Are you over-spending? Six signs you need to Know.

Many of our clients wait until their financial problems get out of hand before acting. If you’re struggling to keep your head above water, financially speaking, you should learn to recognize the signs that you’re over-spending. It could save you from getting into a financial mess. Here are the six main signs.

1. You’re saving less than 10% of your income

Are you one of those people who, once all expenses have been paid, don’t have enough money left at the end of the month to put aside? This is a sign that your expenses are too high. As we live longer and healthier lives, it is recommended that we save 10% of our net annual income each year for retirement. Most of us will need 60-80% of our current income to have a comfortable retirement. For example, a person with an income of $55,000 will need almost $38,500 per year. Naturally, this annual savings percentage may vary depending on the age at which you start saving, the return on your savings and when you retire. So, it’s important to set financial goals as early as possible to ensure that you have the retirement income you need.

2. Your credit card balances are not diminishing

Credit cards are the easiest way to buy anything: they’re accepted almost everywhere and the transaction only takes a few seconds. But as easy as this is, it’s also very dangerous, because their interest rate is often very high. If you don’t pay off the entire balance each month, you can get into debt very quickly and pay a fortune in interest. Furthermore, the more minimum payments you make, the greater the risk of damaging your credit rating.

3. Your credit rating is lower than 600

Are you often late in paying your electricity or telephone bills? Do you just pay the minimum amount on your credit card each month? If so, your credit rating has been negatively affected. In Canada, a good credit rating is generally between 660 and 724, and a very good one between 725 and 759. On the other hand, if it is below 600, it means that you need to quickly review your financial management. Your credit rating is the backbone of your financial life. If it is bad, it can affect your personal and professional life by preventing you, for example, from renting an apartment, getting a mortgage loan to buy a house, or even being chosen for the job you want.

4. You don’t have an emergency fund

We all know it: life is full of surprises. What would you do if you lost your job tomorrow or suddenly had a huge, unexpected expense such as getting your car repaired? Most likely, you would borrow money or go into debt.

By creating an emergency fund, you would avoid high-cost borrowing (payday loans, credit card cash advances, quick loans, etc.) and maintain control over your finances. In general, we recommend that this amount be able to cover your usual expenses for three to six months. So, when you make a budget, it’s important to set aside money for an emergency fund.

5. You’ve never made a budget

Without a budget, you don’t know where your money is going. The purpose of a budget is to have a fair picture of your financial situation, and to know exactly how much money you’re getting, spending and saving. A budget also allows you to target and settle your debts. If you don’t make a budget, you have no limit to your spending and you risk living above your means. It’s a vicious cycle where you’re not paying back your debt because you have no money left at the end of the month. Or worse, you continue to rack up debt. In a world where everything has been designed to make you buy, it’s an essential tool for properly managing your finances.

6. You’ve paid overdraft fees

An overdraft situation occurs when you withdraw more money from your account than is available in your balance. It’s a sort of short-term credit that allows you to continue spending money even if there are not enough funds in your account. As with any loan, banks do not give you this credit for free. Varying degrees of fees apply, thereby increasing your debt. More importantly, if you have paid overdraft fees, this reflects your inability to live within your means. It should be a wake-up call for you to take action as soon as possible.

In conclusion, if many of these signs are familiar to you, don’t wait to act and change your spending habits. The first step is often to recognize that you have trouble managing your finances. Know that you are far from being alone in this situation. By seeking advice from one of our consultants and acting quickly, you can turn your financial situation around.

Would you like to change your spending habits and free yourself of debt once and for all? Don’t hesitate to contact our financial recovery counsellors who can help you find a solution.