A good personal finance strategy is essential at every stage of life. If you feel overwhelmed by money problems, there are several things that you can do to solve them and reach your wealth goals. These seven signs that you are not financially stable will help you to prioritize financial solutions for the areas that need the quickest action.
Is Merely Surviving Enough?
From our earliest years, we are taught about math, logic and other subjects in school. We learn about biological processes, geometric proofs and physical laws. Some of us may even study the economy, gaining an understanding of supply and demand, how trade affects the prices of basic goods and more.
Yet despite all the specialized knowledge we obtain over the years, many of us are never taught even the most basic household finance. Knowledge about how to budget, when to start saving for retirement, where to invest your money or even avoid late fees is not shared a lot in school.
Your success as an adult is linked to the level of financial knowledge that you have. If your parents, an older mentor or your friends didn’t and still don’t talk about how to maintain financial stability and build wealth, you may have trouble making the right financial decisions. However, it’s never too late to learn.
Below, we’ll focus on 7 areas that can help tell you whether or not you are financially stable:
- Credit cards.
- Long-term goals.
- Emergency planning.
- Credit score.
1. Using Credit for Things You Cannot Afford
Your finance strategy should involve careful use of your credit card. If you’re only making the minimum payment every month, then it could be a sign that you have used your card to purchase things you cannot afford. This might mean that you’re just keeping your head above the water. You may even be missing payments and getting charged late fees and over-limit fees.
Try to add a little more than the minimum each month. This is one of the keys to financial success. Even if it’s only a few dollars, it helps you. You’ll pay a little less interest every month after that because of that extra payment. If you continue to do that, it has a snowball effect.
Your credit card gives you buying power, but that “cash” is not your money. It belongs to someone else who has consented to lend it to you, not because they’re kind but because they’re hoping to make interest off you.
If you can avoid it, do not use your credit card to buy anything you cannot afford to pay for with cash.
2. You Do Not Have a Budget
A budget guides everything from your trips to the supermarket to your weekend entertainment choices and is a key aspect of financial planning. If you don’t have a budget, you may be living above your means and not realize it.
Several tools make budgeting easy. These include:
All of these apps are free. They show you the best ways to budget and save money. Start using one today to put the best budgeting strategies into practice.
3. You Have No Plans for the Future
Plans help to guide the choices you make. If you plan to get a better job and need certification to get that position, you’ll adjust your spending where possible to make that education possible.
If you aren’t making plans for the future, you’re more likely to divert your financial resources in areas that don’t have a lasting, beneficial impact on your life. Even if you feel like you’re under constant stress, think about what you want your future to look like and plan accordingly. This brings us to our next point …
4. You Are Neglecting Your Retirement Savings
You may hope to live comfortably in your golden years, but without adequate preparation, retirement may be less pleasant than you wish. You should be putting money aside for health, recreation and other expenses you will have once you no longer have your current income.
If you cannot save or invest for retirement, it’s a sign that your finances are not in a good state.
Many financial institutions have free planning sessions geared at people who want to know what their options are. Work steadily to prepare for the years ahead, so that your latter years will be enjoyable and not a source of stress.
5. You Do Not Have a Steady Income
Whether you own your business or work for a company, you should be able to predict how much you’ll earn from month to month. If you can’t do that or the amount you earn is inadequate, you won’t be able to develop a sound structure for your financial life.
Increasing your income can be tricky, but it is far from impossible. If your current job does not pay you enough to live comfortably, then it is time to start looking for a new one, or to take on an easy side job that can help boost your income.
6. You Do Not Have an Emergency Fund
If you get sick and have to weigh the pros and cons of going to the doctor, then you are not financially stable. You need to have an emergency fund that you can tap into if a storm damages your car or you need extra cover on top of what your insurance provides.
Whether you work in an unsteady job or simply have no idea how you would pay for an expensive emergency if one were to come up, it is important to have this type of security. In general, financial experts say that you should have about 6 months of income saved up in an emergency fund.
The thing about making this type of preparation for a personal financial crisis is that although you may start small and not focus too heavily on your progress, since this may discourage you. Once you get used to saving, you’ll find yourself contributing more over time. Your outlook, habits and sense of hope will change as you see positive results from the initial, seemingly small actions that you take.
7. Your Credit Score Is Considered Low
A low credit score negatively affects your financial future. Even if you want to buy a small pickup and start a business, your plans could be hindered by a low credit score. Even a score of 620 that’s considered average can cost you $184 more on a monthly mortgage payment than a higher score of 740.
Being financially stable can improve your life in unforeseen ways. Knowledge is the key to developing and implementing a plan that improves your life. Take the right steps today.