Warning Signs You’re in Financial Danger

Warning Signs You’re in Financial Danger

Joseph Darby

7 Top Warning Signs You’re Living Beyond Your Means

In our consumer and debt-heavy society, living beyond your means is all-too-common. Unfortunately, it can put us in tricky financial situations, including being saddled with consumer debt. Considering how easy it is to impulse buy online, use a buy-now, pay-later system and load up on credit cards, we can easily end up spending more than we make.

This process has become so normalised, that we overlook the financial dangers, neglect long-term goals, and live a lifestyle that can be too expensive for our own good.

While it may seem okay because so many are living beyond their means, it shouldn’t mean you need to endanger your own financial priorities.

Below are some of the warning signs that might indicate you are living beyond your means.

1. You’re Trying to “Keep Up With The Joneses”

If you haven’t heard this saying already, it just means that you are trying to match or surpass what your friends, family, colleagues, or neighbours have. It could be just the fear of missing out (“FOMO”) too.

Learn more: What is lifestyle creep?

Nowadays, with social media, we have quicker access to everyone’s possessions, homes, travels, cars, or apartments. Many people buy things to put pictures online to seek validation. This might cause others to feel the need to keep up with what their friends are doing and buying.

But, this is what gets you to overspend, start making bad financial decisions, and can put you in unnecessary debt.

When you start comparing yourself financially, remember:

  • Try to ignore what others have, instead stay focused on you
  • Realise that most of those people are also financially struggling or in massive debt
  • Ask yourself, “Will upgrading or worrying what others have, make me happier?”
  • Acknowledge that social media is just a series of ‘highlight reels’ that don’t usually reflect the behind-the-scenes reality!

2. You Notice You are Living Paycheque to Paycheque

One in three New Zealanders are reportedly living paycheque to paycheque.

This might not signal right away that you are living beyond your means. You might be between jobs, living in an expensive area, working through a period of transition such as a relationship split, or have some other financial circumstances putting you in this situation.

However, some people may be upgrading their lifestyle or just overspending, which causes you to barely squeak by every pay period.

Take a step back, look at your paycheque and track your expenses to see where your money is going every week, fortnight, or whatever period you are paid over. You may discover that there are areas where you can spend less.

When you start to live within your means, it will help you begin to escape the paycheque to paycheque slump.

3. You’re Paying Too Much for Your Mortgage or Rent

There’s no doubt that the cost of living in New Zealand isn’t getting lower any time soon!

Many times, we bite off more than we can chew, which can put us in financial hurt.

For housing, just because a bank gives you a loan or says you can afford to borrow more than you already have, doesn’t mean you should necessarily do it. The same goes for renting a costly apartment or house. In either case, you’ll want to be proactive and do the calculations yourself to ensure you’re financially comfortable.

Obviously, the lower the amount you spend keeping a roof over your head, the more you’ll have to allocate elsewhere to the things that really matter, including long-term ambitions, probably including retirement.

4. You Have No Emergency Fund

As bland as it sounds, we all need a quickly accessible stash to meet the curveballs that life throws our way every now and again. Commonly called an emergency fund, this is to meet unexpected costs such as car repairs, appliance replacements, dental bills, or the cost of living should you suddenly find yourself out of work.

If you don’t have a fund like this, it might be because you’re struggling to get by.

Not everyone is going to be able to save a big percentage of their income but try to find at least 5-10% of each pay to put aside, obviously the more the better! After one year working on your savings plan consistently, you will be surprised how much you have put aside. First and foremost, some of this should be dedicated to your emergency stash.

5. You’re Carrying a Balance Each Month on Credit Cards, Hire Purchase, or BNPL

Credit cards and other delayed payment and credit systems can be great for building a credit score, getting some rewards points, and can help you out in an emergency too.

However, often we use it to buy things that are beyond our means and impact our financial success. Now you end up carrying a debt month to month. The same goes for:

  • Buy now, pay later (BNPL)
  • Store cards
  • Hire purchase

In any case, repeatedly carrying money you owe forwards signals that you’re certainly spending more than you can afford.

Start making extra payments of any size to get caught up and put your debts away until you get your spending under control.

If you are tempted to buy a higher priced item, ask yourself if you have the cash to pay it off right away. If you don’t, then walk away.

6. You Aren’t Saving for Retirement, or Anything Long-Term

Not everyone is able to save for retirement or other long-term goals throughout their lives. Many also struggle to provide for their families and keep food on the table.

So, the thought of putting money aside for some unknown future is understandably an afterthought.

But, for those taking expensive holidays, always getting the latest tech device, or upgrading to a luxury vehicle, but who have not saved for retirement — you are living beyond your means.

Here at Become Wealth, we’re all for treating yourself and spending money, but only when you’ve got the peace of mind that comes when you know you’re on track to achieve other major goals, including funding retirement. Then by all means, upgrade to the latest vehicle, buy the latest tech device, and go on a holiday!

7. You Worry About Paying Bills Constantly

We’ve all worried about paying bills in our lives at some point, unfortunately, it’s a part of a life.

However, the goal should be that you are not losing sleep or stressing constantly about them.

If you find yourself constantly stressed out about bills or how you are going to pay them, you might be living beyond your means.

What To Do If Your Are Living Beyond Your Means

If you are living beyond your means and know it, well done! Not everyone wants to admit a financial problem or take initiative to improve it, so in acknowledging the issue, you’ve probably taken the first important step to fixing it. Many of us have been in the same situation, which is completely normal and understandable, now, wanting to change your personal finances for the better is the next move.

If you do want to improve, below are a few simple steps you can take:

  1. Dedicate time and effort to prioritise living within your means.
  2. Create a plan to reduce your expenses (trawl through your bank statements and identify memberships that can be cancelled, ask for price reductions, use special offers, etc.). Be more frugal if you must.
  3. Start to downsize and minimise (Save money by downsizing where you live, sell items you don’t need, buy fewer material items).
  4. Start budgeting more thoroughly. Build a simple budget to stick to (Spreadsheets work great).
  5. Start paying yourself first (automate if you need to). Meaning, when you are paid automatically send money to your savings first.

The results you receive from the tips above will depend on your mentality, commitment, and patience. Just remember, changes do not happen overnight, so stick with it.

The Bottom Line: Avoid the Warning Signs of Financial Danger

How many times have we heard the story of multi-millionaires going bankrupt? Or those who never made more than $50,000 a year retire comfortably? It doesn’t matter if you are middle class or even a high earner, you can still live beyond your means.

Living beyond your means can grip any demographic and any level of salary, it’s your mentality that will make all the difference.

If you find some or all the above warnings a constant in your life, then you probably need to make some lifestyle changes to get back on track.

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