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5 Signs That You’re Living ABOVE Your Means

January 18, 2022 by The Humble Penny 6 Comments

This post may contain affiliate links and we may get paid a small commission if you click on a link. Please read our disclosure.

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5 Signs That You're Living Above Your Means

For today’s post we're discussing the various signs that show that you are living above your means.

The indicators are very clear and once identified you can move forward and take control of your finances.

No judgement at all 😀.

Table of Contents

  • Mary:
  • Ken:
  • Mary:
  • Ken:
  • Mary:
  • 5 Signs That You're Living Above Your Means
  • 1. Buy Now Pay Later
  • 2. Understanding Simple Money Maths
  •  
  • 3. You Don't Clear Credit Balances Each Month
  •  
  • 4. Living Above Your Means Without A Budget
  •  
  • 5. Struggle to Save Money 

Mary:

We're meant to be stewards of money and if we can't show responsibility for the small amounts of money that we have, how can we then show responsibility for a lot of money?

How can we then expect to demonstrate control over large sums that come into our lives?

Ken:

Truth bombs!

I recently did a workshop for some young people in their 20s.

One thing that stood out from my workshop was that a lot of people struggled to tell the differences between:

  • assets
  • liabilities
  • income
  • expenses.

Another thing that stood out was that a lot of people did not know when they were living above their means 🤔.

When we carried out an exercise to help them figure out how they might know that they were living above their means…

…quite a number of them felt like they were being triggered. This was an uncomfortable thing for them to be doing.

Mary:

I'm sure a lot of people can relate.

Ken:

So today, we just want to explore five signs that you are living above your means.

This is a really important topic. Do you want to tell us why?

Mary:

Yes, this is an important topic because we know that many people in the UK and beyond are living above their means.

And this leads them to a downward spiral, ultimately.

So we're going to be speaking a lot of truths today and if any of our suggestions resonate with you, let us know in the comments 😀.

living above your means

 

5 Signs That You're Living Above Your Means

Alright, guys, let's dive straight in:

1. Buy Now Pay Later

Ken:

A common example of Buy Now Pay Later (BNPL) is that you book a holiday and expect to pay it back within say, the next six months through your salary.

This is one that a lot of people can relate to it because with all that's been going on around the world, we're all looking forward to travelling and things like that.

We've all witnessed via social media, through friends and family, seeing them travel locally or abroad.

Even we've posted some of our holiday pictures and videos on our social media channels.

So a lot of people might see that and think “well, actually, we want to travel as well.”

I mentioned this point at the workshop and a lot of people in the audience were looking around and laughing because they could resonate with this point.

They felt like I was calling them out 😄.

Booking holidays without paying in full is essentially borrowing money from the future to book holidays for today.

This is interesting, as people come up with defences like:

“Oh, I'm booking now because I am trying to get a good deal.”

Really?

Let's be honest, can you relate to that?

Have you ever found yourself in a position where you feel the need to book a holiday with the money you don't have because you're trying to get a good deal?

Let us know in the comments. It would be interesting to know if that resonates with you.

Some people even go as far as booking holidays with bonuses they expect from work even though the bonuses are discretionary.

i.e. there is no guarantee that they will receive the money.

But they spend the money now, hoping somehow that they are going to get the money back in their paycheck as a bonus.

You know, we're not judging anyone here, but we're just pointing out that this is a signal that you might be living above your means.

We love to travel and we share our adventures with our community on our Instagram and here on our blog to show a fun and less corporate side to our work.

That said, we're always careful to point out reality, which is that:

We make those bookings with money that we've actually put aside for holidays.

This is a very important point for you to be aware of.

I know a lot of people borrow money because they might not have the money put aside for booking their holidays.

It's very important to really think of what implications that has for your day to day life.

i.e. not just in the present but for the future as well.

 

2. Understanding Simple Money Maths

Mary:

Sign number two is that you're not good at simple money maths.

