Most people who are living beyond their means don't realise until it's too late.
So here are some warning signs that could help you stop before you hit that financial brick wall.
You couldn't live 3-6 months without your income
There are always financial emergencies that arise when they are least welcome, but these are less of a problem if you have built up an emergency fund. The amount of the fund should be 3-6 months worth of income and this should be enough to cushion you against any financial surprises - even losing your job. Building this emergency fund will not be easy, if you have limited spare money every month, but putting just a small amount away each month will quickly build up. Read this article to find out more - "Building an Emergency Fund - the what, why and how".
You don't live within a budget
Living without a budget is like driving with your eyes closed - you can't see where you're going. Having a budget allows you to understand your income and outgoings, and plan for purchases without resorting to credit. A lot of people are afraid of creating a budget plan as they are afraid of what they might uncover, but this is actually making matters worse and maybe even driving them deeper into debt. Budgeting is easier than ever thanks to a new wave of budgeting apps that can help to categorise your spending and identify wasteful subscriptions. Check out our article "The best budgeting apps in the UK - how to budget without even trying".
Your credit card balance is slowly rising
Check your credit card bills for the last 12 months and see if your balance is going down or going up. If the balances are creeping up, then it means that you are relying on credit more and more as the months go by. Starting to reduce your credit card spending and bringing down the outstanding balance over time will be a major step to controlling your finances. It's a good idea to regularly check your credit report as it will alert you to any fraudulent activity and also be a timely reminder if your financial situation worsens. You can do a free credit check with Credit Karma. Also, read our article "The 5 simple steps to clear your credit card debt" to help you on your way to reducing your credit card debt.
You use your credit card at the supermarket
Using your credit card to buy your weekly shop - and not clearing the balance at the end of the month - is just illogical, as you could be paying for the food months after you have eaten it. It's easy to get into the habit of using your credit card without thinking, so why not keep your credit card at home so that you are making a conscious decision to use it and not just using it out of habit?
You have paid your bank an overdraft fee in the last 12 months
If you are regularly paying overdraft fees, then you are just throwing money down the drain. Using a budget, as detailed above, will help you take control of your spending and stop you paying your hard-earned cash to your bank. Check your bank statements for the last 12 months and add up how much money you have paid your bank in unnecessary charges or, even better, use a budgeting app such as Emma as it will add up all of your bank charges automatically for you.
You are paying for a holiday using credit
You probably justify this by saying that you deserve a holiday because you work so hard. Whilst this is probably very true, using credit to buy your two weeks in the sun is madness.
Let's face it - holidays are a luxury, so they should be paid for from 'savings' otherwise you will still be paying for this year's holiday when next year's comes around. Of course, there is nothing wrong with paying for a holiday with a credit card to protect yourself under Section 75 of the Consumer Credit Act should anything go wrong (e.g. the airline goes bust), but make sure that you clear the debt at the end of the month. Also, using a credit card could encourage you to buy a more expensive holiday than you would have done using your hard-earned cash.
Cashback and Reward credit cards can be a good way to pay for holiday purchases as you can receive some excellent bonuses. Check out our article "Compare the best cashback and reward credit cards" and always make sure you clear the balance at the end of the month.
You are in debt but pay someone else to do a job you could do yourself
Washing your car, cleaning the house and ironing are all jobs that most people hate, so getting someone else to do these tasks is very tempting. However, if you're in debt, then these are luxuries you cannot afford. Calculate the annual cost of these outgoings, then do them yourself and use the money to pay down your debts. Or better still, go and do some of those jobs for other people and earn extra money. You can't be too proud if you're determined to take control of your finances.