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Are You Living Beyond Your Wallet?

According to the Consumer Reports Index, which measures American’s financial health, middle income families experiencing financial struggles rose during the month of January. This comes as no surprise, as a large part of society has become extremely reliant on credit cards and loans for just about everything. Despite the recession and depressed values in real estate, many are still chanting “consumption is king,” rather than “cash or saving is king.”

Our tendency to compare ourselves to others does not help (keeping up with the Jones’ mentality), nor does the avoidance of altering a lifestyle one has become accustomed to (something many suffer from).

So how do you know if you are living beyond your wallet, and what can you do about it?

  • Emergency Fund is non – existent
    You have not been able to put away a satisfactory amount to float you through times of trouble such as a lay off, medical emergency, or other unexpected large expense. It is ideal to have 3-6 months worth of expenses set aside to cover this need.
  • You are robbing Peter to pay Paul
    You find yourself delaying making payment to pay another vendor first because you don’t have enough funds to pay both bills on time
  • Your credit score is below 600
    Scores can range all the way up to 850. Missed or late payments, outstanding judgments, total debt ratio, and too many credit cards can all add to this score being low, which will hinder your ability to get good financing rates or any loans at all.
  • You exceed your credit limit
    A red flag should be going up if you are using 50% or more of the credit available on your credit card, and unable to pay your outstanding balance down on monthly basis. If you compare your credit card balance from year to year and notice you there has not been much change, there is more than likely an issue that should be addressed.
  • Overdraft Fees continue to hit your accountFees are incurred when money is withdrawn from the account via check processing, etc… and there is not enough in the account to cover it.

Overdraft protection is put in place to cover you when there is not enough money in your account. It is a checking account feature offering a line of credit to write checks for more than the actual account balance.While this may help you ward off overdraft fees, it can also be viewed as enabling you to continue to use money you don’t have.

  • 35% or more of you income is going into your home via mortgage or rent payments, maintenance, etc…
    Be careful not to bite off more than you can chew. What good is a big house if you can’t afford to eat or pay your utilities?
  • Inability to save 10% of your pay to put towards retirement
    This is one of those general rules of thumb figures. The point is that you should not be living a lifestyle where you are unable to put money away for your retirement every year.


Now what can you do about it?

  • Create a budget, and while doing so cut back in any areas you can such as dining out, “extras such as caller id” with regard to your phone bill, making coffee at home rather than visiting the local Starbucks, clipping coupons to save on groceries, etc… Also look for ways to save in areas such as water and energy.
  • Payoff any outstanding judgements
  • Limit credit card use and use fewer credit cards.
  • Look into whether refinancing your home or auto loan makes sense
  • Stop focusing on the size of your house and focus on the quality of your life and ability to save.Understand this may mean moving to a more affordable home.
  • After your paycheck hits, pay your bills first and then pay yourself! Take necessary steps to ensure saving such as setting up automatic transfers to your savings account, which can then be used to grow your emergency fund and/or retirement account

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