| January 17, 2018
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I give a lot of financial advice, which is probably why they named my profession "financial advisor". When I speak with people individually, I give specific advice on how they can be more financially secure and responsible. These answers are different for every person and every situation, but in all of my experience and conversations as a financial advisor there is one basic piece of advice that I think can put every individual in a better financial position. It's advice that I watched my parents live by, and advice that I have always tried to live by. Honestly, it's probably advice that nearly everyone tries to live by, and likely thinks that they are living by.

That advice is to always live within your means.

Now, I think we would be hard-pressed to find someone who openly admits, or is even consciously aware of living beyond their means. So, I thought it would be important for everyone to take some time for some self-reflection, and confirm that we are not spending more than we should. Here are five signs that you may be living beyond your means.

One of the clearest indications that you are living beyond your means and not saving enough is that you have a low credit score. Having a low credit score will prevent you from being able to qualify for most mortgage and other low-interest consumer loans. If you have a low credit score, it is normally an indication of underlying financial problems that include the fact that you are spending too much monthly. Most people have low credit scores because they either have too much credit card debt or had challenges making payments on time. If this is a problem for you, focus on reducing your expenses and pay down that credit card debt ASAP.

When you are reviewing your financial situation, one of your most significant expenses will undoubtedly be your housing costs. While housing costs are inevitable for most people, many in difficult financial situations end up spending too much of their income on housing costs. In many cases, it may be best to target spending to no more than 25-30% of your gross monthly income on housing. For homeowners, this figure likely includes your mortgage, taxes, insurance, and any association dues owed. If you are spending more than this amount, consider reducing your expenses through a mortgage refinance, tax appeal, or simply by moving into a more affordable home. 

Another identifiable area to examine is your auto expense. While owning a car is a necessity for most people, many end up spending far more on cars than they should. Depending on your situation, the general rule of thumb is that no more than 5-10% of your monthly income should be spent on your entire auto payments, including loan payments, insurance, and parking. If you are spending more than this, look for ways to reduce these costs. One of the most effective ways would be to downgrade the cost of your car, but you could also save money by shopping for a new insurance policy or by refinancing an existing auto loan. 

Another red flag for overspending is the realization that you do not have an emergency fund established. Most people today do not have more than $5,000 saved in an easily accessible bank account. This is a big mistake if you are found in a tough and unexpected financial situation, such as losing a job, having to pay a medical bill, or dealing with an unforeseen home or auto repair. Ideally, all people should have at least six months of living expenses saved in an emergency savings account. If you do not have this established, re-budgeting your finances and working to build this reserve should be your first financial goal. 

The fifth indication that you are spending too much and living beyond your means is that you are not saving for the future. This is obviously the one that you hear me speak about the most. All people have a range of long-term goals that they need to save for. These can include saving up for a down payment to buy a house, saving for retirement through 401ks and IRAs, and putting money aside for higher education. Overall, try to save at least 15% of your monthly income in a combination of retirement accounts and standard savings accounts. This percentage is different depending on your goals and your age, so speak with your financial advisor about your target percentage. If you are not able to match this savings rate, you will be missing out on the opportunity to take advantage of compound interest, which you already know can make a big difference to your net worth over time. 

If you found yourself identifying with one of these five examples, especially if you considered yourself living within your means prior to now, it's not impossible to fix. Adjusting your spending, setting a firmer budget, paying down your debt, and committing yourself to savings are all things that you can do today, to create a more secure tomorrow. 

Prepared by Gary Scheer in conjunction with Fusion Capital Management.

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