Financial Health: 5 Warning Signs You're Living Beyond Your Means

Below is an interesting article with regards to our personal financial health. I have been in this condition before and it is a struggle to try to live according to your financial capacity. Hope we all learn a few lessons. 

Financial Health: 5 Warning Signs You're Living Beyond Your Means
by Success Resources in Finance (submitted 2013-09-16)

Sometimes we look at those people who get in trouble financially and wonder how they ever got to that point. We think, That will never happen to me, or there's no way I'll ever approach a loan shark. The thing is, getting into debt is one of those things that sneaks up on you and when you finally realize you're at that point, it's too late. Kind of like that familiar story of a frog in boiling water.

We need to identify these symptoms of financial sickness early so we can get treatment and start working towards being financially healthy.

1. You are constantly discontent.

Do you find yourself constantly wishing you had more? Is it a challenge to watch your friends and relatives upgrade to nicer cars, bigger homes, better furniture or even more expensive independent schools for children?

If you're quietly saying yes, then your discontentment may be driving you to impulse financial decision-making. Reflect on your spending habits and evaluate whether many of your purchases are done out of true need or out of a need to fill some void in you or due to social pressure. Decide today that you will no longer live to impress others by spending money you don't have on the things you don't really need.

2. You can't afford to lose your income.

If today you, or you and your spouse, lost your income, would you be able to survive for the next 6 months only on what you have set aside in your savings? If the answer is a definite NO, you may be overspending on today's wants while sacrificing tomorrow's needs.

If that's the case, take a hard look at your current spending. Do you have a spending plan or a budget? Make one. Are you fully aware of how every dollar you earn is spent? Get to the bottom of this and make sure that you assign every cent to a specific budget category. Track your spending for the next 30 days to reveal all potential "waste" areas. Your goal should be to eventually have 6 months of your living expenses set aside and available in case you experience a complete income loss.

3. Credit is your best friend - or so you think.

Are you using one credit card to pay off another one? Is your monthly credit card balance growing instead of declining? If the answer is yes, then you are most likely financing a "beyond your means" lifestyle.
Take the next few days, look over your credit card purchases and see exactly what you are buying. Is it expensive clothing? Have you fallen for the "buy now, pay much much later" offers? Now that the payment time has come, are you struggling? If this is you, whatever "it" is that you are using credit for, first make a decision to stop. Leave your card at home if you have to and away from your computer. Create a realistic debt repayment plan and do not pick up a credit card until you have paid your balances off and are ready to be a responsible consumer.

4. You don't have a pre-determined plan to manage your money.

Saving is truly the foundation of healthy finances, yet so few of us actually save. One of the most common excuse for not saving is "I have too much debt." What people don't realize is that, unless they prioritize putting money aside, debt will always be an issue.

Apportion 10% of your monthly income towards an investment account that you NEVER TOUCH. This is seed money for your financial freedom and should be used only to grow your wealth. Another 10% should go towards long term savings for those big ticket items you need or for an emergency fund.

5. You spend more than 25-30% of your gross pay on your mortgage.

Are you counting on two incomes in order to make your mortgage payment? Are you spending more than 35% of your gross income just to pay your monthly mortgage? Would you be in deep trouble if you experienced a reduction in income (going from two to one incomes due to job loss, having hours cut, having pay reduced, etc.)? If the answer is yes, you may be paying for more home than you can afford.

Here are two rules of thumb to follow in regards to mortgage payments: - Stay within 25-30% of your gross income - Are you a two-income family? Buy as if you had just one income. This way you are creating margin in case of a job loss or if we ever experience an interest rate hike.

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Foundation in Financial IQ

Raise your Financial IQ in this series of articles on the concepts and principles about money, what we think about it and what we should strive for when it comes to handling money.


Definition of Insanity

Naturally, most if not all of us want and crave for something better. It is all part of us if we want a bigger car, a better house, buying good things for the family. We keep hoping for more but, in order to get what you don’t have, you have got to do something you have never done before.

That simply means: Doing the same thing over and over again YET expecting different results!

As an employee, you can’t stay at the same job forever and hope that a miracle will happen and your boss will suddenly give you a raise. You will be lucky that there is no downsizing in your company. Switching to another company will only provide a short term solution to a long term problem.

Sure, you can take up a second or even third job, but do you have enough hours and stamina in a day to sustain it?

The bottom-line: Trading time for money isn’t wise financial sense in the long term. You keep on increasing the hours just to win the rat race, but in the end of the day, you are still a rat on the mill!

Increasing your wages only puts you in a higher tax bracket. Your salaries increase but so does your expenses on your house and car. How will you invest in yourself when all the time you spend working for a company, working for the government paying taxes and working for the bank paying off your house and car? What if you fall sick and can’t work tomorrow? Will the government take care of your family?

I highly doubt so.

So isn’t it time you take your finances a tad more seriously?

What Is Money?

You see, there are many ideas of what people think money is.

Some say it is a form of measurement. Yes, but a measurement of what? Wealth? In the olden days, people measured wealth by how many cows, sheep and horses they had. But do people measure wealth today by your cows and horses? How about slaves? Was there a time where manpower is considered a hot commodity? Are slaves worth anything today? Are your dollar bills sitting in the bank going to protect you if a recession strikes the country? No, wealth can not be measured by the dollar bill.

Some say it is a form of power. Yes, money can give you power, but if you are stuck on a desert island forever with a trillion dollars, will that money mean anything to you? If someone offered you water and a helicopter to fly out of there, you would trade all your money in a split second, so money is not an accurate measurement of power – it heavily depends on how wisely you use it (hint!).

Many believe it is the root of all evil… and several others take on this belief without much questioning.

Now, now, now… money is NOT the root of all evil (otherwise, why do you think churches still accept monetary donation and charity?). The love of money is the root of all evil. Remember, money is an excellent servant but a terrible master. If you are trading your life away for the dollar (or peso), money then has power over your time and life.

And unless you have proper financial intelligence, the lack of money can spawn a lot of evil thinking and negative mindset as observed in primarily cheats, thieves, criminals, breakups, freeloaders, cheapskates, and more to name.

But what is money, really? Money is an idea, backed by confidence.

While money has naturally been developed by merchants in the older days to replace the questionable barter system, money today is literally invented by the rich and wealthy.

Entrepreneurs are willing to part with their money to buy other people’s time. Other people’s time i.e. employees become their employer’s asset. The employers use this priceless resource (other people) to go on to create more wealth for themselves.

And here’s the thing: as long as you work for money, you are enslaved by it! 80% - 90% of the populations today are being enslaved involuntarily.

What we don’t realize is that there is a part of our soul that cannot be bought at whatever price. Would you chop off your little finger if your boss offered you 24 months of your salary immediately? You and I know we are worth more than that. But when you hear of cases of people selling their body parts for cash in some countries, we can have our eyeballs pop out of our eye sockets.

On the other hand, we occasionally DO sell out a part of ourselves for money like a donkey and a carrot.