If you have a history of making poor spending decisions and repeating common money mistakes, such as racking up debt or neglecting to save for retirement, there’s still time to improve your future financial situation. By taking stock of long-term financial goals and saving, earning and budgeting more effectively, you can get your plans back on track.
If you’re concerned that your future financial picture looks bleak, experts suggest looking for these telltale signs, and regaining control over your finances with the following basic money-management principles.
Your credit card debt is increasing. “When I work with clients, the biggest sign of financial trouble is consistent or increasing credit card debt. It’s a clear sign of overspending,” says John Caserta, a chartered financial consultant and managing director at Caserta & de Jongh, LLC, a financial advisory firm with offices in Cheshire and New Haven, Connecticut.
Caserta says there can be many legitimate reasons for temporarily accumulating credit card debt, and so this doesn’t automatically mean that your financial future is grim. “But when there’s a history of transferring balances from one credit card to another without a decrease in the balance, there’s a clear cash flow problem,” he says.
The financial fix: Caserta advises consumers to take an inventory of income and expenses and create a cash flow statement in order to see how they’re spending their money. “That can be accomplished with pen and paper, free appsor even paid software. They have to choose what works for them,” he says.
In short, lower your credit card balance, and gradually pay off any lingering credit card debt each month to get your finances in order.
You don’t have enough money saved for an unexpected major expense. This may not be a sign of major financial ruin down the road, but it’s a way to assess whether you’ll have enough saved for an emergency when money is very tight.
“Unfortunately, life happens, and if you aren’t prepared for a flat tire, home repair or some other unexpected expense, it assures you’re having financial trouble,” says Amit Chopra, a certified financial planner and managing partner at Forefront Wealth Planning and Asset Management, a financial services firm in New York City.
The financial fix: Consider setting up an automatic withdrawal every month and have a certain amount of money go into a savings account. That way, eventually you will have some money to draw upon in the case of a financial emergency. It can be challenging to put money aside if you’re constantly struggling to pay bills, but it’s an important financial step. For example, you could start by diverting $50 a month, which would amount to $600 in a year. If that goes well, start setting aside $75 or $100 per month into an emergency fund to stay prepared.
You’ve raided your retirement account. If you’ve tapped into your retirement account, that’s a big clue you may encounter financial trouble down the road. “I see many people make the same mistake, which I feel is a precursor for a future financial disaster,” says Joseph Carpenito, a financial advisor in Boca Raton, Florida, at Raymond James Financial Services. Carpenito says he often will see clients with a 401(k) plan taking money out of their account in the form of a cash distribution.
“Most of these individuals are under 59 1/2 years old, and even after explaining the penalties and tax implications of taking an early cash distribution, I hear the same excuse: ‘Well, it’s only a couple thousand dollars.'”
“Although now it only seems like a couple thousand dollars, investors are giving up growth and compounding interest potential, which over a long time horizon could be the equivalent of having hundreds of thousands of dollars less in retirement,” Carpenito says.
The financial fix: Find an alternative way to access money, such as putting money into a well-stocked emergency fund.
You barely have enough money for discretionary expenses. Do you live from paycheck to paycheck, and rarely, if ever, have extra money left over? Eventually you may run out of luck and money, and find yourself taking on more credit card debt or seeking out payday loans.
Corey VanDenBerg, a mortgage banker with Platinum Home Mortgage in Lafayette, Indiana, often sees people buy houses with the highest mortgage payment they can afford, instead of a payment that they can comfortably manage. “Many, many times, people are scrambling to find cash to close,” he says.
The financial fix: Putting money into a savings account and budgeting strategically may solve your paycheck to paycheck scenario. But when it comes to making major purchases like a house and car, get in the habit of crunching numbers and doing your research before consulting professionals. VanDenBerg says that many times clients will ask him, “How much can I afford?” Instead of asking mortgage lenders or car salespeople that question, it’s best to ask yourself how much you can afford, VanDenBerg says.
You haven’t done any financial planning. This is a troubling sign that your financial future is heading toward a frightening state, Chopra says. It may not seem like your finances are out of whack, especially if you’re living comfortably currently, but if you haven’t started saving for retirement, now is the time to kick-start planning to reach your long-term financial goals.
The financial fix: Start budgeting. Make a list of your monthly fixed bills, like your mortgage or rent and your utility bills, and your expenses that aren’t fixed, such as your grocery bills and gas purchases. Track where your money is going each month. Once you have a budget in place, start creating some goals and ask yourself if you think you’ll be able to afford to pay for them in the future. For example, consider if you need to begin investing for your retirement or for your kids’ college fund. If you don’t think you’ll be able to meet your goals, that’s a wake-up call that you need to start putting money away now.