12 Signs You’re Living Above Your Means

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Did you know you could be living above your means and not even know it?

The reality is that 56% of Americans live paycheck to paycheck and don’t have a formal savings plan in place. Consumer spending is out of control, but this problem is so mainstream that it feels normal to get into debt and worry about paying it off later.

It doesn’t help that lenders and retailers encourage this way of life. But unfortunately, living above your means can create bad money habits and set you up for financial ruin. 

What is living beyond your means?

Living beyond your means comes down to basic math. Do you have more money going out of your bank account each month than coming in? If you have nothing left over to put into savings, you’re living above and beyond your means. 

The impulse to spend more than you earn is dangerous, as it can get you into debt, cause problems with your credit score, and result in missing bill payments. In a worst-case scenario, people living beyond their means can face financial ruin and bankruptcy. 

How do I stop living beyond my means? 

Knowledge is power, especially when it comes to your finances. To stop living beyond your means, you must know:  

Once you have all the numbers in place, you can create a sensible budget and adopt a frugal lifestyle. This will mean that you cut back in areas where you’re overspending to prevent you from living above your means. A budget will also help you create a savings pot to set aside money that will grow. 

12 warning signs you’re living above your means 

If you’re worried about your financial health, don’t be disheartened. The best approach is to check the following list to see if you’re displaying any of these 12 warning signs of living beyond your means. If you recognize any, it’s important to take positive action to put you in a better financial position.

1. Living paycheck to paycheck 

Are you always delighted when payday arrives, because that means there’s money in your bank account again? If you’re stuck in a cycle of spending all your wages and waiting for the next influx of cash to arrive, then it’s time to cut back. 

Living paycheck to paycheck isn’t always due to splurging your money on unnecessary items. It can easily happen to people who are careful with their money too. If you haven’t had a raise in a while, and the cost of living has gone up with mounting bills, then you can find yourself short on cash. 

The key is to know exactly what’s going on with your finances so you’re aware of where you might need to cut back. 

2. Wasting your bonus 

If you receive a regular bonus from work, or even if it’s unexpected, it can be tempting to spend it all as it falls outside of your budget, right? 

Wrong! 

If you’ve been lucky enough to receive a bonus, then you can use this to pay down your debt or add to your savings to support you in meeting your financial goals on time. 

Remember that if you’re paying interest on debt, it usually makes sense to pay off your credit cards or loan first instead of saving. That’s because the interest you’re paying on your debt will usually outpace the interest you can make on your savings. 

3. No savings or emergency fund 

Do you find yourself skipping adding money to your savings? This is a huge sign to get your finances in order. 

Regularly setting aside money means that you won’t need to rely on using credit cards to pay for emergency medical care or unexpected car repairs. You’ll also be able to save consistently for long-term goals such as a college fund for your kids or a shorter-term plan to go on a family vacation. 

For emergency savings, it can be helpful to have at least three months of your salary put aside just in case. That might feel like a daunting figure at first, but start by trying to save $1,000 and then take it from there. 

If you can stick to a savings plan each month, then you’ll be amazed at how much you’ve saved after a year.

4. Having a balance on credit cards 

A key sign that you’re spending above your means is if you have any balance on a credit card or personal loan. This could be with a single lender or spread across multiple credit products. 

If you have a balance on your credit card and you’re working on paying it down quickly, then that’s great that you’re taking positive action. However, if you find yourself adding items to your credit card and your balance is rising, then you’re spending too much. 

It’s also worth keeping an eye on your credit score. This is an indication of your financial health and behavior towards debt accumulation. If you have a low score, this might be because you’re struggling to pay your bills or have missed your credit repayment dates. 

5. No retirement savings 

Unless you plan to work for the rest of your life, saving for retirement should be a top priority. When money is tight, it’s tempting to stop putting money aside for your future, but this is a mistake. 

The earlier you’re able to start contributing to a retirement fund, the greater the compound interest will be on the savings you’ve set aside for later life. You can begin by finding out if your employer offers a 401k plan, meaning that you will receive tax deductions when you contribute a portion of your salary straight into your retirement fund. 

6. Anxiety about bills

If your finances are affecting your mental health, this is a red flag that you need to gain back control of your money management. A 2021 report found that a substantial number of US adults aged between 21 and 62 had felt anxiety and stress about their personal finances. 

