How much you should spend vs. save varies from person to person; it depends on the type of lifestyle you want to live now and in the future. Still, there are a few signs that indicate you could be headed in the wrong direction. Generally, if you carry a balance on a credit card, budget based on your pretax salary, or aren't saving any money, you're probably overspending. SmartAsset's free tool can help find a financial adviser to get your money on track »
If you want to end up wealthy one day, it's crucial to keep your spending in check. Many millionaires say the secret to building wealth is living below your means. But it's not always easy to manage if you have a below average income, student loans, or other people to financially support. How much of your income you should spend vs. save or invest depends on the lifestyle you want to live now and in the future, as well as your personal financial goals. You may be able to identify these and make a plan on your own, but if you feel overwhelmed or unsure, a financial planner can help. Here are a few red flags that indicate you're spending more than you can afford and tips for getting back on track. 1. Your budget is based on your salary or hourly rate You probably have a nice, round number attached to your job title, whether it's an annual salary or an hourly rate, but that's not what you're actually bringing home. After Uncle Sam takes his share of taxes and the state you live in takes its own share, you're probably left with less than you think. If you budget your money based on your pretax number and not the amount that ends up in your pocket, you're likely overestimating how much you can afford to spend. Use a simple online calculator to find your take-home pay and go from there. 2. Your expenses exceed your income Life can be costly, but the key to achieving financial stability is having more money coming in than going out. When you list all of your monthly fixed and variable expenses — from rent to food to your gym membership — the sum should not exceed your monthly income. If it does and you don't cut back somewhere, you may end up in debt. Managing cash flow can be tough for people with inconsistent income, such as contractors or freelancers. Try finding your income baseline — either the average of your income for the last 12 months or, to be extra safe, your worst-earning month — and use that to decide your limit for expenses. 3. You have a negative net worth When your expenses exceed your income for too long, you may end up with a negative net worth — what you owe is greater than what you own. If you find yourself in the hole, you're not alone. The Federal Reserve Bank of New York reported in 2016 that about 15% of US households have net worth equal to zero or less. If you think it could take longer than five years to repay your debts, you may consider filing for bankruptcy to provide some relief, Debt.org advises. However, not all types of debt are forgiven in bankruptcy and it can affect your ability to borrow money in the future. Devising a debt repayment plan with a financial planner may be better option. 4. You carry a balance on your credit card Using a credit card for all or most of your purchases is perfectly fine, as long as you are able to pay off the balance in full every month. If you don't, or you simply make the minimum payment, the remaining balance will begin to accrue interest and grow exponentially. Credit-card debt doesn't mean you're doomed, but it's a surefire sign that you're spending (or spent) money you don't actually have. Consider consolidating your debt with a personal loan or a 0% balance transfer card. 5. Your rent or mortgage exceeds 30% of after-tax income The standard measure of housing affordability in the US is 30% of pretax income. For example, someone with an annual salary of $50,000 should ideally spend less than $1,250 a month on housing costs. But that doesn't factor in taxes. A more helpful way to gauge whether you're overspending on housing is to try and limit your monthly expenses to 30% of your after-tax income. This can be tough to manage in a high cost-of-living city, but it's a good benchmark to aim for. Use an online calculator to estimate your take-home pay, multiply that by 30%, and divide by 12 to get your target number. 6. You buy things to keep up with or impress your friends If you're buying a ticket to every festival or joining every happy hour because that's what your friends are doing, it may be a sign you're spending more than you can afford. Social media exacerbates the "Keeping up with the Joneses" affliction many of us suffer from. You probably don't know the financial situation of each of your friends and assuming you can afford something because they can — or worse, you're trying to impress them — isn't a sustainable strategy. 7. You aren't saving at all Saving for retirement and big expenses should always be a part of your budget. Maybe you've convinced yourself you can't save because you don't make enough money or your rent is too high, but chances are you're simply spending too much. Use an app like Mint or Personal Capital to take a hard look at where your money is going every month and choose one or more things to cut back on or eliminate all together. Or better yet, meet with a financial planner who can help map out a strategy for short-term and long-term savings goals. You have more control over your money than you may realize. Need help getting your money under control? SmartAsset's free tool can find a financial adviser near you »
