Financial Mistakes Archives

16 Warning Signs You’re Heading Towards Financial Instability

May 22, 2024 By Catherine Reed Leave a Comment

Financial instability can creep up on anyone, often without explicit warning. Recognizing the signs early can help you take action to avoid deeper financial trouble. Here are 16 warning signs you’re heading towards financial instability.

1. Living Paycheck to Paycheck

Living paycheck to paycheck means your entire income goes towards expenses, leaving nothing for savings. This situation makes it challenging to handle unexpected expenses or emergencies. Finding yourself without any buffer between pay periods is a clear sign of financial instability. Creating a budget to manage your spending and build an emergency fund can help address this issue.

2. Increasing Credit Card Debt

Relying on credit cards to cover basic living expenses is a significant red flag. As your credit card balances grow, so do your interest charges and minimum payments. This cycle can quickly become unmanageable, leading to financial instability. Focus on reducing your reliance on credit cards and paying down existing debt to regain financial stability.

3. No Emergency Fund

An emergency fund acts as a safety net for unexpected expenses like medical bills or car repairs. Without one, even minor financial setbacks can throw you off balance. Financial experts recommend having at least three to six months’ worth of living expenses saved. Building an emergency fund should be a top priority to protect against financial instability.

4. Frequent Overdrafts

Regularly overdrawing your bank account indicates poor financial management and insufficient funds. Overdraft fees can quickly add up, worsening your financial situation. This pattern suggests you may be living beyond your means. Monitoring your account balance and avoiding unnecessary expenses can help you avoid overdrafts and stabilize your finances.

5. Borrowing from Retirement Savings

Using retirement savings to cover current expenses can jeopardize your future financial security. This action not only depletes your nest egg but can also incur penalties and taxes. Frequent withdrawals from retirement accounts signal financial instability. Finding alternative solutions to manage short-term needs without tapping into retirement funds is crucial.

6. High Debt-to-Income Ratio

When your debt-to-income ratio is high, it usually means a large portion of your income goes towards repaying debt. This ratio can limit your ability to save or spend on necessary items. Financial experts recommend keeping this ratio below 36%. Reducing what you owe to creditors or increasing your income can help improve this ratio and enhance financial stability.

7. Ignoring Bills and Payments

Ignoring bills and letting payments go past due can damage your credit score and lead to collection actions. This behavior indicates a lack of control over your finances and can escalate quickly. Keeping up with your financial obligations is essential to maintaining stability. Setting up automatic payments or reminders can help ensure bills are paid on time.

8. Dependence on Payday Loans

While they’re a quick way to access cash, payday loans typically come with exorbitant interest rates and shockingly high fees, creating a cycle of debt that’s hard to break. Reliance on these loans for everyday expenses indicates financial distress. Payday loans can trap you in a cycle of debt due to their high costs. Seeking alternative financial assistance or budgeting better can help you avoid these loans and their pitfalls.

9. Lack of Financial Goals

Without clear financial goals, losing track of your spending and saving habits is easy. Having goals provides direction and motivation to manage your finances better. Setting specific, measurable, achievable, relevant, and time-bound (SMART) goals can guide your financial decisions. Establishing and working towards financial goals can help ensure long-term stability.

10. Rising Housing Costs

If your housing costs consume more than 30% of your income, it can strain your budget. High housing expenses can limit your ability to save or cover other necessary costs. Reassessing your housing situation or finding ways to reduce costs can alleviate this burden. Ensuring your housing expenses are manageable is key to financial stability.

11. Limited or No Insurance

Lack of adequate insurance coverage can leave you vulnerable to significant financial losses during emergencies. Health, auto, and home insurance are critical protections against unexpected expenses. Without them, you might face insurmountable costs that could lead to financial instability. Ensuring you have sufficient insurance coverage is crucial for protecting your finances.

12. Declining Credit Score

A declining credit score can indicate late payments, high credit utilization, or excessive debt. Your credit score affects your ability to secure loans, credit cards, and even housing. Monitoring and maintaining a healthy credit score is vital for financial stability. Paying bills on time and reducing debt can help improve your credit score.

