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Warning signs that you are heading for a financial crash

When you own a vehicle, you need to regularly perform maintenance checkups to make sure everything is working correctly. Otherwise, you may have a severe problem that without getting it fixed, you will break down or even worse be involved in a disastrous crash.

The same can be said of your finances. You need to regularly look and make sure you are not heading for financial ruin. Far too often I see people living outside of their means on credit. They may be able to sustain this level of debt for a time. Some for months, others for years but the result is almost always the same. They are anxious about money and are unhappy. The closer they get to bankruptcy the more that it looks like the only option.

Here are four things you can look at to make sure you are in good financial health.

1. Live within your means.

Living within your means is easier said than done. There are so many things that are necessities that it is difficult to distinguish between something that we must have and something that we want.

When you look at buying or renting a home, make sure that you can not only comfortably pay for the monthly payment of the home, but you can also cover the additional costs that are incurred.

Renters: Most renters will pay more per month than if they were purchasing the home. The upside of this is the upkeep and maintenance of the home is not their responsibility. Do not forget about utilities and renter’s insurance.

Homeowners: When you own a home, you will need to have money set aside for emergencies. Accidents will happen, and problems will pop up. You need to have funds set aside to cover anything that will pop up.

When you look at a home, look at how much house you can afford to pay for and cover all the necessary expenses. The same can be said of owning a car, boat, RV or even animals.

2. Have money left after each paycheck.

Many people live paycheck to paycheck. They are continually rushing to deposit a paycheck because all the money is depleted out of their bank account. Or even worse they are taking loans out on their upcoming paycheck. What can help?

Have a budget and stick to it. With all the advertising we see everyday and the new technology being thrown at us it is difficult to not purchase on impulse. You have to be disciplined enough to realize what you can live without.

For a month’s time record all your expenses. Look at what you have coming in, what goes out and what you have saved. Determine your needs compared with your impulse purchases. If all of your money is going toward bills and necessary expenses, then you will want to look at how to reduce these expenses.

3. Save, Save, Save.

Putting money away is twofold. You will want to have savings for unexpected expenses or income loss. This will save you from going into debt if you have to buy tires for your car or if you get a reduction in your hours at work.

The other important thing is to put money away for retirement. Speak with a financial advisor and have a plan to have what you will need to live once you retire from your job.

4. Do not rely on credit cards.

Credit cards used wisely are a fantastic tool. They reduce the amount of cash that you need to carry, provide incentives to help you get cash back or free items for what you already purchase and are much safer to use than debit cards. However, just like any dangerous tool, it can be disastrous if misused.

If you are not paying your cards off each month, you will are paying more in interest than you are earning as a benefit for using the card. It gets even worse if you are using credit to pay off credit.

What is the solution? Simply stop using the card and pay off one card at a time. Once you have paid off the card do not use it again. Start paying off the next card.

W. Rodney Hagan, CPA

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