Red flags that signal you’re living beyond your means

You may not think that splurging every once in awhile for a nice dinner or a new appliance will derail your finances, but how do you know when your financial habits are putting you in real danger? Many people make money decisions that seem harmless in and of themselves but actually follow a pattern of spending that may one day endanger both their credit and financial health. Recognizing these patterns can help you detect red flags that indicate you are living beyond your means and need to make changes to your lifestyle in order to reverse a trend of negative financial habits;

Below are several signs that you may be digging yourself into a hole that can have long-term implications:

1. You have no emergency savings

If you lost your job today or needed to cover a $500 medical bill, do you have the financial means to manage these emergencies? If not, it’s time to start a rainy day fund. An emergency can befall any person at any time, and having an emergency fund readily available can protect you from being forced to drain a retirement account early, take out a high interest loan or rely on credit to make ends meet. Ideally, you should accrue enough money to cover your needs for at least six months.

2. You’re struggling to make minimum payments on your credit cards

High-interest credit card debt can be toxic to your financial progress, and if you’re struggling to make the minimum payment on your balance, it’s time to get serious about developing a repayment plan. High balances can force your credit score down quickly, and the interest charges alone can make it difficult to eliminate your balance. If your budget is stretched thin, speaking with a credit counselor can help you explore solutions to pay down your balance.

3. You are using credit to pay your bills

Being forced to rely on credit to cover your monthly needs not only signals that you are stretched too thin, but that you’re in danger of ruining your credit. This scenario can lead to a vicious cycle of increasing your credit card balance to meet monthly expenses, paying only the minimum and then raising the balance again to cover your bills. Not only are you tied to a balance that isn’t budging, but you’re also unable to put income toward savings.

If you find yourself in a situation where your money is controlling you and escaping your circumstances is difficult, working with a professional can help you evaluate your needs and develop a budget and repayment plan that is tailored to your unique scenario.