13. No Budget or Financial Plan

Operating without a budget or financial plan means you lack control over your income and expenses. A budget helps you track spending, save money, and achieve financial goals. Without it, financial mismanagement and instability are more likely. Creating and sticking to a budget is essential for maintaining financial health.

14. Excessive Spending on Non-Essentials

Spending a significant portion of your income on non-essential items like dining out, entertainment, and luxury goods can indicate financial instability. Prioritizing wants over needs can deplete your savings and increase debt. Evaluating your spending habits and cutting back on non-essentials can help improve your financial situation. Redirecting those funds towards savings or debt repayment is a smarter financial move.

15. Constant Financial Stress

Persistent worry about money, bills, and debt can affect your mental and physical health. Financial stress often signals underlying issues like poor budgeting, excessive debt, or inadequate income. Addressing the root causes of financial stress is crucial for overall well-being. Seeking financial advice or counseling can help you develop a plan to alleviate stress and regain stability.

16. Difficulty Saving Money

Struggling to save money despite earning a steady income can indicate financial instability. Savings are essential for future goals, emergencies, and retirement. If you find it hard to set aside money, reassess your budget and spending habits. Implementing automatic savings plans can make it easier to build a financial cushion and ensure long-term stability.

Keep an Eye Out for These Warning Signs to Avoid Financial Instability

Recognizing these warning signs early can help you proactively avoid financial instability. By addressing these issues, you can regain control of your finances and work towards a more secure future. Prioritizing financial health is essential for achieving long-term stability and peace of mind.

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Catherine Reed

Catherine is a tech-savvy writer who has focused on the personal finance space for more than eight years. She has a Bachelor’s in Information Technology and enjoys showcasing how tech can simplify everyday personal finance tasks like budgeting, spending tracking, and planning for the future. Additionally, she’s explored the ins and outs of the world of side hustles and loves to share what she’s learned along the way. When she’s not working, you can find her relaxing at home in the Pacific Northwest with her two cats or enjoying a cup of coffee at her neighborhood cafe.

Are You Teaching Your Kids to Follow Your Financial Habits?

September 18, 2023 By MelissaB 9 Comments

My oldest is 10, and he does chores around the house to earn an allowance. He works hard, and we’ve taught him to set aside a percentage for investing (10%), for saving (20%), and for giving (10%). That leaves him to spend 60% of everything he earns.

And spend he does!

He finds it extremely difficult to let his spend money sit and grow so that he can buy something bigger. Instead, as soon as the money hits his hands, he wants to spend it even if it’s a fairly insubstantial amount and can’t buy him much.

He just can’t seem to save up for the things he wants.

Instead, he’s enticed by advertisements. He reads the newspaper and magazines to find free catalogs to send away for, and then he wants to spend his money on any little thing.

It’s driving me crazy.

His money, his life. I should let him spend the money and be disappointed when he has no money to spend later.

Actually, that’s already happened. When we first moved to Arizona, he saw a 2015 calendar at Costco for $15. This calendar had scenic landscapes of Arizona and was quite pretty. I told him to wait because as 2014 came to a close, he could get calendars cheaper. But he couldn’t wait, and then in December and January, he was disgusted to find how cheap calendars got.

Still, his behavior hasn’t changed.

As a parent, I wonder how much I should interfere.

You see, when I was young, I was just like my son. I spent every Saturday at the mall, my money burning a hole in my pocket. I HAD to buy something, even if it was just a pair of socks I didn’t need. Every week, I walked through the same stores, buying stuff I didn’t need, just like my son buys the stuff he doesn’t need now.

However, my mom never stepped in. She gave me a wide amount of freedom. Whatever money I earned was mine to spend how I liked. She didn’t even ask that I set aside a portion of it for savings.

