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Five Signs You’re Living Beyond Your Means (And what to do about it)

Living beyond your means

Dear Cookies,

So how do you know if you’re living above your means — in other words, spending more than you’re bringing in? Not being able to cover the bare necessities is an obvious red flag. But there are some other tell-tale signs that you’re in over your head. This topic was originally posted in an article of yahoo finance. We loved the idea, but also wanted to add easy, simple steps you can do to get yourself back on track, if you do find you’re living beyond your means.

#1.  You couldn’t survive financially without your job’s income for at least six months.

Some call it an emergency fund, at Smart Cookies we call it our  “sleep peacefully fund,” but whatever you call it, you need it. In its 2012 annual financial literacy report, the National Foundation for Credit Counseling (NFCC) found that 39% didn’t have any non-retirement savings.

Solution: Use an app like Impulse Save that lets you automatically transform what would have been an impulse purchase into an impulse save.

Impulse Save

#2.  You’re saving less than 10% of your pay.

Financial advisers differ on the ideal savings rate, but this is a general guideline, “If you haven’t been saving at least 10% of your income for retirement since age 25, you’re not saving enough.” And if you’re over 35, you should tuck away more than that. In general, if you’re planning to retire at 65, you’d need to save 15% of your income.

Solution: Use a retirement calculator (you can find our favourites here), and crunch the numbers on exactly how much money you need to live your sweetest years, exactly how you imagined.

#3. Your credit card balance has remained the same for the past year.


Simply holding your own (where your balance remains the same) is a good sign you’re living beyond your means, and if your balance grows each month, you’re way out of bounds.

Solution: Challenge yourself to find the hidden money in your life, and put it towards your debt with the highest interest NOW. You could trim your cable, switch your cell phone plan, or stop eating out everyday. The money you need to pay off your debt is all around you, you simply need to make smarter choices.

#4. You pay an overdraft fee on your checking account every three to four months, or more.


Overdraft fees — or “non-sufficient funds fee” in bank-lingo — are charged when there’s not enough money in your account to cover a check or debit card payment.

Solution: Get automatic control of your money. Sign up for Mint.com or use your bank’s online tools to get automatic e-mail or text reminders throughout the month.

Mint

#5. Before buying something, you often think, “I know I shouldn’t, but…”

“I know things are tight, but I need to take that vacation, it’s for my mental health,” or, “I work so hard, I deserve that new flat-screen TV.” Sound familiar? That’s just rationalizing what you know is not a good idea for you… like a spa day or an expensive dinner out. You don’t often hear that from people who are comfortable financially, but more so from those who are struggling.

Solution: When you’re tempted to make a big impulse purchase, pause, take a breath, and remind yourself how good it’s going to feel when you’ve paid off your debt and are living debt free. Then, allow yourself a mini-splurge. For example, instead of a spa day, buy a new nail polish and invite a girlfriend over. Or, simply buy a day pass at one of your local posh hotels (much cheaper than a spa service day), and you can still put on the robe, use the sauna, and soak up some luxe relaxation. Point is – you can let yourself enjoy some pampering without doing too much damage.

Yes, living within your means isn’t always easy, but you’ll be one step closer to living a sweet life.

Xoxo,

Smart Cookies

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