Spending more than you earn is one of the fastest ways to financial ruin. And yet many of us do just that.
We live lifestyles that do not reflect the amount of money that we earn, and this can lead to a lifestyle propped up by debt.
Here are some of the problems you can face if your spending profile is not in line with your income, along with some helpful tips to ensure the numbers add up.
Problems of Spending More than You Earn
You may not spend a lot more than you earn. You might get to the end of every month having only spent $50 or $100 dollars more than you’ve earned. But that can quickly add up.
Over the course of six months or a year, you might suddenly find that you are in debt and that you are unable to pay it back. The debt keeps growing, and the interest keeps on making sure that the debt goes up.
If this happens too often for too long and you don’t spend less than you earn, it will almost certainly end badly, often by having debts that you are unable to pay back.
How to Find Out Whether You Are Spending Too Much
It’s often difficult to actually know whether you are spending too much, especially if you are only spending slightly more than you are earning. However, there are some ways to find out.
One of the clearest signs that you are spending too much is that you are only paying back the minimum amount on your credit card each month. If you’re doing this, it’s a clear sign that you are spending more on your card that you are able to afford.
It’s very easy to do, but the fact is that one day you will have to pay it back, and the high-interest rates will ensure you pay back a lot more than you spent in the first place.
When paying back your debt becomes a large expense each month, this is also a sign that things are going wrong somewhere and it’s time to change.
The only way to really know whether you are spending too much is to track everything that you spend. Set up a simple spreadsheet and make a note of every single time you withdraw money from the ATM and every bill you pay. Or use a dedicated app to make it even easier.
Add it up at the end of the month, and you’ll quickly see what you are spending and how it matches up to what you are earning.
Tips for Getting Control Over Your Finances
If you find that you are spending too much each month, the first thing you will need to do is create a simple budget. This should include all of your monthly bills and expenses along with larger expenses such as Christmas presents, vacations, and birthdays throughout the year.
Once you have all of your expenses written down, you can start to cut out the unnecessary expenses, the things that are not essential and that add up over the months. This could be a magazine subscription or a weekly meal at a restaurant.
For things that are essential, like your broadband and cell phone, look for cheaper deals. You might be spending too much on your current plan, so find out how you can cut down.
There may be times when you consider using small loans to pay for important items, such as unexpected expenses like a car that needs repairing. In this case, use online loans carefully and ensure that you can always pay back what’s due on time.
If you have a large number of debts that are costing you a lot of interest, you might also want to manage your existing debts better by considering a consolidation loan or something similar. Speak to a financial advisor and find out what your options are because this can make your debts easier and cheaper to repay.
Don’t Spend More than You Earn
The lesson sounds simple, but it’s not always easy to follow. If you spend more than you earn, you are going to end up experiencing financial problems down the road. Even if you only spend a little bit more than you earn, you can still end up facing difficulties when it all starts to add up.
Take a close look at your situation. Do you always end up putting purchases on the credit card and never seem to pay them off in full? Do you constantly find yourself running out of money?
These are signs that you are spending too much, so use the tips here to take back control of your finances and avoid potentially serious financial difficulties.
Dominic Lambert is a personal finance consultant sharing his tips with people from all walks of life both offline and online. His informative articles can be found on lifestyle, finance, and motivational blogs.