Living Beyond Your Means? 5 Signs That You Might Be

4,000 to 10,000 advertisements. That's the number that digital experts estimate most Americans are exposed to - per day! 

Such unrelenting commercial bombardment is exerting a powerful effect - one that convinces us that consumption is the key to a meaningful life. But this cannot be further from the truth. Living below your means is important for financial success. 


It's a familiar story, and it usually ends like this, 'I just don't know where it all went!' 

Yes, I hear you. I know how easy it is to live beyond your means in today's culture. To compare our financial situations to those of our families, friends, or neighbors. 

Turns out there's even a psychological aspect to this social pressure. Some psychologists call it the herd instinct. Basically, our brains are designed to try to make us fit in. 

And just like that, too many people spend money they haven’t earned to buy things they don’t want to impress people they don’t like.

It is no wonder the average person's credit card debt is a staggering $5313! 

But if you're sick and tired of spending money you don't have, it is time to buckle up and get your house in order. 

OK, so you might not want to pass on that 3rd happy hour for the week that you know will cost you another $50. But when you remind yourself that you're saving up for that house down payment, it will be much easier to ask your friends to join you for some (more affordable) drinks at home.

So how do you know if you're spending beyond your means? Here are 5 straightforward signs. 

Key Signs That You Might Be Living Beyond Your Means

  1. You don't have an emergency fund 

  2. You're not saving at least 5% of your disposable income
  3. You carry a balance on your credit card
  4. You're making large unplanned purchases (especially because they're on sale)

  5. You spend more than 30% of your income on housing  

1. You don't have an emergency fund

Get this: According to a survey by Bankrate in 2020, nearly 4 in 10 Americans would not be able to cover a $1000 emergency!

And you'd be wrong to think that financial emergencies are uncommon. Within the last year alone, 28% of Americans experienced a financial emergency. 

Crazy, right? I know! 

This is why personal finance experts, who disagree on almost everything else, almost all get behind having an emergency fund. And for good reason. Having an emergency fund is the backbone of any financial plan.

It can be especially crucial to have a financial buffer if you are already in debt to avoid relying on high-cost solutions such as credit cards. With the average credit card interest currently at 16.12%, you probably (definitely? ), want to avoid being in a position of having to borrow during an emergency.  

Not having an emergency fund is a pretty clear indicator that you are living beyond your means and need to re-evaluate your spending habits. 

Related: Emergency Funds: What you need to know

2. You're not saving at least 10% of your disposable income 

With so many competing priorities, it might be easy to lose track of where all your money went. But if you want to achieve financial security, you will need to take a long hard look at your finances. 

Be honest. Do you know how much you save each month? 

We all have different financial situations so can't have one savings rate that works for us all, but if you are saving less than 10% of our gross income, that might be an indicator that you are living beyond your means. 

In fact, you've likely heard about the 50/30/20 rule budget which recommends that you should dedicate 20% to savings and debt. 

Related: What Is The 50/30/20 Rule Budget And How Does It Work?

3. You carry a balance on your credit card 

If you have credit card debt, you’re not alone. At a staggering $5313, the average U.S. household's credit card debt tells a nasty story. So many people are spending money that they simply do not have.

What' more, with the average credit card interest currently at 16.12%, this high-cost debt can very quickly spiral out of control. 

And compounding interest would be to blame for that. 

You might be thinking - Wait, I thought compound interest is meant to work for me through investments?

See, compounding interest works for the lender (aka credit card provider) when you’re in debt. 

Missing loan payments or falling behind can have serious effects. To counter the negative effects of compound interest, you should pay off your debt as quickly as possible. 

If you have a credit card debt that just keeps stacking up, you might be living beyond your means. 

This is a habit you definitely want to shake off pronto. 

Related: How compound interest can work for (and against) you

4. You're making large unplanned purchases (especially because they're on sale)

It's only a good deal if you were always planning on getting it even before the sale! Simple as that. 

In today's culture, it really is easy to get sucked into the latest trends and impulse buying. FOMO much? 

But if you want financial security, you need to filter out the noise and be smart with your buying decisions. It is very difficult to be responsible with money if it is not working toward a goal. You need to set financial goals that reflect what truly makes you happy.

News flash: Warren Buffett bought his 5 bedroom house, which he still lives in, for $31,500 in 1958 - that’s $250,000 in today’s dollars. It makes up 0.001% of his total wealth. 

Do you see where we're going with this? 

Of all the people in the world (quite literally), if Warren got himself a McMansion, heck if he got himself 10 of those, no one would raise an eyebrow. I mean, the guy is a billionaire! 

But Warren was quoted saying, "I'm happy there. I'd move if I thought I'd be happier someplace else."


Now it's your turn. Are you ready to think like a millionaire billionaire?

Related: How to set SMART financial goals

5. You spend more than 30% of your income on housing

Rent or mortgage payments are likely the biggest expenses on your budget. Curb this cost and you will put a lot of extra dollars to your pocket! 

A good rule of thumb is to keep your housing costs less than 30% of your income. Millennials are sadly spending a whopping 45% of their income on rent alone according to a new study. 

Most millionaires, on the other hand, spend 25% of their disposable income on housing. You should too. 

Final Thoughts

You can start living within your means today. The first step you can take is to create a plan for your hard-earned money. With the right money mindset, budgeting, and financial planning, you will be pleasantly surprised how far you can go simply by not indulging and being intentional about living below your means. 

Signs that you are living beyond your means

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