Most of us have felt financial uncertainty at times, forcing us to look at our finances at some point in our lives. Many of us felt a tightening in our wallets the last few years, what with the pandemic and the increasing inflation currently sweeping the world. We often turn to credit at times like these, mistakenly living in the sense of security as we spend freely, without thinking of the consequences of owing money, making our finances get out of hand.
Unfortunately, most people don’t realize they are living beyond their means until they are drowning in debt.
Making Ends Meet
Currently, the U.S. is seeing its highest wage growth historically, yet inflation is growing at its fastest pace in forty years, outpacing wage growth. In addition, CNBC recently reported figures from LendingClub that we are once again seeing an increase in the number of people living from one paycheck to the next. Anuj Nayar, the chief financial officer at LendingClub, said, “Increased costs of gas and groceries mean that the number of people living from paycheck to paycheck increased by 3% in just three months from December 2021 to March 2022, and at 64%, it is close to the high of 65% experienced in 2020.”
3 Subtle Signs Your Personal Finances Are Getting Out of Your Hands
Are you saving money right now, or are you not sure about your money habits? Destructive money behaviors are not always easy to recognize. Living paycheck to paycheck is one of them. Other warning signs include excessive spending and accumulating more debt that you can’t pay off. These are the three subtle signs that your spending is getting out of hand:
1. Always Exceeding Your Budget
You need to secure a financial future with a budget and a financial plan which should remain your priority. A budget allows you to track your earnings and expenses monthly, and if you are exceeding your costs planned, then there is something wrong with your spending. Your budget must include priorities like ongoing bills, clothing, entertainment, and savings. If one or more categories within your budget fail, your spending is likely getting out of hand.
2. Always Making Minimum Debt Payments
Credit card debt of around 19% is pricey. Another downside is that lenders have a minimum required payment to keep you in good standing. So you have a false sense of security by paying the minimum while continuing to shop on your card. However, what that means for you is that your debt is growing because of the high-interest charges.
Your minimum payment might seem affordable, but it creates a cycle of debt that also damages your credit score. The best course of action is to spend what you can afford to pay back every month or pay more than the minimum. If you can’t ever pay more than the minimum, your spending is likely getting out of control.
3. Not Having an Emergency and Retirement Fund
Another sign that you are overspending your monthly budget is that you never save any money for an emergency or retirement. An emergency fund is a buffer that protects you if your income is ever disrupted. The more you save in your emergency fund, the more money you can accrue, allowing it to produce an income for emergencies or future outlays for a home, travel, or your education. Money advisers recommend that an emergency fund needs enough money for at least three months.
We all dream of a comfortable retirement, but this needs planning and dedication from an early age with contributions toward a retirement account or fund. Even though a retirement fund gives you less interest than your credit card is charging, don’t feel tempted to use the one to pay the other. Savings are challenging to accrue and even more difficult to replace.
Income-producing investments in several forms are the best way to ensure you have money in emergencies or for your retirement. Look into all your options, and consult with a financial planner if you aren’t sure how to plan for the future.
Final Word on Reining in Your Personal Finances
Sticking to your budget and learning from your mistakes is the best way to ensure your finances are not getting out of hand. Build up your savings to help you create a sense of stability, and try not to put things on expensive credit. Become realistic with your spending and savings plan. Before you know it, the additional money you have accrued will start giving you some extra cash and a sense of security.