Stress can be all-consuming and might even affect your physical health too. Some people might experience a panic attack, whereas others might find it hard to eat when they’re feeling anxious. Taking positive action to live within your means can help manage the stress of financial issues, but you may also wish to consult a doctor if you’re struggling with your mental health

7. Mortgage or rent payments are too high

There are many areas of a budget to cut back on, but usually, the largest expense you’ll pay each month is your mortgage or rent.

There’s a 28/36 rule that financial institutions use to decide how much debt an individual can responsibly take on. Mortgage or rent costs shouldn’t be more than 28% of their gross income while their total debt, including car loans and credit cards, shouldn’t exceed 36%. 

It’s useful to consider these numbers when planning your monthly budget. If your mortgage or rent has risen or your salary has reduced, these numbers may be out of whack. Take steps to realign your budget – for example, finding a more affordable place to live. 

8. Trying to keep up with the Joneses

Have you heard the phrase ‘keeping up with the Joneses’ before? If not, you know the feeling when your neighbor gets a shiny new car, or your school mom friend has bought the latest designer handbag? 

If you find yourself splashing cash you don’t have, then this is keeping up with the Joneses, or the Millers, the Smiths, the Andersons, or whoever you’re idolizing. 

This is a common problem, particularly as social media takes a magnifying glass to people’s personal lives. We can quickly become green-eyed over their latest possessions, vacations, or homes. 

But remember that if you try to copy other people’s materialism when you can’t afford to, you can end up in unnecessary debt. Always ask yourself – can I afford this upgrade right now? If the answer is no, then don’t give in to temptation. 

9. Not saving for college 

American student loan debt stands at $1.58 trillion, with the average borrower taking on $38,792 to fund their studies. 

Many parents like to splurge their cash on their kids’ clothes, birthday parties, and Christmas presents but don’t have anything set aside for college. If this sounds like you, then the sooner you start building that college fund, the better. 

Every thousand dollars you can save will be a thousand less that your child has to take out in loans. 

10. Paying for purchases in installments 

Paying for large ticket items in installments can seem like a super affordable way to afford things you don’t have the cash for. And if these are offered interest-free, then it’s ok, right? 

Not necessarily. Let’s say you want to buy a top-of-the-range HD TV that costs $2,400. You may not have $2,400 to spare today, but if you spread the cost on an interest-free basis over 24 months, then that’s $100 a month. 

That might sound a pretty great deal. But remember that losing $100 a month from your budget for the next two years is an enormous sacrifice. This gets worse if you start taking out interest-free deals on other items like new furniture, an iPad upgrade, or a designer watch. Add up all of your ‘affordable’ installment costs, and suddenly you have very little room left in your budget. 

It’s not healthy to splice your monthly income up by paying off debt, even if it seems like a win-win. Instead, focus on setting aside money to save up for future purchases. 

11. Driving a car you can’t afford 

People attach a lot of importance to the car they drive. Some see it as a status symbol, while others feel safer in a larger, more expensive 4×4 vehicle. 

But we all know that cars depreciate quickly in value. So when you buy a new car, it’ll be worth a lot less a year later than you’ll have paid off in finance. This frustrating situation is why it’s so important to drive a car you can afford – ideally, this shouldn’t cost more than 10% of your salary. 

Another option is to buy a used car, which will typically be much cheaper. Remember to factor car-related costs like gas and insurance into your budget. 

12. You haven’t invested in insurance 

Taking out insurance is a sensible way to protect yourself against life’s unexpected events. This should be one of the top priorities in your budget, and if you can’t afford it, then try to find other areas to cut back on. 

Essential types of insurance to have are:

  • Medical insurance 
  • Home insurance 
  • Travel insurance 
  • Car insurance 

If you’re an employee, chat to your HR department to see what insurance options are available as part of a benefits package. Otherwise, you can research the most affordable cover in the market by using comparison sites. 

What is living within your means? 

Living within your means is the opposite of living beyond your means. It means being financially responsible so that you’re:

  • spending less than you earn 
  • ensuring your income covers all expenses
  • setting aside money regularly to go into savings 

How to live below your means 

Living below your means is easy when you know how. It all hinges on having a detailed knowledge of your finances and creating a customized budget so you know exactly how much money you have coming in. From here, you can make changes to live frugally and set aside cash for the future.

Living above your means is a shortcut to financial ruin. If you’re displaying any of these tell-tale signs that you’re spending more than you earn, it’s time to get your head out of the sand. Arm yourself with all the information you need about your personal finances and take positive steps today to make life-long changes. 

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