I was a responsible kid and bought my own car, paid my insurance, paid for gas, and also bought my own clothes. I think she figured that I was handling my money well, so it was up to me to decide what to do with the rest.

When I was a teenager, my friend and I used our money from our job to go out to eat and see a movie every Friday. Sometimes we’d go out to eat on the weekdays, too.

What a waste!

Imagine if I had instead invested just a small portion of that in a Roth IRA. Or if I had saved it to pay for part of my college education. Maybe I wouldn’t have graduated with $25,000 in student loan debt.

Even now, I have a hard time saving, though I am getting much better. I’m finally able to stick to a budget and make saving a priority. It’s taken me 40 years to break bad spending habits that I learned in childhood. Let’s be honest, getting a hot deal isn’t really a deal if you don’t need the item and it robs you of the ability to save.

I want to teach my son this lesson now, so he can be more financially responsible than I was for many years. But that lesson is oh so hard to teach.

How much do you guide and interfere in the way your child chooses to spend money?

For More Great Reads, consider checking out Kidwealth.com and kidsaintcheap.com.

MelissaB

Melissa is a writer and virtual assistant. She earned her Master’s from Southern Illinois University, and her Bachelor’s in English from the University of Michigan. When she’s not working, you can find her homeschooling her kids, reading a good book, or cooking. She resides in New York, where she loves the natural beauty of the area.

www.momsplans.com/

Should You Only Get Your Teens Braces If They Want Them?

April 18, 2022 By MelissaB 1 Comment

Do your kids have braces? If so, they join the nearly 70% of teenagers between the ages of 12 and 17 who have or have had braces (Kennell Orthodontics). Most orthodontic treatments cost between $3,000 and $7,000, representing a serious investment for parents. Unfortunately, many teens don’t appreciate this financial investment, which begs the question, should you only get your teens braces if they want them?

My Braces Story

When I was a teen, I didn’t need braces, but I did need a retainer. I found the retainer uncomfortable, and I had a lisp when I talked with it. I had to tell my teacher I was missing page 66 in a textbook, and with the retainer, what I sounded like was, “I’m mithin’ page thixty thix.” He couldn’t understand me and had to ask another student to translate.

I took the retainer out every day to eat lunch and wrapped it in a napkin. However, one day I accidentally threw it away. To this day, my mom thinks I did it on purpose, but I didn’t. She didn’t buy me a replacement retainer, and my brief stint in the orthodontics world was over.

My Children’s Braces Stories

I have three kids. The older two needed braces; the younger one did not.

My son disliked his braces. When the treatment was over, he never wore his retainer. My husband and I spent over $3,500 for his orthodontic treatment. We feel that we wasted money because, without a retainer, his teeth continue to shift. I wouldn’t be surprised if someday they’re back where they were before we started treatment.

Our daughter doesn’t like braces, but she fastidiously maintains them. Even though she’s in treatment, I do not doubt that she will religiously wear her retainer and maintain her new smile.

Should You Only Get Your Teen Braces If They Want Them?

That’s a tough question because I feel that I wasted my money on one child but not the other. Ultimately, I would say the decision comes down to how much will the child be impacted in the future if he does not get braces?

If the child has overcrowding or an under or overbite that may cause damage to her teeth in adulthood, then you should get them braces. However, if the teeth are simply overlapping or have gaps in them, perhaps you could gauge whether or not you should get him braces based on his interest.

Final Thoughts

I’m not a doctor, so I am only giving my opinion as a parent with two kids who had braces and had vastly different behavior towards those braces. As a parent, I’m frustrated by paying thousands of dollars for a child who won’t maintain that dental work. I’m sure my mom was just as frustrated by me.

Unfortunately, the optimal time for orthodontic work is during the teen years, when most kids aren’t particularly responsible. As for me, I sought orthodontic treatment in adulthood to fix my teeth, and I was much more responsible than I was as a teen, especially since I was the one paying for it.

The Importance of Fixing Things Sooner Rather Than Later

Why You Should Get Braces for Your Child When Needed

MelissaB