This article was previously published on Debt-Free Mormon. It has been reprinted here with permission.
Do you wish your personal financial life had a check engine light? Wouldn't it be nice if when things weren't going right in your financial life that something would light up on your dashboard and tell you that you needed to get it fixed?
While there is no literal warning light for when you are in financial distress, there are warning signs that your financial life needs some immediate service.
Here are 12 signs your personal finances should be serviced soon.
1. You are living paycheck to paycheck
Running out of money before the next month begins or barely making it to the end of each month with little to no money remaining can be a stressful way to live. Having to hold your breath and hang on for dear life until your next paycheck is deposited into your checking account so you can pay your next bill is a sign of a possible money problem. Maybe your income is very low and you are doing your best to work with what you have in your current situation. But it's also possible your expenses are too high or you're just spending too much money and not paying enough attention. A detailed budget will help you pinpoint the problem area.
2. You do not have an emergency fund
Not having emergency savings is a sign you are not fully prepared for the unexpected events that will occur in your life. A good financial plan needs a specific fund separate from your regular checking and saving accounts that is designated. Having emergency savings will prevent you from having to borrow money or put the expenses on a credit card, which can lead to even more problems in your personal finances.
3. You use credit cards to supplement your income
If you continually run out of money before you get to the end of the month and you use credit cards to supplement the difference, this is a sign of a serious money problem. It is impossible to spend more money than you make and win financially. If you cannot satisfy your monthly expenses on your household income alone, something is wrong. Using credit cards to pay your bills and cover the costs of the things you don't have the money for will eventually catch up to you. The balances will increase, minimum payments will go up, and interest rates will rise, causing your monthly budget to become even tighter.
4. Debt is part of your everyday life
If you rely on debt to pay your bills, buy your groceries, fill up your gas tank, and to pretty much finance everything in your life, it is only a matter of time before it will catch up to you and tackle you from behind. Making debt payments ties up too much of your cash flow. And the further in debt you go, the larger the debt payments become. Your income is your best resource for building savings and creating wealth. If your monthly household income is divided into monthly payments, it is going to be difficult for you to reach your financial goals and save and invest for the future. Stop using debt and learn to live on your income.
5. You are behind on your bills
Falling behind on your bills and debt obligations is a sign of not paying enough attention or not budgeting properly. When your accounts begin to be hit with late fees this is a sign that something needs to be addressed and fixed immediately. Debt payments should be a high priority in your budget and enough money should be allocated monthly to keep these payments current. You need to know the due date of each payment and payments should be sent a few days before the actual due date to ensure the money is received on time. Paying unnecessary late fees and additional interest will cause more strain on your monthly budget and lead to further financial distress.
6. Your utilities are being disconnected
A giant pink tag on your door knob is as close to a check engine light as you're going to find when it comes to your personal finances. Getting your utilities disconnected should never happen. Utility payments should be high enough on the priority list that it is one of the first things you pay each month. Utilities are part of what I call the four walls of budgeting, or the basic necessities that should be covered before everything else in your budget. Similar to my last point, this is a sign of poor budgeting and not paying attention. Having your utilities disconnected is a major inconvenience and will usually require a large deposit for re-connection, only exacerbating the problem.
7. You're afraid to open your bills
Maybe you don't even know how far behind you are on your bills because you are afraid to open the envelope and look at the statement. Do you just throw the bills in a drawer or in a box next to your desk thinking you'll get to it later? The bills will just keep piling up. Denial is a major sign of a financial problem. This can happen because you don't know how much money you have, how much you have to spend, or what your expenses are. This is a direct result of not budgeting your money and not having a solid cash flow plan. The bills aren't going away. The stack is just going to get taller if you don't make a quick change and start taking action. Otherwise, it won't be long before you'll get a pink tag on your door or you'll receive a call from a collector demanding the money.
8. You avoid looking at your bank accounts
Are you too scared to look at your bank account? Do you not want to know how much money isn't there? This is a sign your spending plan is out of control, or better, non-existent. You need to know how much money you make and how much money is remaining in your bank account at all times. It is too stressful to write checks to pay your bills or swipe your debit card at the gas pump and have to wonder if there is even enough money in your account to cover the charges. If your checking account balance scares you, that's a definite sign you need to start managing your money better.
9. Your debit card or credit card is being declined
Have you recently swiped your credit card at the grocery store and had the cashier tell you it was declined? Did you then try your other card and it was also declined? Did you try to withdraw money from the ATM and get a receipt with a big NSF on it? These are loud warning signs that whatever you are doing isn't working. You need a new plan. If your credit cards are maxed out, then you are relying too much on your credit cards and not budgeting your income properly or your spending is out of control. An NSF receipt is a pretty clear indication that you didn't know how much was in your account to begin with. You need to know where your money is going and not always be wondering where it went.
10. You need a payday loan
If you find yourself in need of a payday advance loan or if you've already gotten one, your financial warning light is blinking brightly. Needing a payday loan is the equivalent of having the check engine light on, the car overheating, and two flat tires. Payday loans are a disaster and getting out of them is nearly impossible. The interest rates on payday loans are astronomical - I've seen them as high as 750 percent APR. The fees and late charges are also absurd. If you are at this point, your personal finances need some immediate service and possibly a complete overhaul.
11. You regularly pay overdraft fees
Paying overdraft fees can get expensive and annoying. If you are regularly having to go into the negative in order to cover your expenses, something is going wrong in your financial life. You cannot spend more money than you earn and make progress financially. Overdraft fees can vary, but they are typically around $25 for every transaction your bank or credit union has to cover. These fees can add up quickly and become a problem the next time you deposit a paycheck into your account - your next paycheck just became that much less. This is a result of poor budgeting and not knowing where your money is going. You cannot afford overdraft fees. They will kill your cash flow.
12. You do not have a written budget
The budget is the key to preventing most money problems. If you are not budgeting monthly and planning how you will spend your income, that is a major warning sign for future money management problems. The budget is your gauge. It will tell you exactly where you stand financially. It is like getting a regular oil change and tire rotation. It will help you get the most out of your monthly income and keep you aligned with your financial goals. The budget tells you how much money you make, how much money you have to spend, what to spend it on, and when to spend it. Without a written budget you are just guessing. It is impossible to win financially if you do not have a clear plan and clear goals. Having a budget will help you live within your income, pay your bills on time, get out of debt, create savings, and avoid having to borrow more money.
These are all warning signs and indicators that some type of adjustment needs to be made in your financial plan. I'm hopeful you can recognize some of the problems in your personal finances in time to make some positive changes and course correction and avoid serious financial problems down the road.
Money can be a blessing. With money you can do so much; you can provide for your family, give, save, travel, enjoy your life, live your dreams, retire with dignity, or whatever it is that you value most. If you need help with your finances, consider talking with a financial counselor or someone you know and trust that could give you some guidance.
There has never been a better time to start managing your money well than right now.