We're talking about causality and appreciate that not everyone is good at maths and that's fine.

But what we're talking about is simple money maths.

Calcuate This Example:

Imagine you went to the shop and you bought a bottle of Rose for £5.49, you handed the cashier £10 in cash.

How many of you genuinely can work out how much change you will expect?

You'll be surprised that not that many people in this situation would know how much they're supposed to receive.

Now in this scenario, you're supposed to receive £4.51 in change.

So if you were to be undercut or given the wrong amount of money, you may not even know that you have not been given the correct change.

This is the kind of money maths that we should ordinarily just do on the spot on autopilot.

Ken:

Let's extend that now, because Mary said that this example is really about causality.

Imagine a scenario where someone is unable to calculate simple money maths.

Bank Interest Rates… huh?

If somebody is unable to do that day to day, how on earth are they going to be able to understand other aspects of how to manage their money.

Let's say you bought some things, spent some money from your bank accounts and you went into your overdraft.

I've once received a text from my bank about this and it said:

“you've exceeded the arranged overdraft limits and will now incur interest of 35% EAR, which stands for Effective Ennual Enterest.”

This is a simple example.

If someone's unable to understand as Mary put it simple money maths, how on earth are they going to be able to figure out what the bank is saying in that text message.

i.e. that they are going to be charged 35% AER.

How might they even understand concepts such as compound interest?

I ofcourse, in my text message scenario corrected the issue to ensure that I didn't pay a penny in interest.

But someone else might not have seen the urgency of the situation because they don't understand simple money maths.

Mary:

Yes, exactly.

What we are essentially saying here is that living within your means is connected to being financially literate.

So the more you're comfortable with simple money maths, the more you're able to manage your money well and live within your means.

living above your means

 

3. You Don't Clear Credit Balances Each Month

Ken:

The third one is that you don't pay off credit card balances in full at the end of the month.

Now, this is an interesting one.

You might not know this, but when credit cards were first introduced to the public, many decades ago, you were required to pay the balance in full.

If you owned a card you had to clear the balance every month.

It was a necessity if you owned a card, then the rules changed.

The rules changed for everyone so now we can hold credit card balances, on a recurring basis, every single month.

Minimum Payment Promotion

The industry encourages us to hold and pay the minimum balances on our credit cards.

I find that interesting because when you think about mortgages, it is another form of debt vs. when you think about credit cards, which is a much more expensive form of debt.

If you ever miss a mortgage payment, you will find your bank coming to kick your door down essentially and chase you to try and pay your mortgage.

But with credit cards, no one chases you, they just send you the statement displaying the minimum payment.

They encourage you to carry on making minimum payments.

They want you to stay in debt and through their forms of communication, they encourage the wrong behaviours that keep you in debt.

This is ofcourse to their advantage and they know this 😏.

Essentially, what we're saying here is paying off credit card balances is something we should all be doing.

It's a massive red flag and signal that you're living above your means.

Credit is the big thing that signals that we're not just living within the income that we're receiving each month, but we're doing something else.

We're borrowing some money in some way to finance our lifestyles.

Mary:

We understand that some people genuinely find it difficult 🙏🏽.

They struggle with living paycheck to paycheck.

But here we're talking about people using their credit cards for things that they don't need i.e. holidays, clothes, cars, etc.

Non-essentials basically.

That's a sign that you're living above your means.

 

4. Living Above Your Means Without A Budget

Mary:

Sign number four that you're living above your means is that you don't budget even though you know you should.

We talk at length about budgeting on our blog because many people still don't budget.

And the big reason for this is because of a lack of understanding around our role with money.

We're meant to be stewards of money.

And if we can't show responsibility for the small amounts of money, that we have, how can we then show responsibility with a lot of money?

How can we then expect to demonstrate control over larger sums that come into our lives?

Ken:

Truth bombs!

Mary:

If you're still not budgeting consistently and you need an extra nudge…

… we'd highly recommend our Budget For Life tool to get you started 👋🏽.

