The world today is full of trends and luxury lifestyles and people trying to keep up with the Joneses. There is no doubt that social media has played a huge role in influencing people to live above their means. From celebrities to influencers sharing their lavish lifestyles, we can be inclined to follow suit for fear of missing out or not being good enough.
If you are struggling to pay for things or your spending habits are derailing your efforts to save, invest and achieve financial freedom, these are clear signs that you are living above your means.
When you live above your means, it simply shows that you are going over your required monthly spending limit. Let’s say you are earning Ksh. 50,000 a month as salary. If you track and calculate your monthly expenses and they add up to Ksh. 80,000 in that month, then you are living above your means.
While some of these signs that you are living above your means are too obvious to ignore, some can go unnoticed.
Let’s go over all the signs that you are living above your means in this article.
Here are the signs you are living above your means today.
1. Your spending is influenced by people
This is one of the clearest signs you are living above your means. Do you find yourself swayed by your friends or family to spend money on things you have not planned for? It could be going out to dinner, buying the latest phone or even going on an unplanned vacation. A lot of us do this because we do not want to miss out on things and experiences with the people we love. Memories are great, but if you want to have a better relationship with money, meet your financial goals and stop living above your means, you need to be very intentional with your finances. You could start by reducing the time you spend with your extravagant friends/family or be honest with them about your new adjustments. They need to respect your decisions or you may have to find like-minded friends/family who share the same financial goals with you. Having financial discipline and practising self-restraint is a good start to living within your means.
2. You own a car or a house you cannot afford
Having a car or a house that you cannot afford is a sign that you are living above your means. If you live in a 3 bedroomed house or own an expensive car, while your salary indicates that you cannot pay for them, then you are living above your means. Perhaps you may have had to take off a hefty mortgage loan to buy your dream house and now you cannot afford to pay it off. Or this new car you just bought is costly to maintain or service. You can let them go if you want to grow yourself financially. It is not going to be worth it to get all that societal prestige and recognition whilst you are strapped for cash and heading to financial ruin.
3. You cannot pay your bills on time
If you cannot pay your bills on time, then this is a sign you are living above your means. This includes rent, utility bills and any debts you owe. Having to always avoid paying bills or asking creditors to give you extra time to pay your bills is a giveaway sign you are living above your means. When you live within your means, you do not have to worry about paying your bills, before the due date. And in case you cannot pay your bills on time, it is not because you don’t have the money to settle your bills, but because there has been a delay in remuneration.
4. You are spending more than 25% of your income on rent.
It is recommended that the amount of money you need to spend on rent should be less than 25% of your monthly income. Anything above that is a sign that you are living above your means. A lot of us don’t know this golden rule. We want to consider other factors for choosing a place to live like safety and accessibility and forget about the rates for living in that area. Do the math now and find out if how much you pay as rent shows you are living above your means or not. Being independent is great. Having your own house is greater. But if it’s difficult for you to make any financial progress because of this, you are better off looking for ways to live within your means like staying with your parents, or relatives or even getting a shared apartment with a friend and sharing the costs.
5. More than 28% of your income goes to your house
As a rule of thumb, not more than 28% of your income should go to your housing expenses. These expenses include all utility bills like gas bills, heat and electricity bills and water. If you cannot keep your housing expenses at or below this percentage range, then it is a sign that you are living above your means. For example, if you are living in a high-end area and you find yourself complaining about how expensive the water bills or electricity bills are, you need to evaluate your lifestyle and housing needs. For starters, you can start house hunting for areas that have affordable utility rates. This is a harsh truth and can be a bit difficult to achieve, but downgrading your lifestyle only means you are living within your means, right?
6. You don’t have an emergency fund
You may face a difficult period of need that requires immediate financial attention. If you do not have an emergency fund to take care of these risky unexpected life events, then you are living above your means. An emergency fund or a rainy day fund is any amount of money that you set aside to help you in case life’s curveballs threaten your finances. You could lose your job today, have a medical emergency, have to plan for a funeral or take a salary cut. If you don’t have an emergency fund to last you for the next 3 to 6 months before you get back on your feet, you may be forced to downgrade your lifestyle because you cannot take care of these financial risks. This is a sign that you are living above your means.
7. You are not saving or investing
How often do you save your money? How much do you set aside to save or invest every month? If you do not save or invest your money, chances are, you are living above your means. Most people who can’t save or invest always say that they have a lot of bills to settle and end up being left with nothing to save or invest. You should be able to save and invest some money for your future despite the endless bills and debts. Saving and investing are very good financial practices that will propel you towards meeting your financial goals. For example, you can start investing in long term assets like stocks on HisaApp and trade in the US markets. Financially successful people save at least 10% of their income every month. If you can do this, then you’ll stop living above your means.
