You make a decent salary, and you pay attention to where your money goes. But it's possible you're living above your means---without even knowing it.

Do you ever feel like you’re good with money and you budget well, but you can never seem to really get ahead?

Believe it or not, living above your means doesn’t always just happen to people who aren’t any good with money. It can happen to any of us – often without us knowing.

In this article I’m going to walk you through some very real situations that you will connect with. You’ll see that by not monitoring your spending consistently and consciously, you can easily start to live above your means.

The slow leak

Think of a hose you have hooked up outside that slowly drips water all summer. If you were to put a bucket under the hose, you’d have probably a gallon of water by the end of summer.

Spending is a lot like that. When you subconsciously spend more than you intend to on seemingly little things, thinking that it won’t make a big difference, you may find you’re living well above your means.

This “money leak” often happens without us even knowing—and it’s making us poor. It can happen in a number of different ways, like the ways stores manipulate us secretly for example.

We justify this type of spending, too. For instance, if you’re a meticulous budgeter but happen to overspend on food each month, you might make the justification that you’ll spend less elsewhere. Sometimes that happens, sometimes it doesn’t, and you overspend that month.

Even worse, we may compromise our savings to cover for this overspending. Say you budgeted $400 for groceries this month and were maxed out in every other spending category (you’ve spent everything you’ve earned). You might “borrow” from your savings to cover the extra $100 you just spent on food this week.

The slow leak can happen to any of us. Even those of us that regularly pay ourselves first. In fact, I’d argue that it happens more frequently to those who save first—it’s easier to justify pulling some extra money out of savings.

In addition to the regularly monthly leak that I discussed above, there are three major leaks that put us above our means. What I’d like you to do is pull up a tool (like Personal Capital, for example) to track your expenses for the year and see when and where some of these leaks might be occurring.

1. Irregular, but recurring, expenses

This is the most common, most overlooked, and often biggest leak in our budget. Recurring, yet irregular, expenses sneak up on you like a ninja at at the most inconvenient times to wreck your budget.

Amazon Prime is a great example of a recurring annual expense. Say you pay $99 per year for this wonderful Amazon feature. That’s basically $8.25 a month, but you’re not paying for it monthly, are you?

Since you’re not paying for it monthly, odds are you’re not budgeting for it monthly. This is a strategic (and frankly genius) marketing move that many companies use in order to get you not to cancel.

Think about it: if you don’t know whether you want to keep something, what’s going to remind you of it more—an $8 monthly charge that you see 12 times a year, or a sneaky little one-time-per-year charge that you might overlook on your credit card statement?

Car insurance premiums are another great example. Typically you pay your car insurance two times per year in lump sums. If you’re not properly budgeting for this each month, you’re going to overspend when the bill comes.

Lastly, another common one to look for are non-monthly utility bills, such as a water bill. These might come every three months or so, and not every utility company has an auto-pay or e-bill feature, so you might get a physical bill in the mail (we do for our water bill and it’s difficult to keep track of) that you may forget about and end up overspending.

Comb through your spending and look for these irregular, recurring expenses and decide whether you want to keep them or not (assuming that’s an option–car insurance and water typically aren’t). If you do, make sure you’re budgeting for it each month—even if it’s not due that month. In the example I just used, set aside $8.25 per month in your budget so you’re ready to pay for it when it comes due.

Software like YNAB makes planning for recurring but irregular expenses a part of their system, and a bank like Simple allows you to create “goals” and save over time, which can be used to save up for things like Amazon Prime memberships and car insurance.

2. Unexpected expenses

We’ve all had them. Unexpected expenses are the worst.

They always seem to happen at the most inopportune times, and yet we always seem to find a way to pay for them.

What you may not realize, though, is these unexpected expenses are destroying your annual budget. When you don’t plan for things that you can’t predict and can’t avoid, you’re putting yourself at financial risk. Here are just some of the things that I’ve run into this year alone that fall into this category:

Major car maintenance

Statistically, we’re holding on to our cars longer (which is great) but if you don’t plan for repairs and upkeep, you could run into a major, unplanned expense. Even if you have a newer car, you never know when it’ll need to have the brakes replaced, or something that isn’t covered by a warranty. With an older car, you’re more likely not to have any type of warranty, meaning any expense will come out of pocket. We have a three-year-old car that suddenly needed over $500 worth of brake replacements this year.

