Money and insurance

Budgeting woes? 4 warning signs you are living above your means

If you are worried that your funds could be in danger because of overspending, read on for important pointers on how to determine if you are living way past what you can afford.

By Redi Mendoza

Spending beyond what you can afford is so easy these days. A hat tip, of course, to your trusty friends MasterCard, AMEX, and Visa. A credit card can be an invaluable ally when it comes to budgeting and financial planning, but only if you have a healthy relationship with it.

Living on credit can make you spend on things that are way outside your economic comfort zone. If you're not aware of your spending habits, you could be drowning in debt without even realizing it. You don't have to go on wild shopping sprees to spend beyond your financial capabilities. You could be unwittingly living above your means in more subtle ways. We've compiled some warning signs to help you recognize when your spending habits have become too unhealthy.


Budgeting? What's that?

You may think that just because you have a decent and stable monthly income, you don’t run the risk of going penniless in the future. Usually, an increase in your spending capacity leads to a rise in lifestyle costs. So, it doesn't matter whether you earn P15,000 or P500,000. If you spend more than what you're receiving for your income, then you're going to be broke.

You should draw up a monthly budget that indicates how you're splitting up your monthly expenditures. For example, one economic study advises that your monthly mortgage or home rental should not exceed 28% of your gross income. It means that if you have an annual gross income of PhP1,000,000, you can only spend a max of PhP23,000 on your mortgage or rental. Setting a budget will not only make you conscious of how you spend, but it will also help you audit and adjust your monthly spending.


You don't save enough.

Even if you have GSIS or SSS, chances are, your social security payments are not enough to cover your living expenses in the future. So, you must already be putting aside money for your retirement. You should be saving at least 10% to 15% of your income. If you are working off debts, you may relax this proportion to at least 5% till you're all paid up.

Remember this: savings should not be the deficit between your income and expenses. Pay yourself first after every payday, and put the money aside. Take your savings out of your income before you allot for your monthly expenses. After all, it's not about how much you earn, but about how much you save that will lead you to financial freedom.

If you don't want your money to be stagnant in a bank account, consider putting it in financial funds. Insurance companies, like FWD, offer funds with returns in U.S. dollars for bigger profits.


Your emergency fund is non-existent.

An emergency fund is an account where you stash money in the event of a personal financial problem, like losing your job or getting a debilitating illness. While we don't encourage you to withdraw money from this rainy-day account, it should be liquid enough that you can access it immediately when you need to.

If you're looking for emergency fund ideas, don't look into real estate. Ideally, your emergency fund should be thrice the cost of your monthly expenses. So, if you need to spend PhP50,000 per month to sustain your current lifestyle, you should have at least PhP 150,000 in your emergency fund.

If you want don't want to worry about bills in case of an accident or a medical emergency, look into insurance plans that cover these incidents.


Check your credit card balance.

It is the 21st Century. You can check how much you're spending in real-time, so you should be able to monitor your spending.

Your inability to pay the entire amount due on your credit card is a sign that you are spending above your means. A credit card is not a license to spend money you don’t have. You should limit your credit spending based on how much you can pay when the monthly bill comes.

When you're using your credit card, a good piece of advice is to think of it as an alternative payment scheme and not an alternative income.