifts to this holiday season? Having a static monthly budget is great, but anticipating your actual calendar and financial obligations will ensure you keep pace with your budget goals, even through higher spending periods.
Your Credit Score Is Shot
Checked your credit score lately? Anything under 670 means you’ve had some dings on your financial record and lenders view you as a subprime borrower. While securing credit isn’t the single most important thing in life, it can make several expected life stages difficult, like buying a house, renting an apartment, purchasing a vehicle, or perhaps most limiting, securing a loan to start a business. If you feel like you’re exercising discipline in your financial life, a quick look at your credit score will cut your work out for you.
Your risky financial behavior is likely showing through in other ways as well, but these five signs will surely spot an iceberg looming if it’s there.