In addition, watch the video that we've done on eight places your money should go.

8 Places Your Money NEEDS To Go (To Become a MILLIONAIRE):

It's a great watch.

 

5. Struggle to Save Money 

Ken:

The final one for today is that you make a decent income, but you struggle to save a portion of it.

This is one that a lot of people can identify with.

We did a case study about this with a couple that were making £10,000 of net income every month but were barely able to save £1,000 a month.

This is a crazy, crazy situation, but this is real 😲.

That is because of lifestyle creep that happens when people make more money.

People feel the need to readjust their lifestyles and suddenly start to spend a bit more on more stuff.

e.g. bigger house (and bigger mortgage), newer car, private school, etc.

It's quite a normal thing, a very common thing to happen actually.

The case study was very interesting, check it out.

But the point here is simple.

You might think that you make a very good income and you can just about live within that good income.

But if you're somebody who can make that income, and let's say you're making £5,000 and you're spending £4,500, you may as well be classed as someone who's living above their means.

You are living on an edge!

And that's not a very good place to be living, especially if you have goals for the future.

So this particular point speaks to the previous point regarding what Mary said around putting the right tools in place, such as budgeting and putting certain controls in our lives.

Doing this will help you get to a place where you're able to take control of your finances and grow your money over time.

Did you enjoy that discussion? Let us know in the comments.

What are some of the signs that you think are big red flags that people are living above their means? Please comment and share below 😀

 

Read More Living Above Your Means resources here >>

  • How We Paid Off Our Mortgage Early and Why You Should
  • 5 Debt Realities and What To Do About Them
  • 7 Habits For A Successful Debt Free Journey
  • How To Stop Living Paycheck to Paycheck (8 practical ways)

Watch a video of this blog post on Living Above Your Means here >>

 

As always, in all things, be thankful and seek joy.

 

 

5 Signs That You\'re Living ABOVE Your Means
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Comments

  1. Barbara says

    January 18, 2022 at 10:51 pm

    Hi Ken and Mary,Australia has a government compound interest calculator Calle moneysmart.It is ultra simple to use and I used it with my friend in America to show what huge returns she could get by investing quite small amounts.She was amazed and has used it ever since because of its simplicity.

    0
    Reply
    • The Humble Penny says

      January 19, 2022 at 8:41 am

      Thanks for sharing, Barbara 🙂

      0
      Reply
  2. Memory says

    January 19, 2022 at 5:37 am

    I just started laughing at myself as I read the first point because I was thinking of booking a holiday and paying later 🙈. The rest of the points just hurt my heart because they were true. I already knew I was living beyond my means and had plans to take control of my finances this year but seeing the reality of my situation on paper was painful because it was true. 🤒

    0
    Reply
    • The Humble Penny says

      January 19, 2022 at 8:42 am

      Glad to hear that this resonated well with you and it’s helping you think positively about your money situation 😊

      0
      Reply
  3. Shell says

    January 19, 2022 at 7:44 am

    Really thought provoking and great that your bringing attention to such an important problem.

    I would add to this the Pay Day Rollercoaster.

    This is when people go out and splash money on Pay Day on non-essentials like clothes and nights out, and then have nothing left by the end of the month, perhaps even using overdrafts or credit card debt to last till the next payday.

    I feel this is really encouraged in todays youth culture, and certainly behaviour I thought normal until I realised I was working so hard with nothing to show for it.

    0
    Reply
    • The Humble Penny says

      January 19, 2022 at 8:44 am

      Wow, absolutely love this point! Why do you think the culture of today encourages this? What’s the bigger problem that people are trying to satisfy through shopping on pay day like that?

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Learning how to take control of our finances, grow our money and develop healthy money habits has transformed our lives since our early days as a young couple with little money having started out as immigrants. It enabled us to become mortgage-free in 7 years and also achieve Financial Independence aged 34!

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