How to Spot Financial Future that is Headed for Disaster

More often than not, when it comes to money, you’re worried and oblivious.

Now, that sounds like more than a contradiction.

That’s exactly how those two words play off one another.

Individuals, couples and families alike worry about money.

Quite a bit, in fact. But they’re also equally ignorant when it comes to their finances, with some both worrying but doing little to change or alter that trepidation, and reminding yourself that everything is “fine” or some other vanilla sentiment that really is looking the other way, quite frankly.

No matter how you look at it, the overwhelming concern among Americans is money, their financial future and retirement, along with just day to day money woes.

Approximately 67 percent of the American population frets about money.^[1]

The initial thought on that higher than you’d expect figure is the definition of “worry” being broad, such as echoing the comment to that point, “well, who doesn’t worry about money?”

While the term “worry” is relative and the argument is taken with the proverbial grain of salt, the bottom line is that most of us aren’t really comfortable or feel good about our financial situation overall, with presumably good and bad days, accordingly.

Another statistic that supports the term “worry” being a very bad thing is the lack of money we can set aside collectively as Americans, be it individuals or on a family level, or the fact that we clearly live beyond our means.

That number is even larger than the aforementioned 67 percent who “worry” about money.

The total percentage of people who live from one paycheck to paycheck, who survive rather than flourish is in the 80 percent range, furthermore the average salary being around $44,000, when adjusted for inflation after the last four decades, shows little improvement or growth in that regard.^[2]

And as far as saving money, if all but 20 percent are living paycheck to paycheck, you’d assume (and you’d be correct in that assumption) that not many households have a whole lot saved in an emergency fund or nest egg.

The number is 57, as in percent, of people who have less than $1,000 in a savings account, and 39 percent have zero dollars set aside, and that number has seen growth in the last two years, despite a unemployment rate that is as low as its been in nearly 20 years.^[3]

So clearly these statistics show pretty remarkably and quite easily, to be honest, just why everyone is so worried about money.

Very little money is being put aside and nearly everyone is having a hard time budgeting, choosing instead to live paycheck to paycheck rather than cut expenses or adopt a more modest living expense as a tradeoff to be able to save a little more.

The part that is a little harder to fathom is the obliviousness that abounds by the average American, who really worries but isn’t very good at spotting the obvious.

That “obvious” means you’re headed for financial disaster if you’re doing certain things on a consistent basis that are completely counterproductive to having financial freedom and peace of mind.

Here’s a number that lends itself to most people not really paying attention to your money, one of the larger and more apparent (albeit fixable) red flags that you’re headed for financial ruin.

Sixty-one percent.

Roughly 61 percent of the population in the United States doesn’t really pay attention or track what they spend.^[4]

If that is the crown jewel of sorts that you’re headed for a financial meltdown as far as your money goes, here are a few more huge, glaring mistakes you’re knowingly making that are putting you further behind those financial goals:

Credit cards are your best friend, even for every day purchases

The use of credit cards, at one point, were specifically for emergencies, and some still view them that way. The inception of online shopping has also led to more credit card purchases for safety and piracy concerns, not wanting to give out a number on a plastic card that is linked to your bank and money, specifically.

Understood.

But that only works strategically if you’re paying off those balances as soon as the bill hits the mailbox or your inbox.

Otherwise, credit cards only are a catalyst to your financial woes.

The credit card statistics in 2018 aren’t very encouraging, and would suggest it’s still an issue, in term of unsecured debt, which is how you’d classify credit cards.

We’re paying more interest fees in 2018 versus previous years, roughly 11 percent since last year and 35 percent over the last five years, not mention the average card balance is $6,348 for individuals, and 44 percent of credit cards aren’t paid in full each month, with 71 percent having balances not paid in full versus the 44 percent for accounts.^[5]

Some would argue that these are unexpected purchases, hard to believe that there’s $6,000 worth of those, but if that’s the case, it only reaffirms you’re not saving enough so that if an emergency arises, you can just pay for it with your own money.

Even worse than using a credit card for car repairs, house issues or even a medical bill, student needs, etc., is pulling out and swiping that plastic for day to day expenses, such as grocery shopping or, worse yet, using a credit card to pay a household bill or another card itself.

