Studies show that Americans are spending more than ever. The average credit card debt is $5,000 to $7,700, depending on the source of your information. Student loans, mortgage or rent payments, cars, cell phones and other electronics and other recurring debts add to the pressure.
How do you know if you are spending too much? Here’s a list of guidelines that may help you decide.
Credit Card Debt
If you carry more credit card debt than you can pay off monthly, you may be on the brink. The interest is gobbling up money that you could be using for other things.
Retirement
If you are making no provision for retirement, that’s another red flag. Though you have plenty of company – a third of working age Americans are in the same leaky boat – you may be asking for a longer working time in the future. Most experts say you need to start saving 10 to 20 percent of your income starting in your 20s to meet retirement needs.
Housing
If your housing, rent or mortgage, is absorbing more than 28 percent of your income, that’s a danger sign. And your transportation costs should not exceed 15 percent. Vehicles depreciate fast. If you are over this limit, it could be time to go shopping for less car.
Children’s Education
The working years are the time to save money for your children’s education. Higher education debt has become a major stumbling block for many young (and not so young) adults. The average student will face a $33,000 debt load when he receives his degree. Being able to take care of some of the costs up front could make the transition into a career easier.
Health Insurance
Financial disaster is fairly predictable if you don’t have health insurance. A coronary bypass can cost more than $38,500. Just thinking about this and other medical emergencies that are part of life could give you a heart attack. With new government provisions, you could be paying penalties for not having health insurance, unless you qualify for an exemption. Better the cost of insurance than the cost of the penalties.
Eating Out
If your family has become addicted to eating out, you are paying more for food than you need to. A home-prepared lunch costs about a third what they will charge you in a restaurant. Ditto coffee. Some studies have indicated 60 percent savings when you eat foods you fixed yourself.
Emergency Fund
Not having an emergency fund is asking for trouble. The experts don’t all agree on how much a cushion is enough, but the recommendations range from three to 12 months of your income total. Don’t worry so much about the total you need as the need to get started. In a pinch, anything is a whole lot better than nothing.
As a rule of thumb, financial advisors say you should spend half your income on essentials, 20 percent for debt payment, retirement and savings and 30 percent on lifestyle choices. The guideline can have some flex, but is a good gauge to whether you are making good use of your financial resources.
Bottom line: Overspending and under-saving can be disastrous. Starting early to address budget concerns may allow for a more secure and trouble-free future. If you aren’t paying attention, now is the time to start.