With the ease of access to credit, it’s easy to find yourself living beyond your means. Not just that, the increase in social media marketing has made it worse. Every time you open a social media site, there are loads of pretty things and all these ads from influencers spending on luxurious items.
So, if you feel like you are struggling financially, it’s time to take a step back and ask yourself, are you living beyond your means? There are many reasons why people struggle financially. Living beyond your means is one of those reasons.
Below are top signs you are living beyond your means and what you can do about it.
Making Spending Decisions From Fear and Trends
A friend calls you, and they are like ‘uko?’(Swahili for where are you). Mostly, this is an invite for a night out or a weekend trip. So, the first question you need to ask yourself is, have you prepared for such expenses.
Unfortunately, many of us will want to participate even if we are not financially prepared. The same case applies when you want to buy an expensive gadget, equipment, or wardrobe item that you have not saved for.
Why? Because we have this fear of being left out or want to keep up with the trends.
Tip: You do not have to cut off your friends and your entire social life so that you can save. What you can do, though, is trying to plan for things that you engage in. For instance, you might not afford a weekend getaway with your friends, but you can organize a coffee or dinner date that you can afford.
You might not be in a position to keep up with the trends, but you can save to get that gadget or equipment. However, don’t try to keep up with your friends. You don’t know where they are getting the money to finance their lifestyle. Maybe they are also in debt or have multiple revenue streams and can afford the lifestyle they have.
Making Late Payments
Are you always late in paying for bills, like rent? Or perhaps you are even missing these payments and always asking for an extended deadline. First, try to figure out why you are constantly making late payments. Is it because you are living beyond your means, or you’ve no control over your finances?
Tip: If you live beyond your means, it is time to either cut down on expenses or get a side hustle. With the first, trim your expenses to the necessities, like rent, food, and transport. Next, get rid of wants, for now, like excessive shopping for clothes, takeaway foods, and entertainment. This will free up money to cater to your bills.
But there is only too much you can cut from your expenses. You do not have to live in destitute conditions to feel like you are saving. This is where a side hustle or an added revenue source comes in. You can use the extra money to pay the bills and set something aside for a rainy day.
Finally, if it’s because you have no control over your finances, it is time you did something about it. For example, are you missing payments because you do not know when bills are due? How about a planner and reminder? Alternatively, you can automate payments from your bank.
Using Credit For Emergencies
Many of us tend to rely on credit cards, mobile banking loans, and payday loans to meet emergencies. Sometimes, this emergency does not require a significant amount of money. But, since we have no emergency kit in place, we always lean back on these lenders.
These seem like an excellent idea at the time because you get the money instantly. But, have you considered the interest you have to pay back? For instance, digital lenders in Kenya have become a debt hole for borrowers with interest rates as high as 36%+ per annum. Yes, you will sort your emergency, but the price for this is way high than it needs to be.
Tip: This is why you need to start preparing for emergencies by having a fund to meet such expenses. The goal is to have at least 6 months of your living expenses in an emergency fund. But, it will take time to build such a fund, especially if you are not earning a lot of money or still have debts to pay.
So, start small, with at least a month of your expenses. Then, keep building this fund until you have 6 months of your monthly expenses. For example, if your monthly expenses, rent, groceries, and such bills are $400, your emergency fund needs to have $2,400. But, you can start building it slowly after every payday. Then, in case of an emergency, you can always rely on this rather than borrowing from predatory lenders.
Related read: 5 Important Things To Consider Before Taking A Loan
You’re Not Saving at Least 5% of Your Income
Financial advisors always recommend saving at least 10% of your gross income every month. But, there is a minimum you should always try to achieve, 5%. If you are not meeting this target, it simply means all your money is going to expenses, and you are not paying yourself. Always pay yourself first, and saving is one of the best ways to do that.
Tip: Start with the first step we discussed above to create an emergency fund. If you are making enough money but struggle with saving, automate your savings. Ensure that you set at least 5% of your income aside before you start saving. If you can, increase that percentage to 10%. Your retirement savings do not count in this.
The truth is, everyone can live beyond their means. It doesn’t matter whether you have a high income or not. But you can always get yourself out of the situation. The first step is realizing there is a problem with your finances. Now, you can do something about it and break the cycle. For example, are you spending based on fear and peer pressure, or are you relying on credit to finance your living expenses and lifestyle? Whatever the reason is, work towards rectifying it, like automating your savings and planning for expenses.