At some point you may find yourself guilty of living beyond your means. It's okay, we're all human. But recognizing the fact that you are is the first step to fixing the issue at hand.
A few years ago, my friend Marcus and I were part of a focus group interviewed by CNN about how Millennials treat money. It's quite scary to think about, but about 47% of Americans said they would struggle to come up with $400 for an unplanned expense. At a time when salaries are high (and getting higher), people are still living paycheck to paycheck regardless of their social class, and so few have any kind of savings, the answer is quite simple: millions of people are living well beyond their means.
It's okay to spend money on the things you love and want, but everything in life is about moderation. You may think you're living within your means, but you may not know where exactly you fall on the overall spectrum as there are degrees of financial stability. Today I want to address three areas that readers need to focus on IMMEDIATELY if they ever want a chance at stability and living within their means:
1. Your Credit Score is Low
Many factors go into a credit score, but some carry more weight than others: your payment history and credit utilization rate. The latter is a look at the extent to which you are using your available credit and if you're using too much, generally this means you're racking up debt and not paying it off fast enough to appear responsible. If you find that your credit score has plunged into unfavorable territory -- i.e. below 600 -- that is a sign that your lifestyle is too large for the money you're making.
2. Housing Takes up more than 30% of your Paycheck
You can easily fall into a trap in spending more on housing than you need to. No matter what you earn, your housing expenses (i.e. rent, mortgage payment, property taxes, homeowners insurance, etc.) should never exceed more than 30% of your take-home pay. If they are, this is a sign you're in way over your head. According to the MacArthur foundation, between 2011 and 2014, 52% of Americans had to make at least one major sacrifice in order to cover their housing costs, like delaying retirement savings and cutting back on healthcare expenses. You're far better off finding a less-lavish property you can afford.
3. You have zero savings
You are generally advised to save a minimum of 10% of your paycheck for emergency savings and or retirement. If you have nothing left at the end of the month to go into these, this is a sure sign you're living beyond your means. There is nothing quite like creating a budget to handle these issues, and most of all this will help you do the most important thing: pay yourself first. If retirement savings is the first thing you allocate in a budget before anything else, then you can make appropriate adjustments. The longer you wait, the harder it will be to catch up. Better sacrifice those extra fun expenses now than to be totally miserable and unable to pay your bills if something catastrophic happens.