Are You Living Above Your Means?

Credit restoration and proper budgeting tactics go hand in hand; whether you are doing it yourself or hiring a professional. Let's face it, if you're getting items removed from your credit and 2 months later new late payments, collections and charge offs are being reported; you're kind of wasting your time, right?

This is when we would pause the credit repair process and work on your budgeting skills.  Most people know when they need some help; but there are a select few that are in denial.  So; how do you know if you are living above your means?

1.  Your Credit Report.  If your revolving lines of credit are over the 50% mark just about maxed out; chances are you are living above your means.  The best way to use your credit cards - which I feel are a credit tool - is to keep balances below 30%; if you want the best boost to your score make it below 20%.

2.  Your Savings Account.  Do you have one?  That you don't touch on a monthly basis?  People who are living above their means are not able to save the suggested 10% or even 5%!  If you are saving less than 5% of your gross income then chances are you are living above your means.  This means that if a financial emergency were to take place; you'd be ruined.

3.  You're only paying the minimum required payments on your lines of credit - credit cards, installment loans, etc.  Making the minimum payments means you are racking hundreds of dollars more in interest and is not doing anything to boost your credit score.  With credit cards; only charge what you can pay off each month or make multiple payments to pay off faster; consider each pay period.  As to installment loans; an extra payment or even half payment on your car, mortgage, etc can cut your interest payments over the life of the loan dramatically.

4.  60% for Essential Expenses.  Your essential expenses are - Housing, Groceries, Utilities, Transportation.  If more than 60% of your take home pay is going towards these items; you're more than likely living above your means.  Most lenders require no more than 28% of your net pay go towards housing (some 35%); leaving the rest of your income to go towards your other essential expenses, financial obligations and personal care.

5.  You're Robbing Peter To Pay Paul.  Basically your bills are getting out of control almost forcing you to finance something each month on your credit card.  The installment - monthly payment option is crippling to Americans today.  It sounds great at first; dream vacation; big television; furniture package for only $50 a month!  However, when you actually add all of those monthly expenses to your budget you quickly find you're stretched thin.

Most people who start a spending plan start with their utilities, entertainment, cell phone and cable packages.  What we think we need is often what we want.  Living within your means involves recognizing your necessities and making sacrifices.  Being able to purchase that vacation, television, furniture package outright is more rewarding; your budget and savings account will thank you later.

MNHCS offers budgeting assistance to all of their clients; helping them cut unnecessary expenses and work on a debt repayment plan while starting their emergency savings fund.  If you need assistance with your credit and monthly budget; give us a call!  708-872-0811.