There is a very simple question you may ask yourself on a routine basis, yet not have the power to truly answer: “can I afford it?” Whenever you go to make any type of purchase or financial commitment, you must consider whether you can afford whatever it is you want to buy. Do you have the money for this one-time payment? Or do you have the financial security to pay this continuous commitment? Without certain information and the knowledge of how to read that information, there is no way to know whether you can afford each transaction, or whether you are living beyond your means.
Over time, if you continue to make purchases or agree to transactions you cannot really afford, you may find yourself in debt you cannot manage. If you believe you are in this place, you should speak with an Ohio debt attorney from Luftman, Heck & Associates. We can help you handle debtors and collection proceedings and can review whether bankruptcy is right for you.
Living Within Your Means
What does it mean to live within your means? To live within your means, your expenses should be less than your income. Typically, people look at this on a monthly basis. Your monthly expenses – both necessary and extraneous – should be less than your average monthly income after taxes. This does not mean that if you take home $4,000 each month that you can spend up to that amount. Instead, when you live within your means, you should have extra left over at the end of the month. You should be able to build savings for both the short-term and the long-term.
Debt and Living Within Your Means
You may wonder where debt fits into the premise of living within your means. It is common for people to take on various debts including home mortgages, auto loans, education loans, and credit card debt. Incurring common debts does not necessary entail living outside of your means. However, you must take on debt carefully. You should be able to pay down your debts on a monthly basis while still being able to save.
5 Signs You Are Living Outside of Your Means
For some individuals, living within their means is natural and easy. This is usually when their incomes are enough to easily support their preferred lifestyles. Unfortunately, most people have to pay close attention to their finances to successfully budget and save. With credit cards and various types of loans, it is all too easy to obtain items and services that you can pay for later and to end up owing more than you bring in.
Luckily, you can recognize that you are living beyond your means before your debt becomes too much and you have to consider your legal and financial options. Some signs that you are spending more than you should include:
1. Your housing costs more than one-third of your monthly income. The one-third rule for your housing expenses works well everywhere except for certain regions that face exorbitantly high housing costs, such as New York, San Francisco, and Seattle. Your mortgage payment or rent, homeowners’ or renters’ insurance, and any relevant property taxes should not be more than one-third of your monthly take-home pay. This can be hard to manage, but if your housing costs more, it can be trouble for your finances in the future.
2. You do not save enough. You should focus on saving 5 to 15 percent of your monthly income, with a good goal being 10 percent. This savings includes short-term savings, your emergency fund, and retirement. If you are not putting away at least 5 percent each month into a savings or investment account, then you need to take a close look at your necessary and extra expenses and see what can change. If you do not have any available savings for an emergency, then you need to determine possible changes immediately.
3. Your credit balance goes up each month. If you have noticed that your credit card balances are going up each month instead of decreasing over time, then you have a problem. When you cannot pay the interest as well as some of the principal on your credit card balance every month, you have taken on too much debt.
4. You have a low credit score. Credit scores, which range from 300 to 850, take into account numerous factors, including your payment history and how much credit you have and use. If you are using a large amount of your available credit or cannot always make your payments on time, your credit score will go down. A great credit score is 800 to 850. Very good and good credit scores are between 740 to 799 and 670 to 739, respectively. If you are between 580 and 669, you have a poor score and may not be able to get loans. If you score is between 300 and 579, this is considered very poor and can prohibit you from obtaining loans, getting credit cards, and hinder your ability to rent certain properties.
5. You have to choose which bills to pay. If you are not able to pay all of your necessary bills by their due dates, you need to review your budget and unnecessary spending. Optional purchases should never get in the way of your ability to pay your bills such as rent or mortgage, health insurance, utilities, and groceries.
Do You Need Financial Help?
If you have incurred more debt than you know how to handle or creditors are harassing you, contact our experienced and trusted Ohio consumer law attorneys at Luftman, Heck & Associates. We will go over your situation piece-by-piece to gain a full understanding of your finances. We will guide you toward resources to help you manage your budget, and we will explain your legal options to handle your debt and creditors. We will also explain the various chapters of bankruptcy and whether one of these options is appropriate for your situation.
Call us today at (888) 726-3181, or e-mail us to learn more about how we can help you.