Could you survive without your next wage/salary payment? If you’re not sure of the answer, you need to assess your budget now. Not being able to survive a missed wage/salary payment is just one warning sign you may be heading for financial trouble.
Most of us think we’re financially stable, or at least able. However, thousands of New Zealanders were declared bankrupt in the last few years. Considering the strong economy during this time and the possibility that the economy may stall next year, consumers may need to scrutinise their finances more carefully.
No Safety Net
- Derived from numerous information sources, you should consider these practices of people dangerously close to financial instability to make sure you’re not heading the same way.
- Spending more than 20 percent of your net income on credit card bills.
- Borrowing money to pay off other debts.
- Paying your bills on time, but running out of cash between wage/salary payments.
- Using your credit card to pay for necessities because you don’t have the cash.
- Paying only the minimum payment on your credit cards. As a rule of thumb, if you can’t pay double the minimum payment, you’ve got a problem.
- Getting turned down for a consolidation loan. It means you’ve already over-extended yourself — your debt equity ratio is too high.
- Refinancing a loan to reduce your monthly payments on another loan. If you’re 24 months into a 48-month loan and you’re looking to refinance because you’re over-extended and need to lower payments, it’s a definite warning sign.
- Needing a guarantor. If the lender requires a guarantor to make a loan to you, then you’re over-extended. However, if you lack a credit history, this wouldn’t necessarily apply.
- Financing your vehicle for six or more years. You’re doing that to lower your monthly payment, rather than focusing on reducing your debt.
- Consolidating your loans but not closing the accounts where those loans originated. You’re afraid to do so in case you get into trouble again. If you don’t close off those other loans, you’re simply going to compound your problem.
- Counting on the next “big deal” to see you through your financial trouble. You need to look at the big deal as icing on the cake instead of ‘that’s going to bail me out’. This includes inheritances!
- Carrying more than four credit cards. There’s no reason to have more than two credit cards. No matter where you’ll go they’ll accept one or the other.
- Waiting until near the end of your credit card’s grace period to pay, or requesting a higher credit limit.
- Hiding purchases from your family, or fighting with your spouse about how to deal with your financial situation. Financial problems and domestic problems go hand in hand, or vice versa.
- Depending on parents and friends to bail you out.
If you’re engaged in two or more of these practices, create a budget immediately, detailing all bills, debts and income. When you go to the ATM machine and get that $20, allocate where it is going, right down to the last cent. You may then see that Oh my gosh, I spent $50 this month on lattes or $20 on ice cream.
For those still not sure whether to be worried or not, the single rule of thumb is: If you think you’re having financial problems, you are. If you’re waking up in the middle of the night, worrying about money, you’re already in trouble.
Procrastination is your enemy. Get on with your debt reduction servicing so you may then focus your attention on your long-term investment objectives.