I got in the habit of living a frugal life for years. I found it's easy to slip back into old spending patters if I'm not careful. Before I backslid into too much debt, I managed to break the bad habit of overspending and living beyond my means. I recently read an article by Yahoo Finance's The Exchange about "Signs You're Living Beyond Your Means." I realized I have to take an inventory of my financial life so that I don't end up back in debt.
Devising a temporary paycheck solution
Without a doubt, I could survive financially without the income from my job for six months, but only because I'm married. If my husband died, I'd be unable to make it for more than a few months. My husband and I decided to start contributing more to each of our Roth IRA plans as a backup emergency account.
Saving more of my pay
According to the article, one warning sign of living beyond your means is saving less than 10 percent of your pay. I always heard the 10 percent savings rule. Some people are more ambitious and try to live on only 70 percent of their income, while saving the remaining 30 percent. We decided to have 10 percent of our paycheck automatically moved into savings so that we won't have to worry about living beyond our means by saving too little.
Admitting we aren't house poor
My husband and I pass the housing test because we don't spend more than one week's salary on our mortgage payment. Less than 35 percent of our income goes toward our home. Still, we sometimes like to pay extra toward our mortgage which means we are spending too much in that category of our budget. After hearing about the percentages, I had to reconsider whether I should be overpaying on my mortgage every month.
Having a low credit card balance
Another sign of living beyond one's means is having a credit card balance that stays the same or grows. I started to worry when I noticed we were taking two or three months to pay off a card instead of paying off the balance in full every month. I decided it's fine to have the same credit card balance as long as that balance is zero.
Paying cash for big-ticket items
Instead of buying big-ticket items with deferred-payment plans and interest-free credit cards that eventually sock us with higher interest rates, we pay cash. I've made the mistake before of thinking I should buy something right away because I'd have more money in 6 months to pay off the balance. Instead, my income decreased after getting a pay cut.
Sometimes all I have to do to stop living below my means is to spend more time working. When I put in overtime hours or take on extra jobs, I realize that it takes a lot of effort to obtain money. I also know the only way I'll be free of the day-to-day grind is by living below my means and investing money on a regular basis.
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