Know The Warning Signs


In this economy, it’s easy to feel a little overwhelmed. In fact, nearly half of Americalives paycheck to paycheck according to Time Magazine. However, even if you feel you’re in the red, there’s a small silver lining: you’re probably better off than you think, and if you’re not, you can get there. Regardless of your income level, here are five questions you should be asking yourself before you start panicking.


Photo: Rasputin243/Creative Commons

Where are your savings?
Face it: sometimes, we can’t save. But even if you’re living paycheque to paycheque, having enough for an emergency cushion is the minimum for a feeling of security. An account of up to $1,000 is mandatory if you own a car or your own property, no matter how good your insurance. You never know when you’ll need to replace a part. Likewise, your health is important enough to merit its own rainy day fund. Saving is a learned skill. Many give up on it if they’re in dire financial straits because it’s not easy to see the money add up, but putting away as little as $50 a month can give you a peace of mind in as little as a year and build a good habit.

What’s your debt like?
Believe it or not, if you only have large, isolated debts such as a mortgage or student loans, you’re in the minority and you’re probably doing fine. It’s having multiple debts spread across several accounts, usually in the form of credit cards, that indicate an issue. It’s a telltale sign of impulsive spending and bad planning. A good way to deal with these is by closing all but one and consolidating your debt to make it more manageable. You can take out a line of credit to pay the bulk of them off, but only if you are 100 per cent certain you won’t miss its payment date. At times, it may be better than paying interest, late fees and minimum payments as you go.

What’s your plan?
Speaking of larger purchases, how are you going to get there? Having a financial roadmap is key to succeeding. Visit your bank and ask to speak to a financial planner, and be sure they don’t sell you the sugar-coated version: ask them how to pay off your debt, save more and manage what resources you already have. If you have a strict plan to pay your debt off in two years before switching gears to save for a home down payment, you’ll feel better knowing that you’re not wasting your time as you work toward a master goal. Oh, and if your bank account’s not the best, try to avoid making any unnecessary investments until later.

Do you leave anything unbudgeted?
The best indicator of financial health is how much money you have left over when everything’s said and done. Many people budget their entire monthly income between expenses and savings that they’ll eventually spend on big purchases. You need to think ahead and leave some more unused on top of that—your goal should be to use this month’s income to pay next month’s expenses. The average student (with loans) living independently faces $1,800-2,000 in monthly costs, so saving as little as $150 a month can give them a month’s worth of security in a year.


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