by Natalia Jones

Created on: August 19, 2009   Last Updated: August 20, 2009

E.E. Cummings, the famous poet once quipped "I'm living so far beyond my income that we may almost be said to be living apart." Despite several warnings, many people find themselves falling into the trap of living beyond their means. It may start out gradually, but left unchecked you can find yourself swimming in a quagmire of debt

The following are some warning signs that you are on the path to financial ruin

1. You are becoming more dependent on your credit card. This is a red flag that your spending is beginning to outstrip your available income. The availability of a credit card is seductive in the beginning and many people give in to the temptation to use credit to fund impulse purchases. If this behavior becomes the norm, it could spell disaster because soon enough you will be using all the credit available to you and paying punitive rates of interest on purchases that could have been either deferred or avoided entirely.

2. You are behind on your bills. When your bills roll over from month to month this is a definite sign that you need to take a close look at your finances. It is best to get this in check as soon as possible before the amounts outstanding become completely unmanageable. Try to reallocate funds from certain areas or cut down on non-essentials like cable television until the situation gets under control.

3. Housing amounts to more than 28% of your gross income. This percentage is used by conservative banks as a benchmark to determine the size of loan you qualify for. Typically they estimate that housing should not use up more than 28% to allow for other expenses and to put aside some money for savings. If your mortgage, property taxes and insurance bill amounts to more than 28% of your salary you just may be in over your head, but this is nothing to be overly alarmed about if you have the discipline to control it.

4. If your credit score is below 600. Your credit score is a very tangible summary of your financial situation. Even if you are not sure that you are living beyond your means a look at your credit score can clear things up a bit. Your credit score takes into consideration the amount of debt that you have as well as how often you pay your bills on time, and the presence of any legal judgments against your name. If your score is below 600 you should take a closer look to determine how you can improve your situation.

5. You save less than 5% of your income. If you cannot afford to save more than 5% of the money you make, you are basically living from paycheck to paycheck. To increase the amount of money you can save, you should reassess your expenses and try to work towards getting rid of smaller debt obligations. This can free up cash that can be saved on a monthly basis. Of course, you must ensure that you actually save the liberated funds, otherwise your effort would have been in vain.

Some people love keeping up with the Joneses, others simply lack the discipline it takes to keep finances in the black. Either situation can be turned around with conscious effort.

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