At one point in our lives, we can all say we have lived beyond our means and we were able to recognise that fact, however this should only be a temporary situation and not a fact of life.
However some may be living beyond their means but they have no idea. It is easy to find yourself in this kind of situation given the YOLO (You Only Live Once) mentality of today’s society and the need to fit into a particular class, created by lifestyle trends on social media.
Here are a few critical indicators to help you judge whether you are living within your financial means.
1. Overspending on rent
The reason we all work so hard is to ensure we can afford a good lifestyle and that we can live in a good neighbourhood. The unfortunate thing, however, is that what we earn may not always afford these little pleasures but we insist on it anyway.
You may earn a salary that can afford you a good house in say Ruiru but you cannot imagine having to tell your peers you live there because it may not be considered a posh enough neighbourhood.
You, therefore, make the decision to live in Westlands or Kilimani or any other neighbourhood that maybe considered leafy or posh. This, in turn, translates to you having to spend half or more of your income on rent. Financial experts often say you should not spend more than 28% of your income on rent. So if your take-home salary is KSh 30,000 per month, your rent should not be more than KSh 8,400 per month.
Rent is undoubtedly the biggest monthly expense for most young adults and families which is why there is a real need to keep it as low as possible. Such a recurrent expenditure should be limited to give room for other developmental expenses like investments.
2. You have no savings
You know you are living dangerously-financially speaking if you are going through life with zero savings. No matter how little your income is, you should be able to save a little of that money for a rainy day or for retirement.
If by the end of the month you have spent all your money and saving a little of it was the last thing on your mind then it is a clear sign you are living beyond your means and if not then you are well on your way there.
Financial advisors generally agree that one should save at least 10 to 15% of their income at least for retirement if nothing else.
So if your take-home salary is KSh 50,000, you should be setting aside at least KSh 5000 per month. If that is too high for whatever reason and you find you are having trouble setting aside even 5% of your monthly income then there is a problem.
Continually setting a little money aside cushions you from life eventualities such as loss of a job or a sudden illness. Living with no savings can be compared to swimming in the big ocean without a life vest, you may survive for a while on your swimming skills but a big tide could end it all at any one time.
3. Always late on bill payments
There could be different reasons why you end up paying your bills including forgetfulness. However, if the reason you are always late on your bills is because you never have enough money to cover them at the right time might mean you are overextended.
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Adjusting your spending habits may help with this problem. For example, you do not have to try a new restaurant every week or attend every social event that has been building hype all week long. Instead, use that money you could have spent to pay off a bill and make such social plans a once a month issue instead of a weekly thing.
Additionally, you can also cut back on the bills altogether, get rid of the non-essential bills like broadband, satellite TV, gym memberships and reduce the size of existing ones like electricity, water, food etc.
4. You have no money left by month-end
If by the end of the month you have already started taking things from your ‘mama mboga’ on credit and you keep calling your friends or colleagues for a soft loan to cater for your transport then you are definitely living beyond your means. Funding basic lifestyle costs using credit is one sure way to confirm you are living beyond your means.
No matter your salary, proper planning should ensure that the ‘little’ you get should get you through the month.
One way to ensure the money you take home lasts you the entire month, adjustments have to be made. That means no weekend binges on nyama choma and alcohol, no weekly take out because you feel too tired to cook, and no random trips with your boys/girls to Nakuru or other ‘sin’ cities.
Having a budget helps you prioritise your money on what is really important.
5. Constantly indebted
If you are in doubt on whether you are living beyond your means or not, access the debt you are in. if you are constantly in debt then you have your answer.
You are definitely living beyond your means if you fit the following scenario: a month cannot go by without incurring an Mshwari loan debt or any other mobile money service that offers the service. You owe one or more of your friends some money maybe even from the month before. Despite having a monthly income you find yourself borrowing to cover your bills, you are reliant on salary advance loans from your bank. And when things get really thick you often ask for a salary advance from your employer.
Being debt despite having a constant income is a sign that something about your spending habits is off and needs to change if you are to be financially healthy.
If you want to be classified as someone who lives within their means then it means that you need to organize your finances to sustain your lifestyle without having to borrow to fund lifestyle expenses.
6. Poor credit score/ineligibility
We are living in times when it’s a good idea what your credit score is and if lenders will gladly give you a loan or run for the hills at the mention of your name. On top of a CRB check, simply walk your nearest bank branch and take a loan eligibility test, can you get a quick loan of up to 3 months’ salary?
Some employers require you to have a clearance report from a certified Credit Reference Bureau (CRB) showing that you are not in default with any lender.
The credit score is a measure of if an individual will meet their financial obligations such as paying off a loan.
CRBs calculate your credit score by looking at your outstanding balances, total available credit, late payments and the age of the credit account.
So how does your credit score show whether you are living within your means or not?
According to financial experts, a low credit score may be a sign you are living beyond your means. Your low credit score may be as a result of late payments or defaulting on your payments which is a sign all is not well with you financially.
One CRB in Kenya, Metropol ranges its scores between 200 and 900 and points out that a credit score of less than 400 indicates that one is a defaulter.
So if you check your credit score is below 400 then it is time to review your lifestyle.
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