People often believe that financial distress happens overnight from a single unfortunate situation. For some this is true, but for many, their eventual money problems are evident long before they become disastrous. Learning how to spot the early warning signs of money issues is a critical skill.
Why do people miss the early warning signs?
Mainly it is because they view them either as one time events or isolated events and don’t see the connection. They don’t realize that all of the little issues they are having are really signs that they have future big issues on the way. Sometimes it’s simply because they don’t know what to do, so they ignore the signs hoping it will improve without any changes from them.
How does it help to recognize minor issues as something larger?
If you can recognize a pattern early, you can take steps that might be less painful to correct the problem. It is critically important to find the true cause of the issues and not just address the symptoms. If you just treat the symptom and not the underlying issue, you can often take actions that accelerate your financial freefall.
What are some of the very first signs of financial trouble?
It starts with not knowing how much money you have in your checking account that leads to overdraft fees because you over spend. To correct this situation, you might start paying all of your bills late and incurring late fees on your bills to avoid overdraft fees.
Is there a sign that is a leading indicator that one might struggling?
Probably the biggest sign is that someone starts charging everyday expenses like groceries to their credit card and then carrying that balance, in essence building credit card debt to make ends meet. This then leads to credit cards being maxed out and additional accounts being opened.
What is a major sign that a person’s financial situation is ready to implode?
A major signs is people borrow against or withdrawal funds from their 401k to pay for everyday expenses. This is when people have reached the crisis level of a financial situation. Not only are they unable to handle today’s money issues, they have now created a problem for the future.
What is the most important step to take if someone feels they are headed for financial problems?
Start by figuring out where you money is going. This will help you find ways to reduce or eliminate expenses so that you can start meeting monthly obligations with your current income. Also, this might be the time to consolidate debt to a lower rate and one monthly payment, but only take this step if you truly can avoid running up the debt again. Without knowing where you are spending your money, there is little chance you can make any significant changes to keep the situation from spiraling out of control.