The Warning Signs of Financial TroubleAlmost anyone can get into financial trouble. Typically, it doesn't happen because of one huge event and it generally occurs over time. The idea that you wake up one day and discover that financially you are in way over your head is pretty much a myth. In reality, problems with money usually build slowly- one bad decision at a time. While some signs are obvious (such as running out of cash each month), others can be more subtle (only paying the minimum amount on your credit card bills).
If you are like most consumers, you know what you should do to right your financial ship. Get out of debt. Increase your income. Spend less than you make. But actually putting these plans into action can be difficult. Successful money management takes determination and patience. Knowing the signs of impending financial trouble is crucial if you want to avoid serious money problems.
The following warning signs are some of the most common. When you read them, you should determine which ones may be affecting you. By recognizing these signals you may be able to lessen or totally avoid a financial meltdown in your future.
Signs of Financial Trouble
- No Budget - While this doesn't necessarily mean you are in financial trouble, it's a good indication that you don't have a clear picture of your finances. Overspending is easier when there's no budget in place. Financial security is nearly impossible to achieve without a workable budget.
- No Savings - If you are one medical emergency away from a financial crash, be alert. Everyone needs an emergency fund for life's unexpected events. It doesn't have to be something as big as a hospital stay. A new furnace or water heater can also throw a tight budget into disarray if you have no savings to fall back on. It's important not to take on new debt to pay for every unexpected bill.
- Using Credit for Everyday Purchases - If you pay for everyday items such as groceries, gas, or lunches with a credit card you may already be in some sort of financial trouble. Your budget should include a certain amount of money for these purchases. The only time using a credit card would be acceptable is if you pay off the entire amount each month.
- Making Minimum Payments Only - It is true that paying the minimum amount due each month on your credit card statements will keep your account current. It's also true that it will keep you in debt forever and you will pay a ridiculous amount in interest payments to your credit card company. This practice will also lower your credit score and indicate to potential creditors that they should stay away from you.
- Missing Payments - Not making a payment is a seriously dangerous thing to do financially. Nothing messes up your credit report and credit score as much as a series of missed payments.
- Taking Out Payday Loans - These short-term loans charge astronomical interest rates and generally have to be repaid within two weeks. If you are actually considering using a payday loan to get extra cash, your financial situation is probably already in trouble.
- Not Including the Entire Family in Financial Discussions - Living on a budget and managing your finances need the cooperation and support of your entire family to be successful. Decisions involving money should be discussed by you and your spouse and also your children (depending on their ages). A budget will only work when all family members are on board with the plan and know what is expected of them. One person making all the financial decisions is an unfair burden and can lead to problems.
- No Financial Goals - Having financial goals is a big key to successfully managing your money. Goals can be either short-term or long-term but both provide a way to measure your success. Working towards something can also be motivation to stay on track.
- Hiding Purchases From Your Spouse - Needless to say, lying about money is not a good sign. This is a very dangerous path to follow and can lead to deception in other areas of your relationship.
- Having Too Many Credit Cards - If you are juggling more than one or two credit cards, you probably have too many. It's very easy to use credit to pay for things you don't really need. One of the cornerstones of becoming debt-free is living within your means. Credit cards can be a temptation to purchase something you don't really need and can't really afford. If you can't pay cash for an item you probably shouldn't buy it.
It's very easy to get into financial trouble. If any of the warning signs listed above pertain to you, let it be a wake-up call to get your financial house in order. Money problems can plague everyone at some time or other. The important thing is to take action and not ignore the situation. It may take time and a complete overhaul of your lifestyle and spending habits, but financial security can be yours!