Recession aside, most people are still living beyond their means. Collectively, we’re out of control financially, even though we furiously attempt to convince ourselves otherwise.

^[2] Savings rates have increased recently, but I personally fear that it’s a temporary circumstance as the media desperately touts the “recovery” – a recovery with high unemployment, a recovery where the average family still has between $10,000 and $16,000 in credit card ^[3] debt, a recovery with most of us back at the mall ^[4] already.

Signs you may be financially out of control

1. You’re saving less than 5 percent of your income.

Some are saving zero. Saving less than 5 percent can mean you haven’t completely bankrolled your emergency fund ^[5] – flirting with financial disaster.

2. Your credit score is less than 600.

Your credit score ^[6] is the reputation you have with creditors. A low score means you’re probably in over your head and probably out of control. The higher your score, the better your reputation and your reputation is dependent on:

• Payment history (35%)
• Amounts owed (30%)
• Length of credit history (15%)
• New credit (10%)
• Types of credit used (10%)

Check out Credit Karma ^[7] to get your free credit score.

3. Your house payment or rent exceeds 28 percent of your income.

That’s 28 percent of your gross income. If your house payment (or rent) exceeds that percentage, you may be in over your head. Conservative mortgage ^[8] lenders have historically used the 28% number because that percentage of income allows the average person to make their house payment yet still enjoy a reasonable standard of living. Some homeowners can get by spending a higher percentage on their mortgage ^[8], particularly if they cut back elsewhere, but it’s a dangerous line to walk.

4. Your credit balances are still rising.

If you’re taking one step forward and two steps back, you may be out of control with debt, relying on credit to finance a lifestyle you simply can’t afford.

5. Your bills are escalating out of control.

Still paying for premium cable even though you’re struggling? How about satellite radio? Entertainment expenses? Multiple cell phones? A motorcycle you don’t ride? Dining out? Too much life insurance ^[9]?

6. You think of everything in terms of the payment.

Buying on credit and making payments has become a national pastime and it’s considered the new “normal.” It’s much easier, even acceptable, to buy a new anything when the salesperson obfuscates the price to just monthly payments. What’s an extra $45.27 per month?  What’s another $38.96? Another $57.04? Another $29.77? All of these bills add up, and you could nickel and dime yourself right into bankruptcy.

7. You depend on overtime, bonuses, or financial windfalls to pay your bills.

You may not be in financial trouble per se because you aren’t behind on any bills but you’re paying those bills with overtime, bonuses, or some other type of irregular financial windfalls. If you’re becoming used to those funds being there when you need them, but they aren’t guaranteed, you may be in over your head.

If you see yourself in any of these signs, it doesn’t mean you’re a bad person, or that you’re definitely headed for disaster, but it could be a symptom that allows you to uncover a problem before it gets worse.

Photo by carfull53 ^[10]

About the author

Ron has written 1082 articles on The Wisdom Journal.

The founder and editor of The Wisdom Journal ^[29] in 2007, Ron has worked in banking, distribution, retail, and upper management for companies ranging in size from small startups to multi-billion dollar corporations. He graduated Suma Cum Laude from a top MBA program and currently is a partner in a national building materials company.

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