Everyone of us has at some point in our lives experienced a financial crunch. However, you can manage it without worrying much. But, the condition worsens when you experience a prolonged financial crisis that you can’t tackle in a couple of months.
Well, you can avoid it if you can recognize the signs of personal financial trouble.
Researches reveal that about 26% of adult Americans haven’t saved anything for emergencies and about 36% people are yet to start saving for retirement. Even about 8% of households don’t have a bank account. As per a data in 2016, about 38 million people live paycheck to paycheck. More shocking is that amongst these, two-thirds of people earn about $41,000, which is a decent income and much more than the federal poverty level.
So, it’s not that you earn less, but you have to manage your money efficiently so that you can avoid the signs of personal financial distress. Any of these signs of personal financial trouble is a warning sign that you’re near a financial crisis. Also know what to do.
1 You don’t save 20% of your monthly income
If you are not able to save about 20% of your income, then it’s a sign that you are near a financial crisis. If you face any emergency situation, you can have huge debts to pay off later.
What to do:
Even if you’re not able to save 20% of your paycheck, try to save at least 10% for the time being. What you can do is, set aside 10% whenever you get your paycheck and plan your expenses with the remaining amount.2 Budgeting is a daunting task for you
Don’t you like the word ‘budgeting’ and think it’s a waste of time? If so, be prepared to experience a financial crisis because you don’t know where your money is going. So, how will you control your spending?
What to do:
Even if you hate the word ‘budgeting’, plan one. Don’t expect it to be the perfect one on the first go. However, by planning and following one, you’ll have a clear understanding of your financial condition.3 Extravagant nature is what describes you
It is said that “Every penny saved is a penny earned”. So, if you don’t spend wisely, you won’t have any savings, and you may fall into debt.
What to do:
The best way to stop this is to think before you spend every cent. Ask yourself - Do you need this item? If you’re not sure, take 2-3 days time; if you still feel the urge, purchase, if you can afford it. Also, compare prices to get the best deal.4 You cannot control your debts
Instead of clearing your debts and taking your financial life in full control, you’re using your emergency fund to meet your daily necessities.
What to do:
A well-planned budget is your savior. Only then you’ll be able to meet your daily necessities, save and pay off your debts. If required, take professional help to repay debt.5 Incur debt to repay existing debt
Are you using one credit card to pay the bill for another? Yes? You will do this when you don’t have the cash to make the payments. This is an alarm to sort out your financial mess.
What to do:
To get out of the debt cycle, practice frugal lifestyle and use your savings to clear your outstanding bills. Do not swipe your cards till you repay every cent you owe.6You do not look after proper maintenance of your possessions
If you don’t do routine maintenance of your possessions such as your car and house, then you may have to pay a bigger price in the future when you have to repair and replace something.
What to do:
Routine maintenance costs much less. So, invest in small amounts now to save big amount in the future.7 You don’t care to check your monthly bills
Do you think checking your monthly bills is a waste of time or you want to avoid facing the harsh reality? If you do so, be ready to face the consequences.
What to do:
Before the alarm bell rings, talk to the service providers and ask how you can reduce your spending. They can compare your spending with others and offer valuable suggestions to reduce your bill cost.8 Swipe your cards to buy each and everything
Well, I can’t say that it’s an alarming sign that you’re near a financial crisis if you repay the outstanding amount every month. However, if you already have outstanding debt and you’re adding to it, then it’s definitely scary for your financial life.
What to do:
Stop using your credit cards till you’re able to repay the entire outstanding debt. Use cash to meet your daily necessities. Save as much as you can and pay off debt as fast as you can.9 You make only the minimum payments
If you make only the minimum payments, the interest charge gets added to the remaining balance. So, you have to pay more and it’ll take a long time to repay the outstanding balance.
What to do:
Use debt snowball or debt avalanche method to pay a little more to one or two of the targeted debts. Once you repay the cards, usually swipe them for an amount which you can repay with your next month’s income.10 Your credit score is not good
If you don't have a good credit score, you won't be able to take out loans at favorable terms and conditions; as a result, your loan application will get rejected or you’ll have to pay more.
