Does your life match your financial reality?

Does your life match your financial reality?

Your lifestyle is nothing more than choices you make. Is your life in line with your financial reality? Living consciously according to our standard of living makes all the difference because we are responsible for our decisions. There are two groups of people: those who live beyond their financial reality and those who live within. But how to identify?

Signs You’re Not Living Your Financial Reality

Living beyond your financial reality is very easy, mainly because we are in a world where credit card is the norm. Signs that you are living a lifestyle you simply cannot afford, check out below:

You let fear dictate your spending

We all know how terrible it is to stay out of social events due to financial constraints, but don’t let the fear of losing socialization dictate your spending.

Review your reasons for spending and finding cheaper ways to get quality time with your friends.

You are paying only a credit card installment

It is not uncommon to use a credit card as your primary payment method. It has become a way of life for many card shoppers who no longer carry cash in their wallets. But if you already carry a balance from the previous month, you are certainly spending more than your financial reality allows.

You can’t even save 5%

If you are unable to save at least 5%, even when debt is already paid off, this may be a sign that you are living beyond your means. If you can’t save money, you’re probably spending on items you don’t need. Cut a trip to the movies, a lunch out will be the beginning.

You are using overdraft

Overdraft is another sign that you are spending money that you literally do not have.

Your credit score is low.

There are several factors that go into your credit score, some of which carry more weight than others. The two biggest ones, however, are your payment history, which talks about your ability to pay your bills on time and your credit utilization, which is the extent to which you are using your available credit.

If you are living beyond your means and spending too much, you are less likely to pay your bills in a timely manner.

Tips: Start Living According to Your Financial Reality

To live up to your earnings and build better spending habits, follow these tips:

Start by creating a budget

Making a budget simply means examining your income and expenses to determine exactly how much money you have and where you are spending. Once you have a clear understanding of your current budget, what revenue you are getting, and what expenses you are responsible for, take a closer look and find places where you can spend less.

Identify wants and needs

An effective way to simplify a budget is to identify your arbitrary expenditures vs. essential expenditures (needs). Recognizing the difference between wants and needs can help you better understand which expenditures are needed and which categories you can save. The first step is to analyze your spending and reduce nonessential purchases. This can make a significant difference to your annual budget by freeing up funds to be saved or used elsewhere.

Spend less money than you get

Once you know how much you earn, you can focus on reducing your spending to fit your income. If you already tried the budget and it didn’t work, try again. Sometimes you just need to make some small budget changes to make it work.

Stop Trusting Credit Cards

Shot of a cheerful young woman doing online shopping while lying on a couch at home during the day

When you plan your budget, completely discard credit cards as a way of making ends meet. Credit cards are unreliable because your credit card company can lower your credit limit, or even close your card at any time without warning, so be careful.

Save for purchases instead of credit

People often use credit cards for large purchases that they cannot afford. Put aside a little money every month until you save enough to buy it right away. If you cannot afford to save for the purchase then you will not be able to buy it.

Get a financial reserve

Having emergency savings will prevent you from using credit cards whenever you have a financial emergency. A financial reserve of three to six months of living expenses is ideal, but get started.