It is nerve racking to know that you are in financial trouble considering that we are coming from a recent Great Recession that rendered a lot of people jobless. This also saw employment opportunities plummet to all time lows which compounded the financial problems of people who got laid off and are left with no source of income.
BLS.gov explained that from a high of 10% unemployment rate in October of 2009, it has now gone down to 5.5% as of February 2015. Although this represents only a fraction of the population, this percentage still accounts to millions of consumers who are left without a job to sustain their financial needs in life.
There is survival guide for unemployed consumers and it is actually a big help but identifying if you are heading down financial trouble should be the first order of business. It can be losing a job or mismanaging windfall profit or even putting off contributions to your retirement fund. Your finances has a lot of facets that getting into financial trouble could happen with just a small warning.
This is similar with running into trouble with a diet that you chose to follow to have a beach-ready body in time for a trip. You might be following the plan from the time to wake up from bed to the time that you turn in but squeezing in a snack during midnight can ruin your health goals. One wrong move can derail what you have been working so hard on.
This goes the same with how you manage your money because one small mistake could snowball into a big problem. But how do you know that you are headed into an unmanageable situation that can impact your finances. Are there warning signs that can give you advance notice on the predicament that you are about to get into?
How to know that you are about to get into money troubles
If you are starting to worry that financial trouble will sneak up on you, well here are some things you might want to look into to make sure that you are able to guard your finances against trouble.
- Inability to cover the payment on all your bills. One clear sign that you are already way in over your head is when you cannot make the payments on your monthly bills anymore. When the envelopes starts coming in from your providers, you dread opening them because you know that you will again not have enough to pay for all of them. Some of them will have to wait for next month when you get your next pay. It is one thing to keep track of the bill but another in making sure that you are able to pay for them every month.
- You use your credit card for all expenses. One way you are able pay for all your expenses and stay current on most of them is that you use your credit card to settle the bills. This is a good idea if you have the funds to pay the card in full every month. It turns into a disaster if you roll-over the balance to the next month. This is similar to stepping on a quicksand where the interest payment is slowly killing your finances.
- A financial emergency will bring your budget down. Investopedia.com explains that an emergency fund is a safety net that is supposed to help consumers meet unexpected financial emergencies. The most common of which is job loss where the fund will cover months of expenses until such time that a new job can be found. But you are in financial trouble when one small expense cannot be handled by your reserve funds.
- No more funds even before the month begins. This is one clear sign that you are mismanaging your money. When you find yourself low on funds a few days after you got your pay, there must be something wrong with the way you are handling your finances. This is a sign of financial trouble because if you try to get by with so little for a long time, you end up using your card to make ends meet or worse, take out payday loans to have money on hand.
- Your financial goals seems to be out of reach. Take a look at your goals in life like owning a house or even buying a car. You might have done the math and given yourself a few years to save up for them but after you revisit your plans and you are still nowhere near your goals, you might be misusing your funds which can push your goals away from you. It can push down your plans anywhere from months to years and you should start questioning how you are using your money.
- You continuously stress about money. When you find yourself with constant financial fears, this is a clear sign that you are headed into financial trouble. When you always think about how your pay will not be enough to cover your budget or how much interest that car payment will be next month because you rolled over your balance is sign that you are not budgeting correctly.This financial stress can have physical manifestations that can lead to health problems. This situation compounds your problems and can lead to more stress.
Tips on how to address problems with your finances
Now that you have an idea how to spot financial trouble, here are some ways to try and solve the problem before they spin out of control .
- Review all your expenses. It will help your finances if you do a thorough check of all your expenses because you might just unearth some items that you do not have any use for. You might find out that you have magazine subscriptions that you haven’t been using. It can even be your cable subscription where having hundreds of channel might seem useless. The idea is to identify areas where you can cut down and save some funds.
- Build up your reserve funds. This does not only refer to emergency funds but it also involves your rainy day fund. These two are your two main types of back-up money that will help you get through tough times. Emergency funds are supposed to meet big financial gaps in your budget like job loss which is why it needs to be be at least six to nine months worth of expenses. This is because the average amount of time to look for a new job falls anywhere those number of months. The rainy day fund is meant for smaller expenses that has the tendency to drain your emergency fund.
- Be proactive with your budget. Being proactive simply means thinking a few steps ahead and anticipate what can go wrong or what you need to save up for. Take for example how your children will grow up and eventually go to college. To be proactive with this means you start building a college fund for your children to save them from taking on student loans. This can also be contributing the maximum amount on your 401(k) because it can help you retire early.
Financial trouble can come in various shapes and form that is why it is important to see the signs along the way. Know that there are things that you cannot control but with those that you can, make sure that you use them to help ensure that you keep your finances healthy.