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Sometimes we look at those people who get in trouble financially and wonder how they ever got to that point. We think, “That will never happen to me,” or “there’s no way I’ll ever approach a loan shark.” The thing is, getting into debt is one of those things that sneaks up on you and when you finally realize you’re at that point, it’s too late. Kind of like that familiar story of a frog in boiling water. We need to identify these “symptoms” of “financial sickness” early so we can get “treatment” and start working towards being financially healthy. 1. You are constantly discontent. Do you find yourself constantly wishing you had more? Is it a challenge to watch your friends and relatives upgrade to nicer cars, bigger homes, better furniture or even more expensive independent schools for children? If you’re quietly saying yes, then your discontentment may be driving you to impulse financial decision-making. Reflect on your spending habits and evaluate whether many of your purchases are done out of true need or out of a need to fill some void in you or due to social pressure. Decide today that you will no longer live to impress others by spending money you don’t have on the things you don’t really need. 2. You can’t afford to lose your income. If today you, or you and your spouse, lost your income, would you be able to survive for the next 6 months only on what you have set aside in your savings? If the answer is a definite NO, you may be overspending on today’s wants while sacrificing tomorrow’s needs. If that’s the case, take a hard look at your current spending. Do you have a spending plan or a budget? Make one. Are you fully aware of how every dollar you earn is spent? Get to the bottom of this and make sure that you assign every cent to a specific budget category. Track your spending for the next 30 days to reveal all potential “waste” areas. Your goal should be to eventually have 6 months of your living expenses set aside and available in case you experience a complete income loss. 3. Credit is your best friend – or so you think. Are you using one credit card to pay off another one? Is your monthly credit card balance growing instead of declining? If the answer is yes, then you are most likely financing a “beyond your means” lifestyle. Take the next few days, look over your credit card purchases and see exactly what you are buying. Is it expensive clothing? Have you fallen for the “buy now, pay much much later” offers? Now that the payment time has come, are you struggling? If this is you, whatever “it” is that you are using credit for, first make a decision to stop. Leave your card at home if you have to and away from your computer. Create a realistic debt repayment plan and do not pick up a credit card until you have paid your balances off and are ready to be a responsible consumer. 4. You don’t have a pre-determined plan to manage your money. Saving is truly the foundation of healthy finances, yet so few of us actually save. One of the most common excuse for not saving is “I have too much debt.” What people don’t realize is that, unless they prioritize putting money aside, debt will always be an issue. Apportion 10% of your monthly income towards an investment account that you NEVER TOUCH. This is seed money for your financial freedom and should be used only to grow your wealth. Another 10% should go towards long term savings for those big ticket items you need or for an emergency fund. 5. You spend more than 25-30% of your gross pay on your mortgage. Are you counting on two incomes in order to make your mortgage payment? Are you spending more than 35% of your gross income just to pay your monthly mortgage? Would you be in deep trouble if you experienced a reduction in income (going from two to one incomes due to job loss, having hours cut, having pay reduced, etc.)? If the answer is yes, you may be paying for more home than you can afford. Here are two rules of thumb to follow in regards to mortgage payments: – Stay within 25-30% of your gross income – Are you a two-income family? Buy as if you had just one income. This way you are creating margin in case of a job loss or if we ever experience an interest rate hike. Success Resources: http://www.srpl.net/
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