Can the Caviar: 5 Signs You’re Living Beyond Your Means

Have you checked your finances lately? Are you financially fit? If you feel like money is going out at a faster rate than you can bring it in, you may be living beyond your means. Here are five tell-tale signs that could spell trouble for your financial health.

Spending vs. saving

You may be living beyond your means if you’re not saving at least 5 percent of your income.

Your savings won’t cover at least six months of expenses

An emergency fund is money tucked aside for an unexpected, costly event such as a medical emergency or shortened work hours. To determine how much you need in the fund, total up your family’s living expenses, including mortgage payment, car payment, food and utilities. A three-month reserve is reasonable, but six months is the conventional wisdom.

You save less than 5 percent of what you earn

Latest data from the Bureau of Economic Analysis show that in January 2013, the average personal savings rate was only 2.4 percent. A portion of Americans has a negative savings rate, which means not only did they not save, but also dipped into their bank accounts. Financial experts agree that a savings rate of 5 percent is the mark below which you may start getting into trouble. After you get into the habit of saving, try to shoot for the 10 percent target because that’s an indicator of a relatively comfortable retirement.

Your mortgage payment is more than one week’s salary

Ideally, you should not be putting more than 28 percent or your monthly salary into your mortgage payment. Some lenders take this cutoff as a preliminary measure of their borrowers’ ability to maintain a reasonable standard of living while paying off a house. As a quick rule of thumb, be wary if your mortgage payment consistently borderlines the 28 percent mark because it’s a maximum, not the average.

You overuse your credit cards

If you use credit cards to pay for everything from vacations to groceries, you may be racking up debt faster than you realize. The problem could be even more severe if you are repeatedly billed for overdraft fees. One overdraft may just be an incidence of forgetfulness, but if you get charged every few months, it’s a surefire sign of living beyond your means. In addition, if you are opening up new cards or transferring the balance from one card to cover the debt on another card, you may want to scrutinize your purchases more closely.

You have no idea how much you spend, or how much you owe

This is major symptom of living beyond your means. It’s important to know these figures because the first rule of personal finance is awareness. Only after you have an idea of the difference between your income and spending can you start devising a healthy financial plan.

Photo courtesy 401(K) 2013