Many people today are living beyond their budget. Unfortunately, they don’t know how to interpret the signs that their spending habits are unhealthy and end up living in debts. The pressure to meet certain lifestyle standards are contributing significantly to this trend. L
iving beyond your budget can leave you financially and economically vulnerable in times of emergencies, and this is not a position in which you want to find yourself. Here is a comprehensive checklist of the warning signs that you are living beyond your budget and practical solutions to this challenge.
Zero Savings
Saving is the foundation of a healthy financial life, yet very few people save. One of the excuses that most people give for lack of savings is that they have too much debt. However, it is essential to understand that unless you prioritize saving, debts will always be an issue. Savings protect you in the event of life uncertainties such as unemployment, illness, disability, and family emergencies. A financially healthy individual should have savings of at least six times his income at all times.
The first step to saving is setting long term and short term goals. Short term saving goals may include having an emergency fund that is six months worth of your income, a Christmas fund, and a vacation fund. The long-term one focuses on retirement, setting up a college fund for your children, a car replacement fund, and so on. With this in mind, you can start to save approximately 10 or 15 percent of your monthly income.
Credit Card Balances
In the modern society, it is not unusual to see individuals using credit cards as the primary method of payment. In fact, credit card companies offer various incentives that encourage customers to use their cards. There is no harm in taking advantage of this convenient payment method as long as you pay off the balance by the end of the month. However, if you find yourself carrying forward balances from month to month, you are living beyond your budget.
If your current credit cards have balances, start by doubling or tripling the amount you pay on a monthly basis to enable you to clear the balances. Train yourself to carry cash when you go out shopping and leave your credit cards behind. Divide your monthly expenses into various categories such as groceries, beauty products, and going out. Set aside some money for each expense, and if possible, put it in separate envelopes. When the amount of money in a given envelope is depleted, don’t use your credit card – stop spending on that expense until the next month.
Constant Late Fees
People who save and have enough money in the bank can always pay their bills on time even when their income is late. However, if you find that you’re always late in paying rent, utilities, and other monthly bills, you are living beyond your budget. Look at your bank statements, and if you have had late fees over the past six months, you should re-examine your finances and spending habits.
Track your expenditure in the last few months, and you will find some items that you can’t afford and others that were as a result of impulse purchases. For example, you may be spending a lot of money on overly expensive items that don’t match your finances. Cut down on such things and save the money instead. Eventually, you will comfortably pay off your bills on time without having to acquire loans or borrow from family.
Living within your budget may mean denying yourself luxuries or a particular type of lifestyle for a while. However, you will be able to make savings, invest, and safeguard your financial future. Eventually, you will be able to afford these luxuries without exposing yourself to financial vulnerabilities.