Living beyond your means damages relationships, self-esteem, credit scores and is outright, fraudulent. The fact that governments operate beyond their means doesn't mean you and I should. We have all known people who lived a life they cannot afford, on credit they can not repay and then end up in financial ruin and embarrassment.
Here are some easy ways to identify if someone is living beyond their means:
1. Savings Won't Last 12 Months
We all underestimate the reality that bad things happen to good people. While most financial advisers recommend three months of savings, I suggest you have at least one year and preferably three years of of savings in case of emergency. This way you can sustain your current lifestyle with no income. If that seems excessive, consider the millions of people that have been on unemployment for over 100 weeks.
2. House Payment is Only Affordable on 30-year Term
If you can't afford the payments on the house you are looking at on a 15-year term you can't afford the house. The difference in payment on a $250,000 house for 15 years, rather than 30 years is less than $400. If a person is having to cut things that close how will they be able to take care of paint, roof, plumbing and landscaping?
3. Vacationing on Credit
This is a telltale sign that someone is living beyond their means when they use Visa to fund their vacation. The interest payments will last longer than the memories of a weekend in Cancun.
4. Stretching Term to Afford Car Payments
I love cars as much as any auto enthusiast but if you have to stretch the term beyond 24 months on a lease or 36 months on a purchase you are buying more car than you can afford. It is not the car dealer, salesman or bank's job to make your car affordable. Also if the wheels on your car are worth more than the value of your car, you are living beyond your means.
5. Paid Overdraft Fees in the Last 12 Months
If money is so tight that you have to rely on overdraft protection in order to float your lifestyle, you are living way beyond what you can afford. You probably already knew this one -- just keeping it real.
6. Exceeded Your Credit Limit
Exceeding your credit limit means you are relying on plastic and lack discipline. Exceeding your limits costs you more than just over-limit fees. Your credit score is lowered when your credit balances are high and it signals lenders that you're over your head. Necessary credit will cost you more in the future.
7. $100 Tennis Shoes & Food Stamps
If your family needs the government to kick in but you have to wear the latest footwear you are living beyond your means and are a pretender. Grow up, get real and get a grip.
8. Pay Someone Else to Do Menial Jobs
The person that pays others to do jobs they don't like to do or think beneath them like house cleaning, car washes, nail manicures, or mowing the lawn is living beyond their means. The only time to have others do these jobs is to free you up to earn money at your main job.
9. Think a Low-Paying Job is Below Your Status
If a person that needs money says, "that job is beneath me" as a justification not to take or consider a job, I would bet money they are living beyond their means. Regardless of what has happened to a person in life there comes a point where we all have to do things we consider beneath us in order to keep things afloat.
10. Must Buy Designer
If you ever see someone who has to buy designer products while their finances are still not in orde,r I assure you they are over their heads. Also if you are buying replica, 'knock off' watches, sunglasses, and purses, you are probably living beyond your means.
Other Tell-Tale Signs a person may be living beyond their means:
-- Produce above-average income but still never have any money left over.
-- FICA score below 599 (National average is 750)
-- Don't like to look at your finances.
-- Use credit to pay off credit.
-- Says things like, "If so and so can do it I should be able to"; or "everyone else uses credit cards"; or "I deserve it - I work so hard"; or "this is what I work for"; or "we are already so far in debt, what's a little more."
When a person doesn't know the signs they are living beyond their means they are probably already living beyond their means. Practice discipline in finances and when you want to splurge, don't put it on credit. Instead go out and create the income to pay for it without damaging your credit score or spending money you don't have. A wise man once said, "those that refuse to practice discipline in their own life will always be disciplined by life!"