I must confess, one of the biggest mistakes I had made in my life was refusing to acknowledge some negative trends in my life.
I suppose many of us are guilty of this at some point in our lives; like ignoring that expanding waistline or being in denial of a failing marriage.
Or, disregarding the signs of approaching financial crises.
Most personal financial disasters do not happen over-night. If you truly look yourself in the mirror, you’ll acknowledge that they are often not the result of a one-time event or decision.
They simmer over time, with a series of clear warning signs. All you have to do is be honest with yourself and you’ll see them.
If you answered yes to any of these 7 questions below, you could be on the path to financial disaster:
1. Have you overdrawn your checking account more than once this year?
When you’re already struggling to pay your bills with your available income, overdraft fees only make the situation more challenging. Overdrawing your account is a sign of one or more of these situations:
- Poor money management. Are you paying regular and adequate attention to your finances? When you write a check, do you have enough room to give it time to clear? Are you on top of your bank balance? Proper money management requires knowing your numbers very well. You can’t afford to miscalculate on your finances, or you might get yourself into trouble. Ignorance of the numbers is not an excuse.
- Overspending. Simply put: you’re living above your means. If you live above your income, you’re already in financial disaster. If you are constantly overspending, if you always run out of money before your next pay check, you need to STOP now and take a reality check to reverse the trend. Digging yourself deeper into the ditch will only make recovery more difficult.
- Inadequate Cash Flow: When you don’t have adequate and consistent cash flow, it could lead to overdrawing your account. That’s a bad sign, because those overdraft fees indicate a leaking hole in your pocket. You cannot have financial stability when your pocket is leaking.
2. Do you max out your credit cards?
Your credit score starts to take a hit when you’re above 35% utilization. On a card with a $5,000 limit, that would be anything above $1,750. If you’re in this situation, you may be tempted to acquire another line of credit. In most cases, this is only a short-term solution with a poor long-term outcome.
Maxed out credit cards is a sign that money is beginning to get tight. Don’t ignore it; you could be on the path to a financial mess.
3. Are you waiting for a financial windfall?
Hope is not a bad thing, but successful financial planning requires more than hope.
Counting on an inheritance or big tax return or end-of-year bonus to meet to your money situation is a clear sign of financial stress.
You should organize your finances in such a way that things should be able to flow smoothly without any expectation of periodic injection of extra income. If and when the windfall happens to come, you should treat it as a bonus without prejudice to your regular financial flow.
4. Do you have adequate savings?
When making regular deposit into your savings account becomes difficult you’re on the path to financial crises.
And by savings, I don’t mean that situation when you deposit money on the first of the month, only to withdraw it on the 17th of the same month.
The rule of thumb is to save at least, 10% of your gross income, and to have in your savings account balance at all times, a minimum of six months to one year of your living expenses. Anything short of that could be a sign of impending financial distress.
5. Do you hit up your family and friends for money?
Borrowing money from family and friends is an unmistakable sign of impending financial challenges.
Not only is it a sign of financial struggle, it can also be a real strain on your relationships.
Most of us loathe asking the people in our lives for money, so recognize the seriousness of the situation if you’re considering it.
6. Are you stealing from your future?
Dipping into your retirement funds to pay your bills is a clear sign that financial disaster is lurking in the corner.
For one, you will could penalties and taxes by making early withdrawals from your retirement account, plus you don’t have an infinite amount of time to replace those savings. But most importantly, it implies that you don’t have enough to live on now. That’s a sign of danger.
7. Is your home your ATM machine?
Using a home equity loan to fill your financial gaps, to pay bills, go on vacation or to purchase something you can’t currently afford is a serious warning sign.
Not only are you financially struggling, you’re also putting your home at risk. You should think long and hard before borrowing from the equity in your home.
If you recognize one or more of these financial disaster warning signs, do yourself a favor and start working on a solution. Do not ignore the signs. If you do, you’re only doing so at your own peril; for it’s only a matter of time before things start spiraling out of control.
If you noticed that you are on the path to financial disaster, you should change course right away. You’ll be glad you did.
Tell us other warning signs of financial disaster folks should be on the look-out for. Post your comments below …