Many people that are finding themselves in dire financial situations could have avoided them completely. The problems they had could have been dodged if they paid attention to the signals that they were on the path to financial destruction. These warning signs are easy to spot once you know what they are. Taking proper action to correct your financial situation as soon as these signs occur can save you from a lot of future pain and heartache. Here are some of the warning signs that signal a financial disaster in your future.
You Have No Savings
Having no savings is a sure sign that you will be experiencing a financial distress in your future. Savings are needed to protect you from having to use costly credit when facing unexpected expenses. High medical bills from an illness or injury, car breakdown, or having to replace something in your home can lead to months of interest payments on a credit card. This could result in paying hundreds of additional dollars, possibly paying for years to pay off the charges. Also, you’ll take a huge hit to your credit score if you are ever unable to pay the minimum amount required by the credit card issuer.
How much should I save?
You should aim to have enough money saved to cover at least three months’ worth of your normal expenses. Although, this can change depending on your financial situation. There are many factors to consider, so check out our article on the proper amount to keep as an emergency fund for more info.
You Keep Missing Payments
Missing payments on a regular basis is another sign that you may be facing a financial disaster soon. Every time a payment is late for one of your accounts, you are taking a hit to your credit score. Not only that, but you are also incurring late charges that add up over time. You should aim to pay each one of your bills as soon as you receive it; ensure that there is no chance of it being paid late or missed.
If you regularly have to wait for another paycheck to pay your bills, then your budget is too tight and you need to find ways to reduce spending or increase income before you get into real financial trouble.
You’re Tapping Your Retirement Accounts
The money that you have saved for retirement is supposed to be used to secure your comfort during your retirement years. If you are tapping your retirement account to pay for your day-to-day expenses, something has gone very wrong. Removing money from your retirement account is one of the worst financial mistakes you can make.
Why should retirement accounts remain untouched?
The reason why you should never tap your retirement accounts is because of their unique tax treatment. Retirement accounts are one of the few ways to shelter your income from taxes, and doing so increases the ROI of your income significantly. The issue is, if you tap the funds early, they are taxed the moment they leave the account. This effectively negates all the positives of investing in a 401(k) or Roth IRA over a regular index or mutual fund.
So, before this becomes your only option, you should take a hard look at your situation; cut your expenses, and modify your budget to prevent this from occurring again in the future.
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