Normally you don’t have to tell people they’re living on the edge of financial disaster; most already know and are trying desperately not to think about it. The reason those on the edge don’t want to think about their financial situation is that it can be both overwhelming and confusing. That means there’s effort involved in coming to grips with the reality and, at the end of that arduous road to understanding, the “payoff” is going to be the certain knowledge that sacrifices will be required.
Sometimes it’s easier for individuals to make those sacrifices than it is to confront family members with the unpleasant news that you won’t be able to accommodate some cherished expense, which can be particularly difficult when kids are involved. Sorry, kids, we won’t be able to fly down to see Grandma over Thanksgiving. Sorry, but the after school activities are out of reach this year. Sorry, sorry, sorry. Is it any wonder then that financial discussions sometimes take a backseat in busy lives?
We all get that it’s difficult but, if you find yourself in any of the following red flag financial situations, you may not be able to put off the inevitable.
No Cash Savings
How ironic that, in a debt economy, cash is still king. Cash pays the bills and, in perhaps the greatest irony of all, it’s cash that keeps the credit flowing in your financial life. Without cash savings your financial life hangs by a thread. Cash savings will pay for major car repairs and replacing the central A/C unit. Cash is also what you’ll need to cover deductibles for insurance claims if disaster strikes. Cash is what will pay the bills and keep the lights on and gas in your car in case of a job loss. It’s amazing how many people think a new credit card is an emergency fund – it’s not.
You Carry a Credit Card Balance
Speaking of credit cards, if you carry a balance, that’s a major financial red flag. Imagine the price of everything you purchase inflated by 15%-30%, compounded monthly! Debt service is like a giant blood sucking parasite on your personal finances; a stealth tax you pay to Wall Street and get absolutely nothing in return. Sure, some people can manage their spending and beat the big banks at the cashback game. Some people can, good for them. Banks know it’s a sucker’s game and that most people can’t and shouldn’t even be trying.
You Are House Poor
It just amazes me that people will put a third of their combined gross income into a box that exists for the sole purpose of holding up the roof that keeps their stuff dry. It’s a box. The vast majority of people stretch to make an emotional decision instead of a practical choice when it comes to housing. So many people could relieve the emotional stress in their lives by just choosing a smaller house in a less fashionable neighborhood.
Leasing A Car You Otherwise Can’t Afford
Leasing is an option that works in some cases but, more often it’s a crutch for people to get into cars they otherwise couldn’t afford. Cars and houses are not status symbols, they’re tools. Like any tool, the most important consideration should be that it works when you need it. There’s a reason car dealerships bring up the option to lease so often during negotiations. That reason is leases are hugely profitable for dealerships. If it’s good for them, it’s a pretty fair bet that it’s not good for you.
You Can’t Get a Handle On Bills
When you live a debt-free lifestyle, expenses become very predictable. Homeowner’s insurance, car insurance, vehicle registration and utilities are all bills that are entirely predictable and easily anticipated. Anything else is an emergency expense. The problem with a crowded financial life is you have so much coming at you so fast, it’s easy for things to slip through the cracks. Ask yourself how many times you ask yourself, “What is this?” when confronted by a bill. If that’s a monthly thing, your financial world may be expanding beyond your ability to control it.
Coming to grips with your finances is never easy and doing so will inevitably bring changes, not all of which will be pleasant. The good news is that with a little time and effort, you can make big changes in your financial world.