If you’re struggling with your finances, the warning signs can be easy to ignore. You might not even realize that you need help—or how much help you need. But if you don’t address these signs immediately, they could end up costing you big time in the long run. Below are some common warning signs you’re headed into financial trouble.
1) No Emergency Savings
It’s time to take a hard look at your family finances if you don’t have at least $500 in a rainy day fund, which is different from an emergency fund. Having even a tiny amount of money can help keep you afloat when unexpected expenses arise and keep life from spiraling out of control. Many experts recommend that you keep this as cash on hand (if you can do so safely) in case you are unable to get money from the bank.
The amount that’s right for you depends on the size of your monthly income, how much debt you carry (your credit card balance and student loans are good examples), what kinds of things happen in life (car repairs, doctor visits), and how long it will take for any debts to be paid off. If there were ever a need for a sudden large purchase like moving or buying furniture for a new apartment living space (or once again—a car repair), then having this money set aside would allow things not only to go smoothly but also save some stress and worry as well! Fortunately, there are cheap ways to do it and save money when moving house on a budget.
2) You’ve Recently Been Laid Off
- You’ve recently been laid off.
- You have lost your job.
- You are out of work and not earning an income.
If any of these apply to you, then you might be headed into financial trouble if you don’t take action soon. The first thing to do is file for unemployment benefits so that you can receive some money during this difficult time in your life. If you are receiving payments from your employer’s insurance policy or other sources of income, then that will help ease some pressure on how much money does not come in anymore when you were previously employed full-time before getting laid off from work (or fired).
3) You’re Constantly Racking Up Overdraft Fees
If you’re constantly overdrawing your checking account, that’s a sign that something is wrong. Overdraft fees can be a real headache, so you need to know what they are and how to avoid them.
If you’re constantly racking up overdraft fees, there’s a good chance that there’s something wrong with your finances.
If this is the case, take steps to get out of debt as quickly as possible by creating a budget and sticking with it.
4) Your Credit Score Has Taken a Serious Nosedive
Whether you’r trying to take out a loan, rent an apartment, or lease a car, your credit score is an important factor in the decision. A poor credit score might also mean you will have to pay more for insurance and other financial services.
Credit scores are determined by the information found in your credit report. Your score will vary depending on how well you’ve managed your finances in the past and how responsible you’ve been with paying bills on time and keeping debt levels low.
If your credit score has taken a serious nosedive, it’s likely because of one or more of these factors:
- Too much debt – Debt can come from student loans, personal loans, mortgages, and car payments—anywhere between $1 million and $10 million worth of outstanding balances are considered “too much” debt by FICO standards
- High delinquency rates – If you fall behind on any bill payments (even one), this can negatively affect your overall standing with lenders
5) You’re Struggling to Keep Up With Monthly Bills
Monthly bills are payments you regularly make, such as rent or mortgage, utilities, and insurance.
Keeping up with your monthly bills is important because if you don’t pay them, you could lose your home or car and not have health insurance.
If you’re struggling to keep up with your monthly bills, it’s time to look at how much money is coming in versus how much is going out each month. If there’s not enough money left over after paying all of your expenses plus saving for emergencies and retirement savings goals, then these are warning signs you’re headed into financial trouble.
6) You Have a High Debt-to-Income Ratio
The debt-to-income ratio (DTI) is a calculation that compares your household’s income to its monthly debt payments, including student loans and car payments. A lower DTI is better.
According to investopedia, “As a general guideline, 43% is the highest DTI ratio a borrower can have and still get qualified for a mortgage. Ideally, lenders prefer a debt-to-income ratio lower than 36%, with no more than 28% of that debt going towards servicing a mortgage or rent payment.”
How to calculate your DTI:
Add up your monthly debts like student loans, mortgage, and credit cards. Divide that by your GROSS INCOME i.e. before taxes.
Investopedia gives this example:
John’s monthly bills and income are as follows:
- mortgage: $1,000
- car loan: $500
- credit cards: $500
- gross income: $6,000
John’s total monthly debt payment is $2,000:
$1,000 + $500 + $500= $2,000
John’s DTI ratio is 0.33:
0.33 = $2,000÷$6,000
In other words, John has a 33% debt-to-income ratio.
7) Your Monthly Income Varies
You may have unpredictable income if you earn money from freelance or contract work, or if you work on tips or commission. If you rely on one of these sources for your income, it’s essential to be aware of how much money is coming in each month so that you don’t get caught off guard by a sudden decrease in pay.
If this kind of uncertainty is usual for your situation, try establishing a monthly budget with enough room to accommodate the fluctuations while meeting all other financial obligations. You can also set aside money each month specifically for emergencies so that if something unexpected happens during the year (such as an illness), there’s at least some cash is available when needed most (like when bills come due).
8) Your Retirement Accounts Are Virtually Nonexistent
The average American family has only $5,000 in their 401(k) account, and that’s not even enough to cover a single year of expenses at most assisted living facilities.
If you don’t have a retirement savings plan in place, it can feel like there’s no hope for your future. But if you get started now, you’ll be able to retire comfortably—and live the rest of your life without having to worry about money. Even if you’re years away from retirement age, there’s still time to start saving; take a look at this example: Numerous cardboard boxes are the first thing that comes to mind whenever someone talks about relocating. It’s a well-known fact that most people favor properly packing their belongings in those boxes.
But there are numerous items, like clothes, you can pack in a suitcase, so you can save money this way. You might wonder how much money it takes for an adequate retirement fund. The answer varies depending on where you live (housing costs vary by city), but generally speaking, people need at least $300K saved up by the time they turn sixty-five years old (or younger). If this sounds like too much for your budget right now—and believe me, it does—then don’t worry: saving small amounts over time will add up quickly as long as they are consistently invested with compound interest over many decades. Once again, though, we want our readers/viewers/listeners not just be aware but also DO something about their situation instead of merely sitting around waiting for someone else to fix things.”
Conclusion
If you’re struggling whit problems from the list of warning signs you’re headed into financial trouble, it’s important to take action now. The sooner you address these signs, the better off you’ll be in the long run. You might have to make some changes, like finding a job that pays better or spending less money on frivolous things like vacations and concert tickets. If you think your financial situation is dire enough that bankruptcy may be an option for you, then consider contacting a bankruptcy attorney to talk about your options before taking any drastic measures.
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