Home maintenance (or home purchase)

There’s a huge hidden cost to home ownership, and that’s upkeep. Whether it’s something structural (major cost), windows, or plumbing, there’s always something that needs to be fixed, updated, or maintained in your home. Make sure you’re setting aside some money each month to prepare for these types of expenses, so you’re prepared if and when they come. (And they will.)

This year was particularly wild for me, as we purchased a new home (and had some repairs on our current home). But after casually shopping around for over two years, we finally found the exact house we wanted.

Once that happened, we had to make sure we had the cash to put down. If you’re casually shopping for homes over a few years like we were, be sure you’re financially prepared for the moment you find your dream home.

Medical bills

Probably the most common of all these is medical bills. Clearly you have some idea of what your health is like (unless you’re not going to the doctor) so you should know generally if you’ll have major expenses during the year or not.

The problem is we can’t predict the future and there’s no way you can know what will happen to you, health-wise, during the year.

My wife and I had our first baby this year. We had planned financially for at least the nine months that she was pregnant.

Yet when the bills started flowing in, it wasn’t exactly what we’d expected—it was more expensive. We live well below our means and save a significant portion of our income, so we were able to afford it, but we ran into a bunch of miscellaneous expenses that we didn’t plan for, such as the full cost for a pediatrician to visit the baby in the hospital for his first checkup (which they make you do regardless).

The key here is to plan for such medical expenses, possibly more depending on your overall health, so you don’t veer too far off course from your budget when something happens.

Work-related expenses

This is another one you probably don’t think of often, but work-related expenses (like clothes, shoes, suits, parking, etc.) can sneak up on you—and often you can’t choose not to pay them. 

I got a new job this year (so let’s see, new baby, new job, new home… talk about a stressful year!) and it required me to completely change my wardrobe. I went from business casual to business professional, meaning I now had to wear at least a tie everyday, and sometimes a suit.

It’s not like I was going to turn the job down because of that, but it’s something I definitely didn’t plan for. So here’s some advice: If you’re interviewing for jobs that require a certain wardrobe that you don’t already own, budget for the cost of a wardrobe overhaul just in case you get the job.

3. “Must have” experiences

There’s a science behind why we should be spending our money on experiences, not things. I totally agree with this logic, too.

It’s logic like this that inadvertently encourages us to think it’s okay to spend our money on experiences—which, as you’ll read in the article I linked, is a good thing if you have the money.

The problem comes when you don’t have the money. It’s hard to say no when your friends are all going on spring break or heading to Vegas for a bachelor party.

The same thing happens when you take out loans to study abroad. An amazing experience, no doubt, but you could end up with thousands of dollars in additional debt if you’re not careful. 

Smaller experiences can add up, too. What might seem like a cheap weekend getaway, a lovely night out on the town, or a can’t miss sporting event can actually mean the difference between living within your means and blowing your budget. 

These “must have” experiences sneak up on you, enticing you with the promise of a memory that will last forever. And I encourage you to go for it – just make sure you’ve budgeted for it so you don’t go into debt over a week-long party trip to Miami.

Summary

Think about budgeting like dieting. You can follow your diet exactly each and every month, but if you start sneaking in chips, candy bars, and alcohol on a regular basis, you’re probably not going to meet those diet goals.

Just like money, if you consistently have the “slow leak” of overspending, you’re never going to save.

Also like dieting, don’t binge and don’t starve yourself. You’ll fail both ways.

If you follow your budget strictly the first six months of the year then take a random, unplanned trip to Paris, you’ll blow your budget. If you forbid yourself from having subtle pleasures like the experiences I mentioned above (you “starve yourself”) at some point you’ll cave and spend more than you’d intended. Give those things to yourself, but budget for them and make sure you’re paying yourself first.

I saw a huge turning point in my financial life when I started using YNAB. I never used to be good at budgeting until I found this tool. Give it a try if you’re finding yourself struggling with watching what you spend each month.

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About the author

Chris Muller picture
Total Articles: 198
Chris has an MBA with a focus in advanced investments and has been writing about all things personal finance since 2015. He’s also built and run a digital marketing agency, focusing on content marketing, copywriting, and SEO, since 2016. You can connect with Chris on Twitter.