11 Signs you are near a financial crisis: How to know and what to do
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
Each person has a unique benchmark to decide whether or not he/she has a good financial future. Here are 5 parameters which will help you make your decision.
- 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.
Following all these 5 strategies will help you build a better financial future and help you enjoy a stress free happy life. Remember the decisions you're making today will build your future. So, plan your financial future carefully.
7 Signs you are giving a special invitation to financial disaster
Most of the people can't recognize the signs which indicate that they are running toward the debt disaster. If they could identify the ominous signs and interpret their meanings, then a large number of people could save themselves from being financially ruined. Read along to know about 7 signs that indicate that you're courting financial disaster.
7 Telltale signs you are courting financial disaster
- You are heavily depending upon a chance income:
Are you counting on a chance income such as lottery, tax refund, inheritance, etc. heavily? Do you think that a financial windfall is the answer to your financial problems? If yes, then it shows that you heading towards a big financial storm. Have you ever thought what will happen if you don't get a bonus from your office or win a lottery? You'll fall straight from the financial cliff on which you were standing.
- You are habitually paying late fees to your creditors:
There can be 3 possible reasons behind the late payment of the credit card bills - (a) you don't have the money, (b) you are too busy, (c) you are extremely lazy. Whatever the reason is, late bill payments are not good for your financial health. It conveys the message to your lenders that you're not a responsible consumer. As such, they will impose penalties and late fees upon you. They will also not co-operate with you when you need money in future.
- You are having fights with your partner on money everyday:
Couples have fights on various issues everyday. There is nothing to be shocked about it. However, if the couples have regular fights on money issues, then it signifies that they don't have sufficient funds to meet family expenses.
If you and your spouse often quarrel about financial issues, then it shows that your financial footing is unstable. It reflects that your family is going through deep financial stress.
It is natural to be stressed when the creditors are running after you for payments. However, it will be a mistake to deal with the financial stress yourself. Talk about your problems to your spouse. Accept your financial mistakes and seek forgiveness from your spouse. Ask your spouse to help you in finding the right path to get out of financial problems.
- You don't have any saved money:
Despite your outmost efforts, you're unable to save a penny in your checking account or the emergency fund. It is a sign that your financial house is in a bad shape. Emergency expenses in the form of a sudden home repair can crop up any day. You can't avoid it. If you don't have any savings, then you'll fall into a sea of financial problems in future.
You may be counting on the credit cards for dealing with the emergency expenses. However, remember that the credit card companies may reduce your credit limit when they find that you are adding high charges frequently.
If you wish to be financially fit, then create an emergency fund, and contribute some money to every month. You can contribute some money towards it by changing your lifestyle little bit.
- You are trying to solve credit card puzzle but failing repeatedly:
Credit cards can prove to be your best friends when you manage them wisely. These financial tools can be used to make various purchases and earn rewards. However, they can become your enemy when you can't keep up with the payments. If your bill amount is increasing, and you only have the money to make the minimum monthly payments, then you're going to be in a big financial trouble.
If the outstanding balance on the credit card increases, and you fail to make any payment, then the creditor will hike the interest rate. He will impose late fees and penalties on you. In short, your financial condition will deteriorate.
- You are continuously borrowing money from retirement funds:
Regular withdrawal of funds from the retirement accounts shows that you are in deep financial distress. If you are accumulating more and more 401(k) loans with each passing day, then it means that you are mismanaging your finances greatly. It is a sign that you are not living as per your financial means. Depleting your retirement savings can bring a major change in your life. It can put your retirement years into jeopardy.
- You are paying a lot of NSF fees lately:
If you're overdrawing your bank account continuously, then beware! It is not at all a good sign. It indicates that you're on the verge on the financial disaster. If you have been paying non-sufficient fund fees, better known as NSF fees since the last few months, then you're most likely to meet a financial storm soon.
Sometimes, consumers are forced to overdraw their checking account for paying off their payday loan debts. If you belong to this class of people, then you need to take some immediate steps. Contact your lenders and try to set up a repayment plan. Otherwise, you may have to file bankruptcy to get rid of these high interest debts.
9 Risky financial blunders that may kill your finance
At present, you may have ample financial resources to look after your impulsive lifestyle. But remember, money is an unfaithful friend; it may not be by your side every time.
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.
No one can make you learn the right ways to deal with your finances until you proactively learn the lesson from your own mistakes.
Common financial blunders that can upset your financial health
Initially, your financial mistake may not appear as a significant error, but it may leave substantial impact if left unattended.
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
Most of the people in our nation live an extravagant life when they do not have the means to do so; most of them don't know when to stop spending unnecessarily.
They don’t keep track of their expenses and income. People hate to follow a budget; they think budgeting is a complicated and boring task.
Remember, overspending and the extravagant lifestyle will lead to a life with deadly financial troubles.
By following a suitable budget, you can maintain a life within your means. Creating a budget is easier now.
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.
Moreover, the creditors may cancel discounts along with charging penalties, late fees, etc. or may raise the rates that will make your financial life more horrible.
Therefore, try to make all your monthly payments on time.
3 Failing to save money
Being a shopaholic is a major financial mistake. You will never be able to save money to secure your financial future.
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.
If you’re working in an office where your employer provides you with the 401(k) retirement account, you must contribute to that account.
Your retirement benefits are the biggest benefits that should be taken advantage of to secure a happy retired life.
As you contribute a part of your monthly income to this account, you can easily withdraw from this account whenever you need money during your retirement, or after 59and ½ years of age to avoid penalty.
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.
Stretching out the repayment period costs the debtors in the long run since they have to pay more as interest and it may have a negative effect on their credit record.
6 Avoiding insurance policies
Getting insurance policies is another way of protecting yourself from being subject to sudden financial crunch.
You can easily avoid this by getting a health insurance policy, home insurance coverage and an auto insurance policy. Though you usually have to pay the deductible amount, yet you can avoid spending the entire amount.
You can get the insurance benefits to fight back the financial setback.
7 Signing up for too many credit cards
Individuals often end up being more in debt if they have lots of credit cards since the temptations are hard to resist.
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
Not valuing credit record is one of the crucial financial blunders. Most of us often don’t pay attention to our credit reports.
Old debts, inaccuracies, and other negative information on credit reports will affect your financial health and should be removed as soon as possible to raise your credit score.
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.
Not only this will prevent you from being in credit card debt, but also help you to live within your means.
Lastly, avoiding financial mistakes is important to keep a hold over your finances.
Budgeting doesn’t mean deprivation and restrictions. If you follow proper financial strategies, you will be able to enjoy life while saving required money.