In the age of plastic spending and mobile payments, it’s easier than ever to buy stuff you can’t pay for right away while supporting a lifestyle you can’t really afford. Let’s take a look at seven red flags that might indicate you’re living beyond your means and need debt relief. We’ll also give you the steps you can take to get back on track.
1. You’re carrying a credit card balance from month to month
Credit cards are a great way to earn rewards, pay for emergency purchases, and build a strong credit history. Unfortunately, they also make it far too easy to fall into the spending trap. It’s a lot harder to feel like you’re spending money when all that stands between you and a purchase is a plastic card. If you keep going, you will need debt relief help sooner rather than later.
If you have an outstanding balance on one or more credit cards and you’re only paying the minimum payment each month, you can end up carrying this balance for years. This means you will pay hundreds of dollars (or more!) in interest. You might also be tempted to make more purchases on this card since you already have an open balance.
The fix: Stop now before you need major debt relief. Try to double down on your monthly payments and/or make one extra payment each month instead of paying just the minimum amount. Stop using your card until the debt is paid off.
2. You stress about paying your bills
No one likes paying bills, but if you’re losing sleep over your bills, you need to take a step back to review your monthly budget and spending habits. Bills should be fixed into your budget and you should be able to pay them easily without any stress or nail-biting involved.
The fix: Take a long look at your monthly budget to find ways of cutting back. Cancel a subscription you never use, trim impulse purchases, start brown-bagging it at work more often or tighten the belt in any other way possible. You may need to rearrange some thing to obtain some debt relief.
3. You can’t save 5% of your monthly income
Financial experts recommend putting 20% of your monthly income into savings, or even more if you can swing it. At the very least, you’ll want to sock away 5% of your monthly take-home pay to fund your retirement and any other expensive purchases or events you might need to pay for in the future. If you can’t possibly do that now, and you’re left with little or no money at the end of the month, you’re living beyond your means. Savings aren’t an extra; they are a necessity that should be a fixed part of every budget.
The fix: Again, you’ll need to trim your expenses and restructure your budget to include a minimum of 5% for savings.
4. You don’t have emergency and rainy-day funds
Unexpected expenses, like a household repair or extra tutoring for your child, can disrupt your monthly budget and really set you back—unless you have some way to pay for them. Ideally, you want to have an emergency fund to cover major unexpected expenses, like a job loss or a medical emergency. Additionally, you want a rainy-day fund for small expenses you can anticipate, like replacing an aging appliance and sending your child to summer camp.
The fix: Start building your funds now by putting away as much as you possibly can each month.
5. Your mortgage payment eats up more than 30% of your monthly income
Most financial experts agree that your monthly mortgage payments should not exceed 30% of your take-home pay (that’s after taxes). Take a few minutes to do the math. If your mortgage is more than 30% of your income, you’re in over your head.
The fix: You have two choices here:
- Find ways to boost your income. You can seek a raise or promotion at your current job, freelance for hire, or find another side hustle to bring home extra cash.
- Scale back your mortgage payments by considering a refinance. If your mortgage is really crippling your budget, you might want to consider downsizing to a smaller and less expensive place. Want some expert advice? Submit a consultation request with one of our mortgage experts.
6. You lease a car you can’t afford to buy or finance
Leasing lets you live the life of a high-roller without the huge bills. The problem is that many people can’t really afford their leases either. You might be covering your monthly payments, but if you can’t do that while also putting money into savings, your car is too expensive.
Can you afford to pay for or finance your car? If the answer is no, you’re in financial trouble.
The fix: Downgrade your vehicle to one you can actually afford.
7. Your financial decisions are influenced by your friends’ spending habits
Thanks to social media and the hyper-sharing culture it introduced, the pressure to keep up with the Joneses is stronger than ever. If you find yourself making financial decisions based on what your friends are doing, you’re likely spending more than you can afford.
The fix: Stop looking over your shoulder and keep your eyes on your own life and your own wallet. If your friends have expensive taste, try to be the budget-conscious influence in the group. You may just start a new, financially responsible trend!
If you’re in over your head and need some debt relief, Money Federal Credit Union’s financial coaches can help! Contact us today. Our coaches will be happy to help.