5 quick ways to know if you need serious help with your personal finances.
Money is not an easy subject to understand let alone master. Many people just downright hate dealing with money, thinking about money, or figuring out how to manage their money. Your answers to the following questions should be a tell tale sign that you need to face reality and get some help (education) before it's too late. Here we go:
1. You have no idea how much you spend every month. Do you know how money much it takes for you or your family to get through each month? We financial types call this your monthly nut. What is yours?
Once you answer that question then tell me if you have at least one times that amount easily accessible in a bank account. The right amount you should have in the bank is 3-6 times your monthly nut, but if you don't have at least one times then that can lead to a serious problem.
2. You are paying over 15% interest on debt.
Credit card debt, personal loans, retail store credit cards, payday loans, etc. Most people carry these types of debts even though they should not. Life happens and we find ourselves in situations that may not be the most ideal from a financial perspective, but we have to fight through it and learn from our mistakes. With that said interest rates have been so low for so long that if you are paying over 15% that means you are not being responsible. Either your credit is so bad that you have no choice or you are just not paying attention. That's the truth...you need to figure this out before it buries you. Getting rid of all these types of debts should be the #1 priority.
3. You pay unnecessary bank and credit card fees. Overdraft fees, minimum balance fees, over the limit fees, late payment fees, etc. The banks make a fortune off of these fees. If you are lining the banks pockets with these silly fees it is because you are not paying close enough attention. Set up alerts with online banking, monitor your balances, make at least the minimum payment on time and stop giving away your money. Go into the bank and ask for your money back! Sometimes they will give it you. Your goal should be to pay $0 in fees. It is very possible.
4. You have small balance accounts that have gone to collection. I have come across this more often than you would think. Small balance store credit cards or medical bills that have been sent to collection and ruined a fairly decent credit report. It wasn't that they could not afford to pay the balance, it was that they chose to ignore it and never got around to paying it. Very big financial problems have started as a result of a very small problem that easily could have been handled. These small collection accounts cause big headaches for years and years and usually come back to haunt you at the worst time (Like trying to get a mortgage).
5. You are constantly shuffling around your debt. If the only way you can pay down a credit card balance is to borrow money from another source, the time has come to figure out a new plan. This is obviously not sustainable and will end in disaster. One little bump in the road can send you into a death spiral. You need to focus on one card at a time and start attacking the balance. Read about the debt snowball and go get to work!
This post is meant to raise awareness. In no way am I trying to kick you while you are down or make you feel bad if you fall victim to the above situations. It happens to the best of us. The point is that you need get up, brush yourself off and do something about it. Life is much better without the constant stress of money weighing us down.
Rich McCormack, CFP® -School of Personal Finance