Discover the 9 Telltale Indicators That You’re Overspending, Plus How to Effectively Combat This Habit!

BUDGETING
9 Tips to Know if You’re Spending More than You Can Afford (and How to Fix It)
By
Marc Andre
August 5, 2022

Living beyond your means can lead to serious financial trouble no matter what your income is. It’s a common issue as credit makes it easy to foster a false sense of financial safety. Spending less than you earn is the best strategy for financial stability.

Being careful with your money doesn’t mean you need to live a deprived life. You just need to manage your money wisely and know where it’s going. Here are some signs indicating you might be spending more than you can afford. If a few of these warnings apply to you, it’s time to reassess your financial habits.

1. You’re Unsure of Your Monthly Expenses
Uncertainty about how much you are spending each month suggests you might be underestimating your expenses. To remedy this, try tracking your outgoings. This may seem tedious but knowing where your money is going can provide a clear picture of your financial state.

2. Your Credit Card Debt is Growing
Increasing credit card debt is a big warning sign. Regularly paying off your debt, or not having any at all, is the ideal situation. But carrying some credit card debt doesn’t automatically mean you’re living beyond your means, especially if you’re actively working to pay it down.

3. You Lack an Emergency Fund
Lacking a safety net can plunge you into debt during unforeseen situations like job loss, health issues, or family emergencies. Aim to save enough to cover your living expenses for 3-6 months.

4. You’re Saving Less than 10% of Your Income
Try to save at least 10% of your post-tax income. If you’re struggling to save, consider adopting frugal living tips to cut down your expenses and save more.

5. You Run Out of Money Before Month-End
Consistently running out of money before the end of the month is another sign you’re spending too much.

6. You Worry About Paying Bills and Small Expenses
Constant stress about monthly payments and even small costs is a signal that your money management might need improvement.

7. Your Credit Score is Below 650
A low credit score could be an indication that you’re not managing your money well.

8. Your Housing Costs More than 28% of Your Income
Try to not spend more than 28% of your gross income on housing expenses. Anything higher might suggest you’re living outside of your means.

9. Others’ Opinions Influence Your Spending
Avoid making financial decisions based on other people’s opinions or your desire to impress.

Here’s What You Can Do

1. Plan a Budget
Create a budget to guide your spending. It needn’t be complicated.

2. Establish an Emergency Fund
Prioritize setting up an emergency fund if you don’t have one, or add more to it until you reach a comfortable cushion.

3. Decide on a Debt Repayment Plan
Make debt reduction a priority. Consider methods like the debt snowball or the avalanche technique depending on what works best for you.

4. Automate Your Savings
Set automatic contributions to your savings to ensure you consistently save a portion of your income.

5. Consider Side Gigs
Think about starting a side gig to bring in extra income.

Spend Wisely for a Better Tomorrow
How well you manage your money directly impacts your financial health more than the size of your income. Recognize if you are spending more than you earn or can afford, and if so, follow these steps to improve your situation. Keep in mind the importance of action: don’t ignore these signals and tighten your financial belt for a more reassuring future.