5 Signs You Could Be Living Above Your Means — and What You Can Do About It

Life is expensive, which can make it hard to keep your finances afloat. If you feel like you’re always heavily weighed down by bills, you might be living above your means.

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More than three-quarters — 78% — of Americans are living paycheck to paycheck, according to a 2023 survey conducted by Payroll.org. Of course, there are many reasons for this, with some situations harder to change than others.

However, if lifestyle creep — i.e., increasing your spending as your salary increases — is the cause, it’s time for a reality check. Being honest with yourself about your spending habits is the first step toward improving your financial health.

Admittedly, sometimes it can even be hard to gauge the health of your finances. GOBankingRates spoke with several financial planners to learn key signs you’re likely living beyond your means. Here’s what they had to say.

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You Don’t Have an Emergency Fund

“If you find it difficult to save money and do not have enough savings to cover three-to-six months of expenses, this is an indication of poor financial health and a sign that you are living above your means,” said Daniel Masuda Lehrman, CFP, CSLP, owner of Masuda Lehrman Wealth.

At first glance, saving enough money to cover several months of living expenses might feel overwhelming. Get on the right track by starting small.

For example, you might set up an automatic transfer of $100 per paycheck to your savings account. Once you get adjusted to living on a smaller amount, start saving a little more, and so on.

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Your Savings Rate Doesn’t Increase With Pay Raises

“Your savings rate — as percent of salary — should increase as your pay increases,” said Noah Damsky, CFA, principal at Marina Wealth Advisors. “So, if your savings rate is 15% with a $100,000 salary, then your savings rate should be above 15% if your salary increases to $150,000.”

As your salary increases, he said you should be increasing your spending by less than the increased rate of your new salary.

“Perhaps with a $150,000 salary, you’re saving 20%,” he said. “You can still treat yourself to a nicer home or dine out more frequently, but saving at a higher rate is a sign of discipline and prudence.”

You Carry a Balance on Your Credit Card

“One of the biggest and most immediate signs that you are living beyond your means is if you are carrying a balance on your credit card,” said Stephanie Loeffel, CFP, founder and lead financial planner at Ascend Financial.

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She said some people justify credit card use as a bridge between paychecks or to front certain costs before getting a big bonus.

“But if you cannot pay off the bill within 30 days, that is the first sign that you are living beyond your means,” she said. “Even if it is temporary, the moment you start carrying a balance, it is an indication that you have extended yourself beyond your means.”

When you take on a credit card balance, she said you need to have a plan in place to pay it off.

“This will require a good look at your budget,” she said. “You need to determine what your fixed monthly costs are — e.g. housing, insurance, utilities, loan payments, including credit card debt payments.”

Next, you need understand needs versus wants.

“The difference between your monthly take-home and those fixed expenses is the absolute maximum a person can spend in order to live paycheck to paycheck,” she said. “If you want to escape paycheck to paycheck, then you need to build in an amount for savings.”

She said to treat this savings like a fixed expense.

You’re Not Saving For Retirement

“Being able to afford something isn’t only a matter of having the cash on hand right now,” said Jeremy Zuke, a financial planner with Abundo Wealth. “Your future goals need to be taken into account also.”

Specifically, if you’re spending the money you should be saving for retirement, this is a problem.

“Even if you aren’t going into debt, you can still be living beyond your means if your retirement projections don’t work out,” he said. “We’re big advocates of ‘savings first’ budgets where you spend what is left over after meeting savings goals such as funding a Roth IRA.”

You Struggle To Pay Common Unplanned Expenses

“We see this often with homeowners who have stretched themselves to the max to purchase a home at the top of their price range,” he said. “After they get into the home, a normal repair like a new water heater becomes a financial emergency that requires some type of loan in order to afford.”

Of course, an emergency fund can help with this. However, you probably shouldn’t have to tap into your emergency fund for minor unplanned expenses, so if you do, consider this a red flag.

Take a look at your discretionary spending and look for ways to cut back. This isn’t new advice, but it’s frequently repeated because it’s effective.

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This article originally appeared on GOBankingRates.com: I’m a Financial Planner: 5 Signs You Could Be Living Above Your Means — and What You Can Do About It