About a third of Americans (33 percent) use credit cards for every day purchases.^[6]

Commercials from those credit card companies make it look so appealing, with cash back on purchases and other marketing hitches, but you shouldn’t be using credit cards period, unless the entire balance is paid the following bill cycle.

Remember, too, your credit utilization (balance versus what you owe) should be at 35 percent, and anything more can affect your score in a bad way.^[7]

You can’t save money but worse you have trouble paying bills on time

If you have your finger on any pulse of your financial day to day outlook, you should always be careful with how you sabotage (directly or indirectly) your credit score.

That score is significant for a number of reasons, namely being able to buy a house, car or take out a student loan (for yourself or kids) but also the kind of interest rates you’ll get because of how risky it would be for a lender to hand money over to you, in the hopes you’ll pay it back timely.

If there’s one aspect of your credit score that is both controllable and invaluably important it is paying bills on time.

If you can’t do that, you may not have much time to even get to financial disaster. You have basically arrived.

This goes back to a number of other talking points, such as not being able to save and living beyond your means, two giant concerns that you’re money woes are beyond bad.

As far as not paying on time and how it affects your credit score, your payment history accounts for 35 percent of your credit score, and paying late on average is about a $25 or $30 late fee on top of beyond 30 days when your score can drop by as much as 100 points.^[8]

Often times, you know your on the brink of financial ruin if you’re basically waiting until you get paid, only to turn around and pay for bills or expenses that are late, essentially covering your costs after you get paid for the previous month.

That trajectory is headed in the wrong direction.

You start borrowing anywhere you can: friends, family, and even yourself

Financial disaster takes on different shapes, and one that is all too common is scrounging, scraping and finding any way to get your hands on some money.

Borrowing money from a close friend or family member is never a good idea, and typically leads to hurt feelings and animosity from the lender to the borrower, which in this case would be you.

An interesting study showed that 77 percent of people believe that someone having an IOU would actually hurt the friendship.^[9]

A lot of times, lending money to a friend is seen as inconsequential on some level, just because you’re trying to help someone out of a difficult financial situation.

But one out of every three people said they’d end a friendship if you owed them just $100 or less.^[10]

That alone is a telling sign that friendship and money, lending and borrowing, isn’t a good plan.

Furthermore, you can even borrow from yourself in the form of retirement accounts, 401K or other money you have stored for the future that you are tapping into right at this very moment due to financial problems.

Not only is tapping into a retirement account a silly thought but also some have refinanced their home or taken out a home equity loan just to cover credit card debt or take a vacation, never a smart business decision even though initially it sounds good.

You pay a 10 percent tax on early withdrawals, and that number could go up significantly depending on what tax bracket you’re in.^[11]

One upside to borrowing from your 401K would be on a small down payment on a house, such as an FHA loan, but you’ll still want to steer clear of withdrawing a sizable chunk for a much larger, 20 percent down traditional loan.

Whether you’re talking about tracking money improperly or not at all, using credit cards for bills or your answer to “how much do you have in retirement?” is met with a cathartic blend of laughter, silence and sadness, you have more than a little room to grow financially.

A study about money and its affects (in this case on millennials) a person truly is a fascinating tale of the stress it can cause.

Granted, it’s only one age group but it is telling and probably extends beyond just millennials.

Roughly 69 percent of millennials say they have anxiety due to money and income, mostly due to savings amount in the bank (67 percent) and losing a job due to instability at work (53 percent).^[12]

That instability isn’t enough to throw up your hands and assume all hope is lost.

Sure, stability is key but if you’re so worked up about stability, while understood, also reflects that you’ve ignored saving money and aren’t prepared if you were to lose a job.

That’s the part where worrying and ignorance meet in front of you.

Rather than wait, watch and hope, you can be proactive in your approach to not only saving money but understanding financial limitations, accepting them and starting to foster change through cutting back but also recognition and avoidance of money moves or things you’re doing financially that are draining more than just your bank account.

They’re sapping you of will to want to change, and that apathy is only breeding falling further an further behind where you want to be financially.