Many people have trouble determining if they’ve gone over the edge as far as spending goes.  They get used to spending a certain amount and that amount creeps higher with every raise or bit of additional income.  Ultimately, it doesn’t matter at all how much they earn, their spending is tied to their potential to spend not to their need to spend.  After spending yrs in this mindset, it is difficult to determine if you are on the verge of financial turmoil.

Here are a couple easy questions that will help you determine if you’re in trouble.

1 ) How many paychecks can you live without? 

What would happen if you were laid off or lost your job for another reason?  Or what if the paycheck company had a problem and your check was going to be delayed for a week?  Would you lose your house or get evicted?  Could you pay the electric bill and keep the lights on?  Expert advice says that you should be able to live for six months without a paycheck. 

2 ) Would one unexpected bill break the bank?

If your car broke down, would you be able to cover the charges?  Or if you found out you needed a new roof on your house/condo?  You have some amount of financial obligation every month, if that obligation was increased by a few hundred on a particular month, could you cover it?  Would you have to borrow from your family to cover it or put it on a credit card with a 21% interest rate? 

3 ) How is your savings?

Do you have enough cash to handle an emergency?  Do you have a savings account or an emergency fund established?  Could you live off of that fund for weeks or months?  Is there anything left after your bills are paid?  Do you contribute to a 401k or an IRA?  Do you have a plan for how you’re going to support yourself and your spouse during retirement and are you working towards achieving the goals that go along with that plan?

4 ) How is your credit?

Credit is a good way to gauge your financial health.  Could you qualify for a loan?  Could you qualify for a 0% credit card?  If yes, then you are not using every bit of your income (if the banks thought you were strapped, they wouldn’t approve you for a loan or credit card).  If you have high credit card balances or could not get a loan then chances are that you are spending as much or more than you make.  (Banks are pretty good at determining how much people can afford.  That is what they do for a living.)

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