Are you overextended financially? Many people are. Yet, they are blissfully unaware of how precarious their situation really is. Financial overextension is very easy to get into, but can be very hard to extract yourself from. Months or years of overextension damages your financial security. This leaves you vulnerable to financial devastation at any turn of events. However, before you can begin to correct the problem, you must be able to recognize it. Here are some of the signs of overextension and signals that indicate it is time to reassess your financial health.
What is Financial Overextension?
In general terms, overextension means that you are living beyond your means. But, the technical definition according to Investopedia is when a consumer needs more than a third of their net worth to repay their debts, excluding mortgage. When you are experiencing financial overextension, it is usual because your debts and expenditures outweigh your monthly earnings.
3 Signs of Financial Overextension
1. You Carry A Lot Of High Interest Debt.
If you are only making minimum payments on high interest credit cards, it is one of the signals of financial overextension. According to recent statistics, 43% of American households carry credit card debt from month to month. High interest debt requires a large portion of your income. And, if you are not paying down the principle, most of it is wasted paying off interest. If this sounds like you, focus on paying down your debt to relieve financial pressure. You can also consider consolidating your debts into a single loan with a lower interest rate to retake control of your finances.
2. You Are Having Difficulty Paying Bills On Time.
Having difficulty paying bills is another red flag that you have reached financial overextension. Over a quarter of American adults (58 million people) admitted that they do not pay their bills on time. If you’re frequently paying bills late, getting hit with late fees, or getting burned by your bank’s overdraft fees, that’s generally a sign that it is time to reassess your budget and reduce your spending. Getting a handle on the problem will take time. But, it will be well worth it when you have more breathing room with your finances.
3. You Are Not Saving For Retirement.
Neglecting to save for retirement is another signal of financial overextension. This indicator can take many forms as well. Perhaps all of your money is going towards your current expenses. Or, maybe you are not taking advantage of all the tools available to you. If your company has a retirement plan and you aren’t putting money in, you are missing a valuable opportunity. When the company provides matching funds, you’re basically missing out on free money.
Find a way to begin saving at least 5 percent of your current income for retirement. Begin by creating a budget and reducing your expenses in other areas. Once you have managed to save this amount on a regular basis, you can make regular contributions. Put a portion of any future raises or bonuses towards your retirement savings to increase the balance faster.
How to Relieve Financial Overextension
The first step to finding a solution is by identifying the problem. Once you admit you have reaching financial overextension, you can make a plan to regain control. However, if you do not know where to start, seek out professional advice. A financial advisor can help you assess your financial situation and create a plan to relieve the pressure. Things can get better and there are plenty of people ready to help.
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- How to Budget Money for Bills
Jenny Smedra is an avid world traveler, ESL teacher, former archaeologist, and freelance writer. Choosing a life abroad had strengthened her commitment to finding ways to bring people together across language and cultural barriers. While most of her time is dedicated to either working with children, she also enjoys good friends, good food, and new adventures.