Whether or not you’re living a lifestyle you can’t afford depends on how you define what your “means” are. Living above your means can include spending more than you earn, or spending more than you can comfortably manage using your credit. One of the easiest ways to determine if you’re living within your means is to create and use a personal budget.
Temporarily spending more than you make won’t bankrupt you.
Spending More Than You Make
The bottom line indicator of whether you are living beyond your means might be that you’re spending more than you make. You can spend more than you make one month if you will have more income than expenses in a following month and not be living beyond your means.
If you start racking up credit card debt you won’t be able to pay off by the end of the year, that’s a sign you’re spending too much. If you overdraw your checking out more than once, you’re probably in trouble.
Asking for Advances and Borrowing
If you start asking your parents for your allowance early or your boss for advances on your paychecks, you might be in a spending pattern that’s too high. If you need to hit your roommate or classmates up for some cash — even if you can pay it back — that’s a sign you’re not managing your spending.
High Credit Card Debt and Interest
Credit cards a convenient way to make purchases without having to carry cash, but if you use plastic because you don’t have the cash to buy something, you might be living beyond your means.
Once your credit card debt reaches a point you can’t pay it off in the next few months, you will start generating large interest payments, continually increasing your debt and potentially losing control of your finances.
If you max out or overcharge your limit, you’re spending too much. Even if you can make your minimum monthly payments, if you are using too much credit, you will damage your credit score. Try to keep you debt to less than 25 percent of your available credit to maintain a good credit score.
Late or Missed Credit Payments
If you start missing loan or credit card payments, can’t pay back money you borrowed from family or friends, or are late paying bills such as rent or your car payment, you’re obviously spending too much. Ask yourself if you need to make a purchase if you don’t have the cash for it.
If you can’t pay cash for something, it might be a sign you shouldn’t buy it. Create a personal budget that lists your monthly expenses and your income. Set your spending limits so that you not only spend less than you make, but also save money for an emergency, college tuition or other need. Update your budget by plugging in your spending each week to stay on track.