There are many reasons that lead people into a lifestyle that they cannot afford. Societal expectations, financial mismanagement, poor life choices, and peer pressure are just some of the common culprits. But whatever the reasons may be, living beyond your means is an easy way to get yourself in a deep financial hole.
To avoid getting into financial troubles (or more than you already are), here are the warning signs that you’re living a life that you can’t afford and have to make lifestyle adjustments ASAP.
You have too much debt
Getting a housing loan, car loan, personal loan, or any other loan when you are not ready for it can easily lead to financial discomfort. When you don’t think it through or fail to crunch the numbers enough, your debt can end up being too much for your current income. And soon enough, you’ll find yourself having trouble paying off your debts or worse, failing to pay everything on time–if you pay anything at all.
That said, a high debt-to-income ratio is a clear sign that you’re living beyond your means. If this is the case for you, downsize your debts as much as you can by cutting down credit card expenses and avoiding new loans until you pay off your current ones. But if you’re already struggling to pay your current debts, you can consider refinancing them to avoid incurring even more late fees.
You’re using credit cards for vacation
If the latest trip to Siargao was financed almost entirely by your credit card because you don’t have the funds for it, then it simply means that you couldn’t afford it in the first place. More than that, you’re going to end up paying for your expenses several months after the vacation is over–and is that even worth it?
Instead of using your credit cards to finance your vacations, do it the old-fashioned way and save. Your vacation is going to be much better anyway when you know you’re not getting yourself into debt.
You have no emergency fund
The golden rule is to have at least three to six months’ worth of living expenses in an emergency fund. This will serve as your cash reserve in case you lose your job, get into a medical emergency, or have to make a large yet necessary expense.
If you don’t have an emergency fund because your expenses are too high, then you ought to be minimizing those expenses so that you can save for rainy days.
You have little to no savings
Speaking of saving, do you regularly deposit into a savings account? And we’re not talking about depositing whatever’s left in your payroll account–we’re talking about setting aside a certain amount every month and depositing it as soon as you receive your pay.
Similar to not having an emergency fund, having no savings because of your lifestyle expenses is a clear sign you’re spending too much. Your savings are what will help you get further in life, whether it’s making investments or putting down money on a house), so not having any at all is a clear sign that you’re not making the most out of your income.
You’re all too familiar with petsa de peligro
Do you find yourself reverting to your college dorm diet in the few days leading up to payday? Are you already lining up at the ATMs the minute you get out of work on 15ths and 30ths? Experiencing the occasional petsa de peligro is usually not a cause for concern–perhaps you’ve made a large yet necessary expense or invested in something promising–but if you go through the so-called ‘PDP’ each and every payday, then you likely have a problem with your spending.
Creating a budget and sticking to it is the best way to make your money last until payday. Aside from ensuring that you have all your basic needs covered, having a budget is a good practice for better financial management.
You’re taking out loans for gadgets
If you want to buy the latest phone, you should be able to afford it in cash. Otherwise, it may mean that you aren’t financially ready to take on this debt, more so if you already have other loans to pay for.
Unless the gadget is essential to your work or education, it’s best to hold off buying it until you can pay for it in cash.
Living a lifestyle that you cannot afford is never good for your finances. And if you’re unlucky, it can even lead you to significant financial trouble, such as huge credit card debts or defaulting on a loan.
If you notice one or more of these signs in your own life, it’s time to take a step back and reevaluate your spending before your finances take a turn for the worse. When you need help, it’s best to consult with a financial adviser or do your own research if need be.