When you think about how much you earn, the type of vehicle you drive or all of the great stuff you have, do you also wonder if you’re doing the right things with your money? There are a lot of people who seem to have a good income and plenty of nice things, but their personal finances are on the fast track to disaster. If this can happen to people who appear to be successful, then it can happen to anyone. How do you know it won’t happen to you? Fortunately, there are signs you can look for that will tell you if your finances are headed for trouble. Here are the five most common signs:
1. You can only afford to make your credit card or line of credit minimum payments
If you find that you cannot afford to pay much more than the minimum payments on your credit cards or line of credit each month, you may have a problem. If you only make your minimum payments every month, it can take 20 to 30 years to repay a credit card. If you are stuck in this rut, click here to learn how to get out.
Ideally, you should repay the full balance on your credit cards or overdraft every month, and pay down what you owe on your line of credit. There are of course times when you will have to make exceptions, but at these times, try to make sure that you don’t use more credit than you can repay in three months.
2. You spend more than you earn
If you spend more money each month than you make, you will eventually end up in financial trouble. Some people try to avoid this reality by adding their debts to their mortgage, car loan or line of credit. Unfortunately, this will only help you if you solve the problem that got you into debt in the first place. You have to make some changes in your budget so that you will spend less than you make. Otherwise, you are only delaying the inevitable.
Do you know if you spend less than you make? The only way to find out is to track your spending, follow a budget or see your bank balance grow every month, all without using credit, of course.
By looking at what you’re already doing, you can find out where to start with some small changes. A few small changes will start you on the path of making smart financial choices, but it all starts with tracking your spending and making a budget.
3. You are borrowing money from loans, credit cards or a line of credit to pay your bills
If you’re borrowing money to pay your bills each month, this is a red flag that you either need to make some serious changes to your finances, or you need some financial help immediately. It may have started quite innocently with a consolidation loan or a balance transfer to a lower interest credit card. But now your good intentions have taken on a dangerous life of their own as you still struggle to make ends meet.
Stop the cycle as soon as possible and find a way to balance your expenses with your income. Avoid drastic “all or nothing” changes as those are the hardest to commit to in the long run. When you start, cut extra costs by 50% and work up from there as you get used to spending within your means. This may not seem all that easy, but the longer you put off taking action, the more difficult your choices will become. To learn how to tackle your situation on your own, click here. If you would like to find someone to help you work through your options, click here.
Final Note: If you are depending on your credit card to buy groceries, this is a major red flag that you are headed for financial trouble.
4. You don’t have any savings to cover emergency expenses or needs
It has almost become normal in our society to live without saving any money for a rainy day. This means that a whole lot of people are one missed paycheque away from financial disaster. And sadly, it happens more than most people think.
One of the lost secrets to success is saving money. As millions of Americans have recently learned, your line of credit and credit cards are not endless sources of cash. They have limits which can be reduced or revoked at anytime. They can be expensive, and it is unwise to make them your lifeline.
It is much smarter to create your own lifeline by saving up one to three months worth of expenses in your savings account. Because so many people don’t have a financial cushion with their own savings, coping with less income or an unexpected circumstance is that much harder when you rely on credit for the basics.
Many people also don’t realize that having savings on hand is one of the few “tricks” for getting out of debt. Without savings, you have to fall back on your credit cards or line of credit every month or two when an “emergency” arises. Click here for more saving tips and saving strategies.
5. Your financial problems are affecting your personal life
It should come as no surprise that how you handle your money can affect your personal life and your relationships.
- On a website poll that we conducted, 44% of those who responded reported to fight about money on a weekly basis while only 16% said that they never fight about money.
- Interestingly, over 70% of people who took part in another website poll said that financial stress affected their health.
- An RBC survey also found that over 60% of Canadians are losing sleep over their finances because of perceived financial problems.
If financial issues are robbing you of sleep, causing you health problems, contributing to conflict with your partner or if you are hiding debts from your spouse, you should take all of these as signs of a potential problem and begin to look for solutions. You can explore our website to learn how to save, budget and manage your money better, or you can contact a professional financial planner, Credit Counsellor or someone else you trust.
What the warning and danger signs mean
If you are experiencing any of these warning signs, please take them seriously and do something about your situation before it spirals out of control. The sooner you take action, the more options you’ll have – before your creditors start making decisions for you. Contact a Credit Counsellor or someone else you trust and make a plan to get your finances back on track. If you'd rather start by trying to make your own plan, a strong first step would be to use our budget calculator to put together a realistic financial plan. This tool actually guides you, points out problem areas, and gives you tips to improve your spending plan.