I’m a Financial Planner: 5 Signs You Might Be Living Beyond Your Means – and What to Do About It


Life is expensive, which can make it difficult to keep your finances afloat. If you feel like you’re always weighed down by bills, you may be living beyond your means.

According to a 2023 survey conducted by Payroll.org, more than three-quarters of Americans live paycheck to paycheck. Of course, there are many reasons for this, with some situations being more difficult to change than others.

However, if lifestyle creep—that is, increasing your expenses as your salary increases—is the cause, it’s time for a reality check. Being honest with yourself about your spending habits is the first step toward improving your financial health.

Admittedly, sometimes it can even be difficult to gauge the health of your finances. GOBankingRates spoke to several financial planners to find out the top signs that you’re probably living beyond your means. Here’s what they had to say.

You don’t have an emergency fund

“If you have a hard time saving money and don’t have enough savings to cover three to six months of expenses, this is an indication of poor financial health and a sign that you are living beyond your means,” says Daniel Masuda Lehrman. , CFP, CSLP, owner of Masuda Lehrman Wealth.

At first glance, saving enough money to cover several months of living expenses can seem overwhelming. Get started on the right track by starting small.

For example, you can set up an automatic transfer of €100 per paycheck to your savings account. Once you get used to living on a smaller amount, start saving a little more, and so on.

Your savings interest does not increase with salary increases

“Your savings rate – as a percentage of salary – should increase as your salary increases,” says Noah Damsky, CFA, principal at Marina Wealth Advisors. “So if your savings rate is 15% with a salary of €100,000, then your savings rate should be above 15% if your salary increases to €150,000.”

As your salary increases, he said you should increase your expenses by less than the increased rate of your new salary.

“Maybe on a $150,000 salary you’ll save 20%,” he said. “You can still treat yourself to a nicer house or eat out more often, but saving at a higher rate is a sign of discipline and prudence.”

You have a balance on your credit card

“One of the biggest and most immediate signs that you’re living beyond your means is if you’re carrying a balance on your credit card,” says Stephanie Loeffel, CFP, founder and chief financial planner at Ascend Financial.

She said some people justify using credit cards as a bridge between paychecks or to cover certain costs before getting a big bonus.

“But if you can’t pay the bill within 30 days, that’s the first sign you’re living beyond your means,” she said. “Even if it is temporary, the moment you begin to maintain a balance is an indication that you have expanded yourself beyond your means.”

If you take on a credit card balance, she said you should have a plan to pay it off.

“This requires you to look carefully at your budget,” she said. “You need to determine what your fixed monthly costs are, for example housing, insurance, utilities, loan payments, including credit card debt.”

Next, you need to understand needs versus wants.

“The difference between your monthly costs and those fixed expenses is the absolute maximum someone can spend to live paycheck to paycheck,” she said. “If you want to escape from paycheck to paycheck, you need to build some savings.”

She said we should treat these savings as a fixed expense.

You are not saving for your pension

“Being able to afford something isn’t just a matter of having the money on hand at the moment,” says Jeremy Zuke, financial planner at Abundo Wealth. “Your future goals should also be taken into account.”

This is especially a problem if you’re spending the money you should be saving for retirement.

“Even if you don’t go into debt, you can still live beyond your means if your retirement prospects don’t pan out,” he said. “We are big proponents of ‘save first’ budgeting where you spend what’s left after meeting savings goals, such as funding a Roth IRA.”

You have difficulty paying for common, unplanned expenses

“We often see this with homeowners who have gone out of their way to purchase a home at the top of their price range,” he says. “After they enter the house, a normal repair, such as a new water heater, becomes a financial emergency that requires some type of loan to afford.”

Of course, an emergency fund can help with this. However, you probably don’t need to dip into your emergency fund for small, unplanned expenses, so if you do, consider this a red flag.

Take a look at your discretionary spending and look for ways to cut back. This is not new advice, but it is often repeated because it is effective.

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