Are you living beyond your means?

Spending more money than you take home every month is incredibly easy to do. However, living beyond your means isn’t sustainable in the long term and will eventually catch up with you. If you are worried you can’t afford your lifestyle, there’s a good chance you’re right. Here are a few signs you might be headed for financial trouble and need to make drastic changes to your spending habits:

Your credit score falls below 600

While many factors determine your credit score, the two most influential factors are your credit utilization – the amount of your available balance you are using – and your payment history. If you’re spending more than you’re making, likely, you’re also unable to pay your bills on time. Also, living paycheck to paycheck probably means you are using a large percentage of your total credit line to keep up with other payments or necessities.

According to one of the major credit bureaus, a credit score below 580 is considered poor. If your score is below 600, it can be challenging to obtain additional credit with reasonable interest rates.

Your housing payments exceed more than 28% of your paycheck

It’s essential to calculate how much of your monthly goes towards your mortgage, property taxes, homeowner’s insurance or rent. According to Investopedia, this percentage should never exceed 28% of your monthly income. Lenders use this threshold as the amount the average person can afford and still enjoy a reasonable standard of living. If it exceeds that, you may have to make financial sacrifices in other areas, such as saving for retirement.

You’re unable to save any money

Today, nearly 47% of Americans would struggle to come with $400 to cover an unplanned expense, and almost half of today’s workers are living paycheck to paycheck. A lack of financial cushion can mean that an emergency, job loss or health issue could drastically disrupt your life and financial well-being. If you can’t afford to set aside a minimum of 10% of your monthly paycheck each month, it’s a good sign that you are living beyond your means.

To live within your means, you need to ensure you are spending less money than you are bringing in each month. Learning to be responsible with your finances now will help you avoid financial ruin or insurmountable debt down the road.