Are you living beyond your means? If someone is living beyond their means, they are spending more money than they can afford. It is pretty easy these days to live way beyond your means, especially since we live in a time when buying on credit has become the norm. However, this can push you deep into a hole that you may find really difficult to get yourself out of.
The good news is, if you are aware of your financial capabilities and limitations you are more likely to make more financially sound decisions. Here are a few signs to be aware of to avoid doing a real disservice to your current and future well-being.
You are saving less than 5pc of your income.
It is a generally accepted tip to save between five and 20 per cent of your monthly income. If you are saving less than five per cent of your gross income, you are likely in over your head.
If you are saving some money every month but is far from the desirable 10 per cent, then this might be an early sign that you are falling into a dangerous path.
Whichever category you fall into between the two, there is a need for you to change your way of life before your habits catch up and your finances take an irreversible hit. Begin by logging a financial journal to assess which areas you could be spending a lot more than you need to.
Next draft up a budget that includes your savings. Changing your situation will involve slashing a lot of your spending. You can choose to strike off major unnecessary expenses such as housing or car payments, or the smaller less obvious expenses such as restaurant meals which in the long run add up to a considerable amount.
Whatever course you decide, choose one you will adjust to more accordingly. Remember that no situation is permanent, and so when your finances are up, you can slowly re-introduce these expenses when the time is right.
Your housing costs more than 30pc of your salary
It comes as no surprise that the largest monthly expense of many Kenyans is housing. It is quite understandable that you would want to live in a home that is spacious and conveniently located.
However, are you aware of how deep this might impact your finances? Is it at all worth it to spend way more than you can afford on housing if it places your finances and quite frankly your whole future at risk? You are far better off finding a less luxurious home that you can afford.
Regardless of how big a paycheck you take home every month, housing expenses, be it a mortgage, insurance, maintenance, rent, property taxes or whatever else should never be more than 30 per cent.
Use this as your barometre to keep you in check and make sure you do not surpass this limit. Rationalising your spending How often do you make excuses for your overspending? How many times do you find yourself rationalising a purchase you know deep in your heart probably is not a good idea?
Do you have a clear conscience every time you spend your money, or do you at the back of your mind question your choices? The conversations you have with yourself are little clues to discovering whether you are living a too costly lifestyle.
When you find yourself tempted to make an impulse purchase, take a moment to pause and think through your actions. Take a moment to breathe. Think through the potential consequences, and remind yourself how good it feels to be in control of your finances, especially while living a debt free life!
I am not saying you are not allowed to splurge on yourself every once in a while. It is healthy to give yourself a little treat, but do so moderately so you can enjoy a little extra pampering without any pocket damage.
You cannot pay for the necessities
If you are skipping the basic necessities such as groceries, toiletries and clothing, then this might be a sign that you are spending way beyond your means. You could perhaps be spending too much on the larger payments like mortgages, and car pay but is it at all worth it if you can’t even afford the very basics?
What’s worse, if are you are constantly buying these basic items under credit, then your problem is way bigger than just buying a few household items. This probably means you are constantly trying to keep up with credit card payments, as you are spending money you really don’t have to spend.