This Is How You Know You’re Living Above Your Means
Paul Manafort, President Trump’s former campaign chairman, is on trial for some pretty serious crimes, including tax evasion.
But his spend-thrift lifestyle in addition to how he allegedly hid millions from the federal government has been on trial as well.
Manafort’s spending brings up a question: How do you know if you’re living above your means?
The formula isn’t as simple as you may think. Some might think they are doing okay if their bank account balances every month. In other words, your spending doesn’t outpace your earnings.
But to know whether you’re living above your means, you have to add a lot more to the equation. It’s more than subtracting your expenses from what you earn minus taxes, of course (assuming you aren’t squirreling away millions in offshore accounts and trying to cheat Uncle Sam).
You’re living above your means if you have more than enough income for the basics but you indulge in eating out, vacations, and overspending on clothes and cars at the expense of future needs such as having adequate retirement savings or being able to send your child to college without a boatload of debt.
And you can live above your means at just about any income level. Prosecutors allege that Manafort lied about his earnings and falsified loan applications in an effort to continue living way beyond his means while making millions. He’s not an anomaly. A lot of folks are living too large.
Here’s how you know you’re living above your means.
— You Don’t Have An Emergency Fund
A report from the Federal Reserve Board found that four in 10 adults, if faced with an unexpected expense of $400, couldn’t come up with the money unless they sold something or borrowed the money. Manafort’s bookkeeper testified that he couldn’t keep up his seven-figure lifestyle after his business dried up. He hadn’t put any money aside, so the bills started to pile up, the bookkeeper said. But prosecutors allege that Manafort made $60 million between 2010 and 2014 while working for various interests in Ukraine.
— You Don’t Have A “Life Happens” Fund
The reason many people don’t have the money they need when an emergency happens is that they’ve been raiding their rainy-day account and treating it more like a slush fund. You need an emergency fund for the big financial storms such as losing a job. But you will face unexpected gusts, such a major car repair, for which you need savings, too. To keep from tapping your emergency fund all the time, create a “life happens” account. Money will flow in and out of this fund as needed. So when you have a major repair, you tap this account rather than your emergency fund. When you recover from the smaller storm, you build the “life happens” fund back up.
— You Aren’t Saving For Retirement
Of course many people are struggling just to put food on the table or keep a roof over their heads. They can’t even begin to think about saving for retirement. But there are others who can. If you took a nice vacation this summer or drive a luxury car and you aren’t saving enough for retirement, you are living above your means.
— You Aren’t Saving For Your Child’s College Education
Outstanding student loan debt is at $1.3 trillion. If you know college is costly, why aren’t you saving for your children? They need a college fund more than a cellphone, a closet full of clothes or big birthday bashes every year.
— Your Debt Is Keeping You Up At Night
You can’t get ahead financially if you’re always servicing debt, especially for consumer goods. No, using other people’s money isn’t a good thing. No, there isn’t a difference between “good debt” and “bad debt.” It’s just debt. And debt can limit your options and make it harder to weather life’s storms such as a job loss.
But many people are living the American Dream by borrowing too much, even for a home. Monthly payments that seem affordable help you create the illusion that you aren’t living above your means.
Source: Washington Post