More financial planner coverage Everything you need to know about financial planners 5 times you should consider meeting with a financial planner People with a financial adviser say they aren't just better with money — they're happier with life overall Here's how much a financial advisor costs Join the conversation about this story » NOW WATCH: Why red and green are the colors of Christmas
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In 2015, I was unemployed for six months and underemployed for another year. During that...In 2015, I was unemployed for six months and underemployed for another year. During that time, I relied heavily on credit cards to cover my basic necessities. If I could go back, I would make sure I had a low-interest or intro-APR credit card going into unemployment, and I would try harder to keep my spending under control. I'm glad I took advantage of balance transfers to pay off my credit card debt, and I'm also glad I went into unemployment with high credit limits to ensure my credit score didn't suffer too much as I racked up debt. See Business Insider's list of the best credit cards with introductory APR offers. A few years ago, I quit my job and ended up unemployed for six months and underemployed for almost another year as I built up a career as a freelancer. I blew through my savings in the first three or four months. For the year or so that followed, I relied on a combination of income from side gigs and my credit cards to cover my living expenses. Here are some important lessons I learned. 1. A small difference in interest rates can make a big difference in your bill I had a handful of credit cards going into unemployment, and mainly used three to cover expenses: one from First Tech Federal Credit Union with a moderate interest rate, and two travel rewards credit cards with high interest rates. In the beginning, I made purchases with all three credit cards. However, I quickly realized that an APR difference of even a few percentage points made a significant difference in how much I ended up spending on interest each month. I could have saved hundreds of dollars by relying primarily on the credit card with the lowest-interest rate. Even better, if I'd applied for a low-interest credit card while I was still employed and kept it on hand in case of emergency, I might have saved even more money. 2. Credit cards with an intro APR can act as an emergency fund Some credit cards come with introductory offers that give you a 0% APR on purchases for a certain period of time. These offers can last anywhere from a few months to 18 months or more. Looking back, I wish I would have taken advantage of these offers. I could have applied for one before quitting my job, and that way, I would've been able to rely on credit cards during my period of unemployment without having to pay interest fees. However, the introductory period does end, and once that happens, the ongoing APR you're charged is typically pretty high. It's not wise to use these credit cards if they tempt you to spend more or rack up a balance because if you can't pay off that balance before the introductory period ends, you could end up spending even more on interest. Rather, these cards can act as a back-up emergency fund if you either don't have one or end up draining yours. They should only be used as a last resort for purchases that are absolutely necessary. 3. Balance transfer offers can save you a lot of money on interest — if you use them wisely I did take advantage of balance transfer credit cards to help me pay off the debt I accumulated while I was unemployed. First, I opened the Chase Slate® credit card because it offers a 15-month 0% APR introductory period with no balance transfer fee (after 15 months, a variable APR of 14.99% to 23.74%). I transferred all of my credit card debt to the Chase Slate and set up automatic monthly payments, but I still wasn't able to pay it all off before the introductory period ended. After the 15 months ended, I applied for another balance transfer credit card: the Citi Simplicity® Card. It offers a 0% intro APR on balance transfers for 21 months (then a variable APR of 14.74% to 24.74%) — you just have to complete your balance transfer in the first four months from account opening. At the time, it had a 3% balance transfer fee, but that's since increased to 5%. The long introductory period was what I needed to pay off my debt once and for all. Unfortunately, I wasn't approved for a high enough credit limit to transfer all of my debt, so I was only able to transfer about half of it and had to continue paying interest on the other half. This is always a possibility to be aware of, as is the possibility that you might not be approved for a balance transfer credit card at all. For this reason, if you do make use of a balance transfer offer, it's wise to pay off your balance in full before the introductory period ends. 4. Paying off your debt on time and keeping a low debt-to-credit ratio is crucial to protecting your credit score Thankfully, I never reached a point where I didn't have the money to make my minimum required credit card payment. This alone helped me maintain a decent credit score, even while I maxed out some of my accounts. Paying your credit card bill on time is arguably the most important thing you can do to protect your credit. My credit score did take a slight hit due to the high balances I had on a couple of my credit cards. It could have been a lot worse, though. One thing that helped me keep my debt-to-credit ratio under control was the fact that I went into unemployment with a lot of credit cards, several of which had pretty high credit limits. The ratio of your overall debt to overall credit limit should ideally remain below 30% — mine crept up beyond that, but it never went above 50%. What's more, as soon as I started paying down those balances aggressively and stopped putting new purchases on my credit cards, my score climbed back up pretty quickly. 