There’s something to be said about paying attention to signs. On the roadways, they make sure you know how fast you can drive, when to stop and even where you are along your route. Your doctor tells you to watch for signs of certain medical problems. So as your financial counselor, I’m going to give you some signs to watch out for that may signal a looming financial disaster.
Living Paycheck to Paycheck
As I wrote in my book (shameless plug: From Debtor to Better is now available in paperback!), the average American is three weeks away from being bankrupt, unable to pay bills or put food on the table. And “the average American” means roughly 70% of Americans based on the studies I found. What happens when there’s a glitch in the company payroll or a bank error and your paycheck doesn’t get deposited on time? For most of you, that’s a scary possibility.
Peter & Paul
A severe symptom of looming disaster is robbing Peter each month to pay Paul. When you have to use one credit card to pay another or when you have to use your emergency fund every month to make ends meet, you’re on your way to disaster.
Constantly Fighting With Your Spouse
There are going to be times you’ll disagree with your spouse. But when you constantly fight like cats and dogs, you’re headed for a mess. The number one cause of divorce in America is money-related problems. If you can’t agree with your spouse about money, this has disaster written all over it.
Can you be honest about your spending with yourself, your spouse, or even a counselor like me? It is very common that you make purchases throughout a given day that you don’t want someone else to know about. Why? What are you hiding? Be careful what you’re hiding and from whom – it could be dangerous.
Minimum Payment Syndrome
The culture we live in says if you can afford the payments, you can afford to buy it. I think that is stupid. Why? Because the lending industry has proven over and over that when the payments aren’t within your reach, they’ll just do something to “make it work.” Want proof? Less than 10 years ago, financing a car for five years was pretty much the max. Now, six and even seven years are possibilities, with six being the new norm. Cars have become a lot more expensive and people have bought into the lie that it’s no big deal because the payments aren’t much more than they used to be. If you’re considering a big purchase and are asking, “how much are payments” instead of “how much does it cost” you could be on the brink of disaster.
Stupidity is bad…really bad. There is no cure for stupid because stupid is willingly making a poor choice or refusing to learn a better way. Ignorance is okay – there is already a known cure for ignorance. It is called education. If you don’t understand something about your financial situation, FIGURE IT OUT (and get help if need be). Otherwise, you’re embracing ignorance and that can quickly lead to stupid decisions that could lead disastrous financial consequences.
Reality is a quick and often cruel teacher. We don’t like being told we were wrong. We don’t like learning that we made mistakes. We surely don’t like being told our way isn’t the best way to do something. So we avoid reality checks like doing a simple budget. The first thing I ask when someone tells me they can’t pay all their bills is whether or not they’re doing a budget. 99% of the time, the answer is “no” or “I gave up.” No matter how bad reality may look, if you won’t face it, you’re on dangerous ground.
So what can you do if you’re on the path for disaster? Start by facing reality. What is it that is good about your situation? What is bad? Where are you falling short and what can you do about it? Ask yourself these questions and then take action. It may mean sitting down with your spouse and confessing. It may mean doing a budget for the first time (or trying again). It may mean getting some education (God forbid we read a book!). Financial disaster doesn’t have to happen to you. Stop it before it has the chance.
Do you exhibit any of these signs? What will you do about it?