When people talk about those that “live beyond their means,” I think they often have a mental image of people living the high life, careening from one debt-fueled good time to another with no thought to their financial situation.
In reality, nothing could be further from the truth. You can feel you make a good living and treat your budget with the seriousness it deserves, yet still, find yourself struggling from one month to the next. When and how did your financial life become a never-ending, exhausting treadmill?
While identifying that you have a problem living within your means may be difficult, there are steps you can take to get off the treadmill and find some financial peace in your life (cutting expenses and/or increasing revenue)
But first, let’s take a look at some of the classic signs of what it looks like when there is more month than money.
Signs You’re Living Beyond Your Means
You Have No Savings
Sooner or later, you’ll have an emergency of some kind; medical, automotive, or other necessary expenses can crop up at inconvenient times. Having a reserve of cash saved to deal with these emergencies can not only take some of the stress out of the situation but can keep you from going into debt to handle them, making your problems even worse. The inability to build such a fund can indicate you may be living beyond your means.
You’re Living Paycheck to Paycheck
Over half of North Americans live from paycheck to paycheck. This means that they find no money left for savings and often find it hard to even make it from one paycheck to the next. If you find yourself in this situation, there are only two possible solutions: generate more income or lower your expenses.
You Vacation on credit
If you’re considering taking out a loan to enjoy life, chances are you need to rethink your plans. This is a definite red flag for living beyond your means. I get that it feels great to chillax in the short term — sitting by the pool, drinking margaritas. But once you get back to real life, you’ll quickly regret spending money that you don’t have.
The Necessities Are Lacking
If you find yourself trying to come up with the money to afford necessities of life, such as food and clothing, you have some expenditures that are out of place in your priorities, even if you don’t think that’s the case. It might also be time to reassess exactly what qualifies as a necessity.
This is a conversation I have with my teenager all the time: “Shoes are a necessity. $150 Yeezys are not.”
You Pay Your Bills by Creating New Ones
If your only option to pay important bills is to take out a loan, use credit cards or borrow money, not only can you not afford your current lifestyle, but you’re digging yourself a deeper hole, one bill at a time.
Keeping Up With Those Joneses
Whether you suffer from a need to try to “keep up with the Joneses” or are just afraid of what your friends and family will think about you if your lifestyle changes, this is a dangerous trap to fall into. Remember, rarely will those that genuinely care about you be upset that you’re healthier, happier, and more stress-free.
Your Credit Cards Carry a Balance
While many use credit cards for a variety of reasons, there are more than a few people that count their available credit balances as part of their income to decide what they’re going to spend every month.
Once they’re maxed out, guess what? You’re living even further beyond your means than before, but with an extra bill to pay! If you find yourself paying just the minimum payment on your credit cards each month, these cards are part of the problem in your financial plan, not part of the solution.
You Hate Checking the Mail
Most people grumble about the mail containing “nothing but bills,” many times in a somewhat good-natured way. The problem I’m referring to is when you hate checking the mail because it doesn’t just contain bills, but bills with “OVERDUE” stamped on them, or even worse, collection notices.
If you’re suffering from mailbox-phobia, it’s is a clear sign that you’re living beyond your means, and why you need to get control of things as soon as you can.
Why You Need to Get Control of Your Finances
There are many reasons to take control of your finances and get your life back, and one of them is the fact that you’re most likely shortening your life by not doing so. Studies have shown that high levels of stress have a negative impact on your health, and nothing is more stressful than struggling to survive month after month.
Also, the emergencies I mentioned earlier can crop up at any time. If you have no savings or emergency fund on hand and have maxed out your borrowing ability just trying to make it month-to-month, how will you handle them?
For instance, if a $300 auto repair could render you without a way to get to and from work for a week or more, this could change your life in a negative way that only compounds your existing problem.
Five Steps You Can Take to Make Changes
If you’ve come to the realization that you have a problem when it comes to living beyond your means, there are some simple steps you can take to assess your current situation, create a plan and get things back on track.
It’s not necessarily an easy process, but it is simple. With a little bit of work, you’ll be able to get your financial house back on track.
1. Create a Detailed List of Expenses
If you haven’t taken a good look at your monthly expenses, you may be surprised by how much money you’re spending that you don’t have to.
However, the only way this can be effective is to look at all your expenses, no matter how small. After all, a $20 meal out may not seem like it would have much of an impact on your budget, but those twenties add up.
How many of these small unnecessary expenses do you have, and how many could you skip, possibly saving hundreds of dollars a month?
One of my favorite (and personal) examples is coffee. I know that spending a few dollars on a coffee might not seem like much, but what happens when you multiply that by 30 days. Next, multiply that by 2 people. Make no mistake, it adds up quickly to the tune of several hundred dollars per month.
2. Decide What’s Essential (and what’s not)
Elaborate phone plans, high cable bills, entertainment expenses, eating out—all of these are typical problem areas for those living beyond their means. The good news is that if you take an honest look at what you spend, you may be surprised by just how easy it could be to find relief from your financial stress.
This takes a shift in your mindset. Remember, “It’s only $20” can turn into hundreds of dollars per month if you don’t realize how many times you say that.
3. Look for Places to Cut
This may seem painful at first, but once you take a hard look at what you’re spending and, more importantly, what you’re spending it on, you’ll most likely find some areas where you can easily cut back on your expenditures.
Don’t make excuses. Start by identifying the truly important bills (utilities, rent/mortgage, food), then look at where the rest of your money is going. It’s in these items that you’ll find things you can do without.
4. Create a Plan
Once you find the things that can be eliminated from your spending every month, it’s time to create your plan. To do this, you need to create a budget that covers essentials first, then uses what’s left over for anything that doesn’t fall under the heading of an essential.
As you’re working through this process, don’t forget that saving should be an essential expense. Your plan should include a set amount that you will save every month until you’ve built an emergency fund that can keep you out of hot water when an inevitable problem happens.
If you create your plan, but you still don’t have enough money to cover your essentials, you’ll have to go back over your expenses and find more ways to reduce them or alternatively, find additional income.
5. Track Your Progress
Keeping track of how well your plan is working will accomplish two things:
- It will show you any areas you need to tweak to improve your plan.
- It will make you more accountable.
When you know you’re going to be checking your spending against your plan at the end of the week, it will make you think twice about some of your spending choices. This awareness is a good thing because this is the easiest way to change your habits.
I also recommend keeping track of your expenses manually, in a spreadsheet. I know there is great temptation to use fancy software that automatically downloads and categorizes your transactions. Avoid this temptation because it’s just not the same as physically seeing and entering a transaction manually.
It like the difference between buying a meal at a restaurant or making it by hand.
A Sidehustle Is Only Half of The Solution
As I said at the beginning, there are two ways to deal with living beyond your means; you either reduce your expenses to a point where you can afford them on a monthly basis or you can find a way to generate additional income. Sometimes, doing both is the answer.
I know that many people say finding a “side hustle” capable of bringing in additional income is the solution. But the truth is, it’s only one-half. Without a solid plan for how to spend your new income, you’ll soon find yourself in the same situation as you were before your side hustle started to pay off, except with even larger bills!
Somehow, no matter how much you make, money always manages to find a way to spend itself.
The only permanent way to deal with living beyond your means is through a change in your spending habits. Without following the steps I outlined above, no amount of extra income will increase your quality of life permanently or allow to generate cash reserves.
Take control of your financial life, and your life will improve overall. It may seem like you have no way out, but lesser people than you have dug themselves out of deeper financial holes. The only way that will happen, though, is to realize you have a problem and start changing your spending habits.