7 Signs Your Financial Well-being Is Vulnerable

Every now and then I offer free counseling in my local church and community center, and try to help people with their personal finance problems. Abrupt questions and half-broke individuals are nothing new to me. I meet those in every session I conduct.

Last Sunday, when someone sought my help with his emergency savings, at first I was much relieved as I thought of some cakewalk this time. Unfortunately, the excitement soon wore off once he started describing his pain.

In spite of doing a full-time job for the last 5 years, he did not have an emergency fund. Trust me, that made me crazy. I really wondered why didn’t he save a single penny for emergencies during those years.

However, as I dove deep, I learned that he had some severe money struggles.

It is likely that people who are struggling to maintain their financial well-being are aware of it, and most of the time, they experience money struggles before they arrive in a bankruptcy court or lose their home in foreclosure. After all, a personal bankruptcy filing is always preceded by a long period of financial instability.

But what are the signs that your financial well-being is at stake?

Here are 7 of them, and if you think your situation is just similar to any 2 stated here, it’s time to step back and get control of your money. Reevaluate your circumstances, try to pay off your debt and save more money to break the vicious paycheck-to-paycheck cycle.

If you fail to solve the problems all by yourself, you can seek the help of a professional before it’s too late.

1. You borrow money from friends or family every month

This is pretty common. If you find yourself needing to borrow money from your friends and family members every third or fourth week of each month, it’s a sign that a trouble is coming.

It is not a problem if you are borrowing to cover for some unexpected expenses in a particular month. Even it’s a good sign if you are able to pay off the money borrowed in the following month. But I have a big doubt about your financial well-being if you’re doing this every alternate month.

Often people take such steps when they’re not able to take out loans from regular and commercial lenders. And such a step indicates that you have serious credit problems.

Getting help from friends and family can be a way out during a crisis. But they can never be a constant source of continuing credit. And if you assume this, you would just make the relationship bitter and perhaps ruin too.

2. Your credit score has been drowning

Your credit score is likely to drop if you start maxing out your cards. This is simply as a result of the credit utilization ratio (the amount of your debt divided by your available credit). This ratio represents 30% of your credit score calculation.

The ideal threshold of credit utilization ratio is 30%. This means, if your total credit limit is $50,000 and you have $15,000 in outstanding balances, it won’t hurt your score. Once you move beyond this threshold, your score will start declining even if you make all your payments on time.

Consequently, a lower credit score will make it tougher on your end to take out loans. Even if you manage to take out a loan, likely the interest rate will be much higher.

You need to maintain a good credit score even at retirement. So, stop maxing out credit cards, check reports periodically, and do whatever you need to so that you have a good credit score.

3. You always dream of having better control over your finances

Everyone wants to have better financial status. Unfortunately, most people don’t realize that they need to have a methodical and proven strategy to make it happen.

If you don’t follow a realistic strategy to make your finances better and just keep on hoping that things will get upright soon, it’s a good indication that your financial well-being is at stake.

Just hoping for better times is a sign that you’ve lost control of your finances. What you have to do is plan your course of action and start acting to improve your financial situation.

4. You have recently been denied credit

Our entire economy is based on and revolving around credit, which is why obtaining a loan is an easy affair. But if you’ve recently been denied credit, it can be concluded that the lenders are considering you as a risky borrower.

You may be able to take out a loan, but it’ll fall into the sub-prime category. This means your credit profile is considered to be out of bounds as long as traditional lending is concerned, and you’ve been categorized as a high-risk borrower. All these serve as evidence that your finances suck.

Therefore, it’s high time you get your finances back on track by planning a suitable budget.

5. You are suffering from insomnia due to your finances

Everyone experiences some sort of financial stress based on individual situations. You worry about huge or sudden expenses, or about the consequences of rising costs in the future if your financial condition is stable.

However, if you find yourself suffering from insomnia due to your inability to pay your bills on time, it’s likely that your financial well-being is not stable.

Periodic sleepless nights can cause havoc. It can hinder your normal and daily activities, and even impair your ability to earn your living. Either outcome will just make your finances worse.

6. You postpone home and car maintenance

Just like your body, your home and car need regular maintenance. This keeps them fit and increase their life too. If you are postponing legitimate maintenance projects due to cash flow issues, it’s a definite sign that you’re financially unstable.

The reason for postponing your required maintenance projects is a scarcity of cash flow. But eventually, due to lack of maintenance, the conditions of the objects will deteriorate way too far from where you may not be able to restore them. You may also have to spend way more money to restore them.

So, instead of postponing the maintenance work, increase your savings. You can also opt for a part-time job to increase the cash flow.

7. You deliberately put off bill payments for next month

Is your condition a classic example of the saying: Robbing Peter to pay Paul? Do you have a habit of postponing or holding back your gas bills so that you can pay the house rent? If so, your financial situation is grave.

So, if you’re experiencing any of these situations, it’s time to get your financial situation back on track. Plan a budget, save as much as you can, and climb the first step towards a secure financial future.