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Warning Signs That You Are Living Beyond Your Means


Today, it is relatively easy to find yourself living a lifestyle that you cannot afford. Perhaps, this explains why more than 40% of Canadians don’t have enough money on hand to cover a $500 emergency. 

Even high earners struggle to cover emergencies, and the average credit card debt for Canadian households that carry a balance is close to $10,000. 

The new norm is quite a dangerous thing for you and your long-term financial life. Living beyond your means can trap you in a cycle of debt leading to a lot of unwanted stress.

But how can you know that you are living beyond your means? Here are some of the warning signs you are living a lifestyle you simply cannot afford.

You Have Not Set Aside an Emergency Fund

One of the reasons you need savings is to pay in cash for some of the inevitable emergencies that life might throw your way. For instance, you don’t need to get stranded if your car breaks down unexpectedly or when your roof develops unexpected leaks.

However, charging these types of expenses on your credit card or financing them with a fast cash loan will only make things worse.

Try to build an emergency fund of at least $2,000 to cushion you when the unexpected happens. Start small and try to set aside as much as possible every month to attain your target amount.  

You Are Not Saving At Least 10% of Your Net Income

The 50/30/20 budgeting rule implies that you should be saving at least 20% of your net income every month. This amount can include what you have contributed to a savings account, retirement account, and emergency fund. 

20% is usually considered a safe bet for helping you set aside enough money to cushion you in case of an emergency. However, a significant number of Canadians don’t save money at all. 

Even though 20% is considered the minimum threshold, if you are not saving at least 10% of your net income, then you may be living beyond your means. Technically, it means that if you are paid $60,000 a year, then you should strive to save at least $6,000.

You Are Living Paycheck to Paycheck 

At least 78% of employed Canadians say that they live paycheck to paycheck. If you realize that you are among this group of people, then you may need to re-evaluate your lifestyle. 

Quite often, overspending on non-essential things or simply living an expensive lifestyle that you cannot afford may get you to this point. Is there anything you can do about such a situation? Yes. 

Take a step back, relax, and carefully look at your budget and paycheck to establish where your money is going. You may realize that there are a few cutbacks that can help you get out of the paycheck to paycheck slump.

You Put Your Vacation on a Credit Card

We cannot deny the fact that you deserve a vacation once in a while. However, you should never put the cost of it on a credit card or apply for a personal loan to finance it.

There is a general rule of thumb with loans and credit card purchase that you need to know. If it takes you much longer to pay off an item than the use/benefits you will get from it, then you simply cannot afford it.

The best way to avoid charging your vacation on a credit card is by setting up a savings plan well before your holiday and work towards growing it. 

 

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