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Can you afford your lifestyle? Here are some quick and easy ways to find out! And if you are living beyond your means, I have some sensible solutions to get yourself living with financial integrity.
Living with financial integrity means that you are using the money you make now to afford your life in the present and plan for the future.
If you are asking yourself “Can I afford my lifestyle?” you are probably struggling to either plan for your future or afford your life in the present.
Top signs you can’t afford your lifestyle:
Afford Your Lifestyle: The Present
Are you putting living expenses for the present on your credit cards?
This might be a big reality check, but if you have ANY high interest credit card debt, you are living beyond your means.
If you could ACTUALLY afford that thing right now, you wouldn’t need to PAY INTEREST to the credit card companies for the privilege of buying it before you had the money.
I know, some cards have rewards. But if you are carrying any debt from one month to the next, you are putting living expenses on the credit card.
There ARE reasons to go into debt: if you’re buying a car or a house, it’s unlikely that you have $100k lying around to purchase it outright. Those big purchases are GOOD reasons to go into debt if you are smart about the interest rate and the financing.
But holding credit card debt is a sign that either you are spending more than you make or your budgeting is off. If you want to afford your lifestyle, you'll have to make some changes.
Afford Your Lifestyle: Expected Costs
Think about all those bills that come up annually or quarterly that you’re not figuring into your monthly budget.
When they come due, are they a surprise AND a shock? Are they derailing your monthly plans or are you putting them on the credit card?
If you're putting vacations on the credit card, you are living beyond your means.
If your child's tuition is on the credit card or, when it's due, it derails all of your financial plans to save money, you're living beyond your means.
Tuition, taxes, the alarm company bill, the condo fee, the annual vacation: these are what I call BASICS. You are living like you can afford them but when it comes time to pay, you don’t have the money.
You need a plan that can help you save for those EXPECTED costs that you’re conveniently forgetting.
Afford Your Lifestyle: Emergencies
Do you use a card for emergencies and tell yourself you’ll pay it off next month? If you don't have an emergency savings plan, you won't have any money next month to pay it off, just like you didn't have the money this month to buy the thing.
You need a plan to save for emergencies so you’re not forced to put them on the credit card.
The other problem is that you might have a very loose idea of an emergency.
Things that are an emergency:
• Car breaks down
• Plan ticket to travel for a death in the family
• Air conditioner breaks in summer
• Legal stuff (like, when you need a lawyer it's usually an emergency)
Things that are not an emergency:
• End of the month purchases because you’re broke
• Bridesmaid dress for your friend’s wedding
• You need a new couch
• Recurring payment for your Hulu subscription
• Beyoncé tickets
That last one: important but not an emergency.
You CAN build a budget system that will help you plan for emergencies. That plan might be SO GOOD that you have a little left over for the other good stuff in life like Beyoncé tickets.
RELATED: Make a Down-to-Zero budget
Afford Your Lifestyle: The Future
Did you know that 20% of us believe that winning the lottery is going to be our retirement plan? I know, ridiculous, right! But if you don’t have a retirement plan, you’re being just as ridiculous.
A financial plan with integrity means you are putting aside money to plan for your retirement.
There are other future things you might like to save money for: college, stay-at-home time after a baby, or a sabbatical year to travel.
Give your future self the respect it deserves by saving up for what matters most to you in the future.
What Can I Afford?
Another BIG red flag is a lack of knowledge of your financial situation.
Are you aware of how much money is coming in each month and how much you need to live on? If not, it’s time to get serious about your finances and set up a system for managing them.
The first step in solving the problem of living beyond your means is figuring out how much you can actually afford.
Use these free financial planning templates to figure out exactly how much money you need to live on.
Include your current bills, any annual or quarterly expenses (including a vacation!), emergencies, retirement, and money each month for savings.
For this exercise, you’ll add up all your expenses that occur annually or quarterly and divide them by 12 because you’ll need to put aside a little bit each month to afford them.
If all of that is higher than your income each month, you’ll need to reevaluate.
By reevaluate, I mean cut spending.
Sorry. It has to be done.
Maybe this year you can’t take a lavish vacation, but instead you could go camping locally to save money? Perhaps you don’t need all those subscriptions-- Hulu AND Netflix?
Whatever your number is you need to live on each month, you have to get your income higher or your spending lower.
How to Shift Your Finances if You’re Living Beyond Your Means
- Determine how much you need to live on each month
- Add up your annual costs like vacations and taxes, divide by 12
- Determine your REAL living expenses by including annual costs, savings, retirement, and emergency fund.
- Cut spending if your living expenses go beyond your income.
- Set up a financial plan to meet your needs in the present and the future
Build a Budget System
The next step is to build a budget system that helps you do all these things.
YOUR AIM IS TO BUILD A PERSONAL FINANCIAL PLAN THAT ENABLES YOU TO:
• Meet your financial obligations (your bills)
• Pay off high-interest debt
• Build a savings and retirement account
• Pay for your life
These are the main goals of any plan.
If you are living beyond your means, chances are you're not doing all four of these items and it's having a bad effect on your life. At the very least you’re either broke or you are going into debt.
Use my free financial planning templates to get started creating a Down-to-Zero budget.
This kind of budget helps you divvy up your income as soon as it hits your bank account, sending it to multiple accounts for savings, retirement, and annual savings. It leaves you just the money you need to live on (plus a few splurges) so you end up meeting more of your financial goals and living within your means.
Budgeting Resources
You're going to need some serious support when it comes to setting up your financial plan. Here are some recent posts that outline how to set up a budget to limit your spending. Good luck-- the work is worth it!
Get this set of financial planning templates to get started on your budget journey!