8. You are living paycheck to paycheck
Living paycheck to paycheck is another clear sign that you are living above your means. When you live paycheck to paycheck, you can barely make it through the month until your next salary. Every shilling of your current paycheck is immediately used to pay for rent, groceries and other utilities and you’re left with nothing before the next paycheck. Money is always tight at the end of every month. If this is where you are at, then you are living above your means. Some of the major reasons why people live paycheck to paycheck are that they want to live a lifestyle they cannot afford, they do not budget and have general poor financial habits. Living paycheck to paycheck is frustrating and is a big hindrance for anyone who wants to achieve financial freedom.
9. You are spending more than you earn
This is easy to spot. First, you need to establish how much money you receive as income every month. Next, calculate your total expenses for the same month. You can do this on an excel spreadsheet. Primarily focus on the large expenses, but do not forget about the smaller and miscellaneous expenses. If your expenses go above your overall income, then you are living above your means. You may want to cut down on some things that you do not need in your expenses list and budget your money, to live a comfortable financial life.
10. Your financial decisions are influenced by future prospects e.g bonuses or promotions
A lot of us tend to make financial decisions based on the money we expect to come in the future. We will take a huge debt and go on that expensive vacation because your boss promised you a promotion, which means more money, right? If you are a victim of this, you need to stop living above your means. Do not rely on that bonus or family inheritance to up your lifestyle and get yourself things you cannot afford. Work with what you have. Take one step at a time. When you finally get that bonus, you can use it to buy that new car or go on that vacation.
11. You take out loans to upgrade your lifestyle
iPhone just released its latest iPhone14 and it is the most coveted phone in the market right now, for all iPhone lovers. While some people can upgrade to this new phone without breaking a sweat, if you are taking out loans to do this, then you are living above your means. Whether it is that TV set you’ve wanted, a bigger house or new home appliances, make sure that you can comfortably upgrade your lifestyle without loaning your way into it. You will have massive debts that will be difficult to pay off and this will just leave you in financial ruin.
12. You do not budget
Budgeting simply means coming up with a plan on how you intend to spend your income. With a budget, you have a list of your expenses and allocate a portion of your money that meets your expenses and then balance it out. A budget is good because it helps you know what you do not need and track your expenses. When you budget, you are more intentional about your money and focused on your financial goals. There are many different budgeting techniques you can use, for example, the zero-based budget, pay-yourself-first-method, 50/30/20 rule and cash envelope method. Find out what works for you and use that to up your financial lifestyle. Remember, you have to be self-disciplined if you want to follow your budget and live within your means.
13. You don’t track your expenses
I’ve heard a lot of people talk about how they do not know where their money went, after a series of poor financial choices. “ I don’t know where my money went. It just disappeared.” This cannot be further from the truth. If you can not point out where your money has gone and how you have used it, then you are treading very dangerous waters. You could be throwing away a lot of money without even knowing it. You need to stop living above your means and know where your money has gone at the end of the month.
14. You don’t pay off your debts
Getting into debt is frustrating and humiliating. Yet some of us do this, either subconsciously or consciously to ourselves. If you are strapped in heavy debt and it is seemingly impossible for you to get out of it, then it could be a sign you are living above your means. Perhaps you are taking out a loan to pay for something you do not need. If you have already maxed out your credit card, you have borrowed from all your friends and you have used all the loan apps, you need to evaluate yourself and find out if you are living above your means. If you have an old debt that just won’t go away, chances are you are not planning your finances effectively. When you live within your means, you do not have to worry about getting debt collection calls or being blacklisted by your creditors.
15. You are not saving for retirement
No one wants to work until they die. Financially successful retirees usually speak about how living within their means in their youth helped them in saving for retirement. They used the money to save for an emergency fund and plan for retirement. When you grow old, you become very vulnerable to health complications and managing your finances better now, is one way of taking care of your future self. Always look at things in the long term and make sound decisions like living within your means if you want to succeed in the future.
Final Thoughts
Sacrificing your financial future today by living above your means is one of the biggest mistakes you can make in your young life. It is sad that while many people do not know whether they are living above their means or not, some of us just plainly choose to ignore this huge possibility. It’s hard to come to terms with this fact because uncomfortable decisions will have to be made. But you have to think about your future self more than your current self. For there to be growth, you have to be able to face adversity and not push these telltale signs aside. Look at your current income and evaluate your financial goals. Start adopting good financial habits and always be on the lookout to know if you are living above your means as per your income. Think long-term and make sure that you do not maintain a toxic money mindset while poverty is creeping in from all corners. If you are patient enough and make the most out of your finances, you will be able to afford everything that you need. But first, put in the work and stop living above your means.
Related:
Investing 101: What’s the Minimum Amount Needed to Invest
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Investing 101: Fundamentals of Investing
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