7 Key Signs You’re Mismanaging Your Finances

Financial health is crucial for long-term security, yet many people inadvertently mishandle their finances. Recognizing the signs of financial mismanagement early can help you make necessary adjustments before the consequences become severe. Here are seven indicators that you might be mismanaging your finances:

If you find yourself eagerly awaiting your next paycheck to cover essential expenses, it’s a strong indication that your finances need reassessment. This cycle prevents you from saving and can lead to increased debt if unexpected expenses arise.

Ways to stop living paycheck to paycheck:

• Budgeting and Tracking Expenses
• Building an Emergency Fund
• Paying Off High-Interest Debt
• Seeking Additional Income Sources
• Automating Savings
• Reducing Unnecessary Expenses
• Investing Wisely
• Avoiding Lifestyle Inflation
• Seeking Professional Advice

An obvious sign of financial trouble is an increasing debt load. If your debts are growing each month, it suggests you’re spending beyond your means. High-interest debts, such as credit card debts, can be particularly harmful because they grow quickly and can consume a significant portion of your income.

Ways to get out of debt:

• Analyze How Much You Owe
• Avoid Taking on New Debt 
• Lower Your Interest Rates, If Possible
• Calculate Your Monthly Payments
• Come Up With an Action Plan
• Start a Side Hustle 
• Track Your Progress

Without savings, you are vulnerable to financial shocks. An important rule of thumb is to have an emergency fund that covers at least three to six months of living expenses. If you don’t have an emergency fund, or if your savings are minimal, it’s a sign that you need to reevaluate your spending and saving strategies.

Regularly incurring overdraft fees or missing bill payments can indicate poor financial management. These practices not only hurt your wallet due to fees and penalties but can also negatively impact your credit score.

Ways to avoid overdraft fees:

1. Opt out of overdraft coverage.
2. Turn off automatic payments.
3. Set up direct deposit.
4. Link your checking and savings accounts.
5. Check your account balance.

A lack of clear financial goals can lead to aimless spending. Setting and working towards financial goals, whether they’re saving for retirement, buying a home, or paying off debt, helps guide your financial decisions and keeps your spending in check.

How to set up financial goals:

1. Understand your current finances. You have to understand what you’re working with before you can decide what to do with it.
2. Know what you want. Big or small, what do you want from your finances? Do you aspire to homeownership or just want to take a single vacation?
3. Make sure your goals are SMART: specific, measurable, achievable, relevant, timely. If you set goals that aren’t realistic, you’re setting yourself up to fail.
4. Make a plan. Put together a budget and a savings plan — and hold yourself accountable to stick to them.

If you frequently make impulsive purchases without considering your budget or financial goals, you might be mismanaging your finances. Impulsive spending can lead to buyer’s remorse and financial strain.

Click here to learn the 3-day rule on how to avoid impulsive spending.

Using credit cards for everyday expenses can be a red flag, especially if you’re not paying off the balance each month. This habit indicates that you might be spending more than you earn.

Editor's note: This article was produced via automated technology and then fine-tuned and verified for accuracy by a member of GOBankingRates' editorial team.