5 Key Signs You’re in Worse Financial Shape Than You Think — And How To Turn It Around
Written by
Laura Gariepy
Edited by
Gary Dudak
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Do you think you’re doing well, moneywise? Sometimes, it can be hard to judge your own circumstances since you’re so close to the situation.
However, there are many key indicators that you’re in a financial jam (or soon will be). We’ll share five of the big ones here and offer expert guidance to help you change course if necessary.
You Worry About Money
Answer these questions honestly:
- Do you stress out about money?
- Do you get anxious when it’s time to pay your bills?
- Are you unsure how you will cover a large, upcoming expense?
- Are you afraid your debit or credit card will get declined at the store?
If your finances are always on your mind (but you’re not thinking happy, secure thoughts), you’re probably in trouble.
You Don’t Understand Money Management Basics
A lack of financial literacy can cost you — literally! If you don’t understand foundational personal finance topics like budgeting, saving and investing, and debt management, you’re more likely to live paycheck to paycheck.
You’re also more likely to have a lot of debt and little to no savings in the bank.
You Don’t Know Your Numbers
You may have mastered the theories behind personal finance 101, but that doesn’t mean you’re applying them to your life. You might want to avoid the (painful) truth or be too overwhelmed to start looking for it.
At a minimum, you need to understand your:
- Income
- Spending
- Savings balance
- Debt balance
You should also be aware of your credit score and the steps to improve it.
You Don’t Have Any Savings
You can earn a high salary, have an impressive credit score and carry little to no debt and still be on the brink of financial disaster. A lack of savings can destroy your finances quickly.
For example, let’s say all of the above apply to you, and you get laid off from your job. Your unemployment benefits only cover part of your living expenses, requiring you to use your credit card to pay the difference.
Unfortunately, it takes you almost six months to find another job. During that time, you racked up thousands of dollars in debt and saw your credit score take a big hit.
The solution? You need an emergency fund to give you a cash cushion for situations like this.
You Spend More Than You Make
If you earn $4,000 per month but spend $4,500, you’ll take on $6,000 in debt per year (or drain your savings account quickly)! In either case, you’ll put yourself in a position where you may struggle to pay your bills or build financial security.
You must stop overspending immediately. Creating and adhering to a budget can help you get back on track.
How To Improve Your Financial Situation, From an Expert
R.J. Weiss, CFP and CEO of The Ways to Wealth, said, “The most important thing not to do here is start comparing yourself to others. Your financial journey is your own, and comparing it to others, likely those doing better than you, will result in unneeded stress.”
He continued, “It’s much better to have a way to check in on your individual progress. To do that, I recommend tracking your net worth, which is your assets minus liabilities.
“My preference for those struggling is to track their net worth every month. This way, you can receive consistent feedback on how you are managing your money. If your net worth goes up, you’re on the right track. If it’s consistently going down, changes are needed.
“Many people in a rough financial situation want to hide from it. Hiding is easy in the short term, as knowing that changes [are] ahead is never a great feeling.
“Yet tracking a number, even if it’s as basic as your net worth, allows you to be aware of your financial situation consistently. In the long term, it will enable you to achieve a better financial future, even if the present is hard to face,” said Weiss.
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