What to do:
Check your credit reports at regular intervals and dispute errors if required. Add positive items in your reports; with time, your credit score will improve.11 You don’t have any secondary source of income if you lose your job
Job loss is one of the major signs of personal financial trouble. A job loss affects more if you don’t have any savings.
What to do:
Purchase an unemployment insurance policy privately or from your office. Another way to safeguard is to have a secondary income opportunity.Future financial health - 5 Signs to be sure that it is in good condition
- One of your incomes is enough to make your monthly fixed expenses - If you and your spouse both have a stable income, then one of your incomes should be enough to cover your monthly fixed expenses. It is better if any of your incomes is sufficient to do so; however, if one of your incomes is sufficient, then also, you are in good condition. In this way, you can use the other income to build a secured financial future and take care of your extra expenses every month.
- You have to make only one care payment every month - Restricting your monthly car payments to only one, you can make your financial future better since you won't have to worry about a sudden financial emergency, which can make it difficult for you to make the necessary car payments. If required, you can create a car replacement account so that you can accumulate enough money to make the down payment at least, while replacing your old car with a new one.
- You are able to save more than 10% of your annual income - Saving 10% of your monthly income is a pre-requisite. However, saving more than 10% of your annual income will make you financially healthier and help you enjoy a stress-free life. So, take advantage of the opportunity and try to save in the months when you don't have any financial emergency or you don't plan any holidays. If you do so, you can ensure yourself a better lifestyle even after your retirement.
- The value of your home is twice your annual income - You are obviously in a better position if the value of your property is more than twice of your income and you don't carry more than 80% of your home value as a loan. This ensures that you don't carry much mortgage debt.
- You can accumulate about 3 times of your annual income by age 40 - Can you calculate whether or not you'd be able to accumulate about 2-3 times of your annual income by the age of 40? If yes, then you're on the right track. If you are in your 40s but haven't been able to do it yet, then you can consult a financial adviser to get suggestions on how to do so. You can base your annual income on what you're getting now and make a financial plan to achieve the target amount within a due date.
7 Signs you are giving a special invitation to financial disaster
7 Telltale signs you are courting financial disaster
- You are heavily depending upon a chance income:
- You are habitually paying late fees to your creditors:
- You are having fights with your partner on money everyday:
- You don't have any saved money:
- You are trying to solve credit card puzzle but failing repeatedly:
- You are continuously borrowing money from retirement funds:
- You are paying a lot of NSF fees lately:
9 Risky financial blunders that may kill your finance
It will not be a very pleasant experience to have creditors knocking at your door.
Consumers often end up in huge financial obligation due to their lack of discipline in daily lives.
Common financial blunders that can upset your financial health
Thus, it’s advisable to rectify your own financial limits to live a peaceful financial life.
Check out the 9 risky financial blunders that may ruin your financial stability.
1 Ignoring a budget
With the help of budgeting apps, you can easily formulate a budget.
Make sure, your total expense is less than the total income.
Otherwise, you need to cut down expenses or increase your net worth.
2 Making late payments a regular habit
Missed and late payments only invite financial troubles.
Therefore, try to make all your monthly payments on time.
3 Failing to save money
You need to check whether or not your income is more than the expenditure.
4 Not contributing into 401(k) account
Not saving money into the retirement account is a major financial mistake.
5 Paying only the minimum
Paying the minimum is definitely better than the missed payments.
However, making only the minimum payments doesn’t make sense, if you can pay more to the creditors.
6 Avoiding insurance policies
You can get the insurance benefits to fight back the financial setback.
7 Signing up for too many credit cards
It is okay to have multiple credit cards when you don't use them frequently.
Otherwise, you may fall into credit card debt soon.
8 Believing the credit records are insignificant factors
However, you won’t be able to remove every accurate negative before a certain period.
9 Not carrying cash
You should carry cash to avoid using excessive credit cards.
Just because you own a plastic, it doesn’t mean that you have to borrow.
Lastly, avoiding financial mistakes is important to keep a hold over your finances.
With proper help you can
- Lower your monthly payments
- Reduce credit card interest rates
- Waive late fees
- Reduce collection calls
- Avoid bankruptcy
- Have only one monthly payment