With credit card companies literally crying to let you have as many credit cards as you want, buying something on credit anywhere is pretty easy. These two ideas or concepts sort of go hand in hand. This combined with a YOLO or “You Only Live Once” mentality could be your death knell and push you towards living beyond your means.
The consequences in the long run, however, could be disastrous. You could end up bankrupt or caught forever in a debt trap from which getting out is something easier said than done. The only thing worse than this is owing food and supplies to The Saviors in The Walking Dead or perhaps watching the cheating Patriots or Warriors win a championship but that is another topic.
The following signs clearly indicate that you are indeed living beyond your means:
- Your Personal Credit Score is Low: Credit bureaus track your payment history, outstanding loan balances, and legal judgments, if any, against you. This information is used to compile your credit score that actually reflects your credit worthiness. The range is between 300 to 850. The higher the score, the better because lenders use it to gauge whether you’re worthy of a loan or not. In general, a credit score that’s below 600 implies that you are in debt and living beyond your means. You can check with any of the leading credit bureaus and get a copy of your credit report. This will tell you what these bureaus, financial institutions, and lenders think of you as a potential debtor.
- Your savings are below 5%: If you are saving less than 5% of your net monthly income, you are probably living beyond your means. Pragmatic spenders desiring financial security after retirement usually put aside as much as they can every month to ensure that they never cross their spending limits. A below 5% savings rate indicates that you could face the real danger of complete financial ruin in case an emergency like an illness or accident should happen to you (remember, you are not a politician, you cannot spend money you do not have and there not be any consequences). This also implies that you don’t even have the funds to pay necessary insurance deductibles. The safe limit of saving is at least 10% of your gross income.
- Rising Balances on Credit Cards: Buying on credit is a typical thing done by spendthrifts and more often than not, leads to their financial ruin. Thus, if you’re paying only the minimum amount due on your credit card balances every month or sending just a small portion of the total principal balance, this is a clear indication that you are over your head. That’s why it makes sense to keep track of your credit card spending and keep aside the amount in cash so that the entire amount can be paid off as soon as the bill arrives.
- Household Expenses Consume More Than 28% of Your Income: When you have your net monthly income figure in hand, calculate the percentage of it that goes towards paying off your house mortgage, property tax, and insurance. If it exceeds 28% of your gross monthly income, then it is also an indicator that you are in the red. 28% is the standard chosen because conservative lenders feel that this is the rate at which the average person can get by comfortably even after paying off their mortgages. You may, of course, cut other expenses and spend more on your house but again, that’s a dangerous move to make.
- Spiraling & Out of Control Bills: Buying on credit and paying off in installments is a grand option to many. Pick up whatever you want without thinking whether you can afford it or not and get lured by the salesman who tells you that paying an extra $60 per month on your installment won’t hurt you. The fact of the matter is these bills gradually start adding up and you inch towards bankruptcy. Once your monthly income starts getting sliced and directed to pay for a lot of unnecessary installment purchases and services, it’s time you faced the fact that you are living beyond your means like the states of New York and California are but this is another issue.
- Cut and Slash: Go through all your monthly bills with a hawk’s eye and decide on what is truly required for you and for your family. Any frivolous expense such as a premium 500-channel cable TV package or satellite radio bill can be simply dispensed with – cut the fat, you cannot afford this right now in your life! Cut back on mobile and land line costs, utility bills, and entertainment expenses (Rings 3 was not that good anyhow, neither was Logan, and Jurassic World was horrendous!), and you’ll find that you have eliminated useless expenses which can help you get back on track and give you some money to help you pay down your debt.