Do you wake up every morning wondering if your electricity will still be on? Do you dread answering the phone, fearing yet another debt collection call? Have you been seriously considering bankruptcy as a solution to your debt?
If so, you’ve been living beyond your means for quite some time. And if not, there are still other warning signs of financial trouble down the road. Before you get to the point where you’re cooking food over your stove’s pilot light to save energy, check out this list to find out if you’re on a path to financial ruin – before it’s too late.
Your Bare Essentials are Literally Bare
If your cabinet looks like Old Mother Hubbard’s but there’s a new car sitting in the driveway, you’re not spending money wisely. Eating rice and beans every night just to afford an empty house and the new iPhone is going to get old really quick. Prioritize spending for essentials first, and the rest of your monthly expenses will fall into place.
While we’re on the subject, stop paying for things you can do yourself. Cook dinner instead of eating out, clean your own place instead of hiring a maid, and mow your lawn instead of paying the savvy kid down the block to do it.
You Count Your Chickens Before They Hatch
If you’re planning your budget based on bonuses you should get and refunds you’ll probably have soon-ish, you’re in over your head.
Remember, if it’s not in your hand/bank account, you don’t own it. Jobs can be lost, stocks devalued, and promises of promotions forgotten, so keep your head out of the clouds and your finances grounded.
You’d be on the Street Next Week if You Lost Your Job Tomorrow
It can be hard to imagine, but if your income suddenly stopped without warning – how long would you be able to afford rent, car payments…food?
If you answered “less than six months,” you are living beyond your means. Without a safety net in place, you’re asking for trouble. Try to build and maintain at least six months of living expenses in an emergency savings account. On the off chance you get laid off or injured, at least you’ll have some breathing room before the debt collectors come knocking.
In the same vein, do you even have a savings account? If not, make it your goal to open one this week, and try to put away 10% of each paycheck. You’ll thank yourself later.
You Treat Spending Like an Olympic Sport
If your idea of a fantastic weekend involves shopping for furniture to outdo that jerk Tim who lives next door, then it’s time to find a new hobby. “Keeping up with the Joneses” is still alive and well, but it’s a zero-sum game where the losers wind up broke and unhappy, and so do the winners. Buy what you need, when you need it, or you’ll quickly find yourself with a house full of useless junk and a bank account full of zeros.
You’ve Recently Been Penalized for Your Spending Habits
Meaning, in the last 6-12 months, you can remember an overdraft fee, late credit card payment fee, or taken a hit to your credit score for missed or late payments on other loans. This one is easy, folks. If you have so little money left over every month that red flags are raised every time a payment comes up, you’re in trouble.
Consequently, if you have bad or borderline credit, that should be another hint you’re finances are in disarray. No one with bad habits has good credit for very long, so minimize your credit card balance and keep enough money in the bank to cover recurring payments.
You Extend Debt Repayment for as Long as Possible
Whether you’re taking out a 6-year plan for a car loan, making minimum payments on your credit card balance, or barely making the monthly interest on your student loans, all signs point to living outside your real limit.
Any time you take a longer loan period, you’re essentially pushing debt down the line for a little temporary comfort. When everything is said and done, all of a sudden you’ve paid back double or triple your original debt.
And, if you’ve ever taken a loan just to pay back an older loan…well, it’s time to get some help.