Are You Living Beyond Your Means

Piggy bank getting squeezed, care of Yahoo Finance.

I came across this article the other day on Yahoo (yes, it is still around), which summarizes some nice points on whether you are living beyond your means.  After reading it over, I think many people would be quite surprised to know that they are not preparing themselves for retirement.  I recommend reading the article, but here are my own thoughts and the main points.

1.) You couldn't financially survive without your job's income for at least six months. - Otherwise known as an emergency fund, saving 6 months worth of spending in a liquid account is just a good gauge for how much you should have.  Generally speaking, it might take someone about 6 months to find a job.  Another good use of this fund is if some sort of "emergency" occurs in your household.  For example, say your laundry machine breaks down; do you have at least $1,000 bucks on hand to take care of this.  With an emergency fund, this becomes a non-event.

2.) You are saving less then 10% of your current pay - This one scared me a little just because I don't think some people realize just how much they need to put away for retirement.  My own employment has a 401k that matches 4.5% if you put in 6%.  Most people just put in the minimum 6%.

3.) Your mortgage payment is more than one week's salary - If anything, I think this is a good gauge on how much house you can afford.  Make sure to take into consideration all the costs that go into a mortgage payment; principle, interest, property taxes, and home insurance.

4.) Your credit card balance has remained the same for the past year - you have essentially become what the credit card companies love...a source of fees and interest.  If you have an emergency fund saved up, then the need for a credit card balance becomes less, so this shouldn't even be a problem in my opinion.

5.) You buy big ticket items on low or 0% interest, because you think you'll be able to afford them next year - This type of living is too stressful for me.  Why would you want that kind of obligation hanging over your head.  Step back and think about it for a minute; do you need that huge LED TV or that new Lay-z-boy recliner.  Why?  If you absolutely must buy it, then save up for it.

6.) You use one credit card to pay off another balance - A savvy credit card person could get away with this, but then again, if you were that savvy then you wouldn't have credit card debt.

7.) You pay an overdraft fee on your checking account every 3 to 4 months - First, if this ever occurs, then you need to become better at keeping track of your account balance.  Secondly, you may need to reexamine your spending habits.

8.) Before buying something, you often think "I know I shouldn't, but..." - This goes hand-in-hand with the idea of "I'll treat myself", or "I deserve this".  These are dangerous phrases and can really mess you up down the road.

Ultimately, you have to ask yourself if you want to retire at some point in your life, or do you want to work until you drop dead?  The choice is yours, but these few rules are some good advice all around.

Wonderful Moment of the Day - The cat my Wife and I are cat sitting has finally warmed up to me and is currently sleeping in my lap as I write this.