5. Being debt-free is ideal, but sometimes debt is inevitable Once my freelancing career stabilized, I focused all my financial efforts toward paying off the credit card debt I'd accumulated, which reached close to $10,000. I cut my fixed costs down as much as possible and funneled most of my income toward paying off those balances. Once I was finally debt-free, it felt like a weight had been lifted. I'd never felt more financially secure — or freer to do whatever I wanted with my life. That being said, some of the debt I accumulated was necessary. While I probably could have done a better job of keeping my spending under control at times, I also don't know how I would have covered necessities like food and housing during the rougher months of self-employment if I didn't have a decent credit card on hand. Credit cards come with high interest rates, and they aren't ideal for covering emergency situations. It's important to consider all of your options, which may also include drawing on a savings account, borrowing from friends and family, or taking out a personal loan with a lower interest rate. However, if you do have to rely on a credit card for a little bit while you get your feet back on the ground, do so wisely. Citi Citi Simplicity® Card More credit card coverage What's the best airline credit card? The best cash-back credit cards Southwest credit card review Best rewards credit cards Join the conversation about this story » NOW WATCH: Why bidets are better than buying countless rolls of toilet paper
Divorce is difficult both personally and financially, and rebuilding your financial life on your own can...Divorce is difficult both personally and financially, and rebuilding your financial life on your own can be difficult. A financial planner suggests that anyone dealing with divorce take stock of what their financial life will look like post-divorce, and decide where they want to be. Then, she suggests finding a financial planner to help achieve those goals with objective financial advice. SmartAsset's free tool can help find a financial planner near you » Divorce is expensive. Whether you're paying spousal support, paying down debt, or dealing with the costs of a divorce itself, it's not cheap. As Insider's Erin McDowell reports, the average cost of a divorce in the US is $15,000 per person for all the fees, mediation, and attorneys involved. If you're faced with figuring out how to rebuild your financial life after a divorce, the most important thing is to assess your situation, and then find a professional to help, according to Ylisa Sanford, a financial planner and Ameriprise private wealth adviser based in Santa Rosa, California. 1. Take stock of your current finances, and set goals for the future Knowing where you're starting is the first step, Sanford says. "It's extremely important to start out not with implementing advice, but to start out with analysis," she says. "That really needs to be asking yourself, 'What is my new normal? What does my new life look like? And, where do I want to be?'" "Part of what people are required to do in the process of divorce is go through their different expenses," Sanford continues. This might also be a good time to draw up a budget for your new life, check in on your saving and spending habits, and check on your retirement savings, too. "I really suggest people start out with just analyzing where they are and where they want to be," she says. 2. Find a financial planner Her next step: Find a good financial planner. "Start working with someone who, in my recommendation, can act as a fiduciary (someone who takes an oath to put your best interest first), and can provide objective financial planning advice," she says. Finding a planner who is fee-only, or paid only by client fees rather than by commissions through products they sell, can be a good place to start. Her suggestion is to find a financial planner who "you can collaborate with and have a very candid relationship with." After all, you'll be going through a lot with this person, so having someone you can be yourself with is critical. "What someone may want to do two months after a divorce, they may not feel the same way about six months later, simply because so much has changed in their physical and emotional health," Sanford says. Having a neutral party to help with your financial choices can be a big help after a divorce. Sanford says it's all about choosing the right balance of personality and skills in a financial planner. "Find someone who understands the advantages and disadvantages of how you want to get assets from the marriage," she says. "Find someone who really understands what's in your best interest, can work with you, and who can work as a fiduciary," she says. SmartAsset's free tool can help find a financial planner near you » More financial planner coverage Everything you need to know about financial planners 5 times you should consider meeting with a financial planner People with a financial adviser say they aren't just better with money — they're happier with life overall Here's how much a financial adviser costs Join the conversation about this story » NOW WATCH: Taylor Swift is the world's highest-paid celebrity. Here's how she makes and spends her $360 million.
I met with a new financial planner, and I've already made 2 game-changing tweaks to the way I manage my money
My husband and I recently paid off our credit card debt and decided to meet with...My husband and I recently paid off our credit card debt and decided to meet with a financial planner to establish new spending and saving habits. He recommended two strategies: putting money into our savings first, and opening a business checking account for my freelance income. It'll take time to build up our savings, but I already feel more secure knowing we have a plan. A financial planner can help you spend less and save more. Use SmartAsset's free tool to connect with a qualified professional » For my husband and me, financial well-being is a top priority after neglecting it for years. We've made our fair share of irresponsible spending choices, which resulted in credit card debt and a lack of savings. Thankfully, since adjusting our budget and increasing our income, we've been able to pay off our credit card debt and make a bigger dent in our student loans. But now that we've removed the elephant that's been in the room for half a decade, we weren't sure how to create habits that would ensure a healthier financial future for our family of four. Our main question was this: What's the next step, now that we're out of debt? To find the answer, we decided to meet with a new financial planner. A friend connected us to a certified financial planner (CFP) based in Chicago. We had an initial consultation on the phone, and I appreciated the CFP's direct style and sense of humor. He's also a parent, so we felt he could offer helpful insight on how to approach budgeting and saving with kids (and understand how expensive they can be). We decided to move forward with a planning meeting, and we couldn't believe how much we learned in those 60 minutes. Most of the call was going over our personal financial goals, both short and long term, and coming up with habits and strategies that would allow us to meet these goals over time. My husband and I agreed that we wanted to budget more effectively, save more money for retirement and our kids' college, and set aside as much as we can for emergencies along with spending and travel. Based on our current financial situation, the CFP made two recommendations that we're already starting to put in place: budgeting differently and streamlining my cash flow as a freelancer. 'Pay yourself first' I'll be the first to admit that the way my husband and I have budgeted in the past hasn't worked. For a lot of months, we didn't budget at all — the process either felt overwhelming or we simply didn't make time to sit down and create a plan for our income. Other months, we budgeted in a way that showed us where our money was going, but didn't contribute to our overall wealth. In other words, we didn't prioritize saving. A CFP can help you find ways to save more. Use SmartAsset's free tool to connect with a qualified professional » In our meeting, the CFP recommended that we try to shift our perspective on budgeting. Instead of allocating all of our income toward expenses, he encouraged us to "pay ourselves first" — to set aside a certain amount for savings before it even hits our checking account. Along with my husband's 401(k) contribution, we plan to start allocating a specific amount to general savings from his paycheck. Since I'm a freelancer, I'll be putting aside a sum for my own retirement. I plan to ask in our next financial meeting the most effective way to invest in retirement as a self-employed person. Create a separate business checking account At times, living as a freelance writer means living month to month. All of my clients pay me different amounts at different times, and my workload can also vary drastically in a given month. That said, I've always had clients pay me via direct deposit to our joint checking account, since we generally needed all the money I was making. There's nothing inherently wrong with using the money you make, but for us, having the money available makes us more likely to spend it. Since at this point we don't need all the money I'm making for our immediate budget, the CFP recommended that I create a separate checking account for my business, and pay myself bi-monthly into the joint account. The goal is to be able to budget based on my husband's paychecks and my pre-determined self-payments each month, and to save the rest for estimated quarterly taxes or an emergency fund. While it might take some time for us to notice a major difference in the state of our finances, it feels good to have a plan in place, and a financial advocate who can hold us accountable along the way. Once we have some savings built up, we're excited to learn more from our financial planner about how we can invest our money in other, potentially more fruitful ways. A financial planner can help you spend less and save more. Use SmartAsset's free tool to connect with a qualified professional » More financial planner coverage Everything you need to know about financial planners 5 times you should consider meeting with a financial planner People with a financial adviser say they aren't just better with money — they're happier with life overall Here's how much a financial adviser costs Join the conversation about this story » NOW WATCH: Stop using champagne flutes — this is the best way to drink champagne