Before financial crisis hits, there are normally several warning signs. Here are some indicators that you’re overspending:
Too many credit cards. You probably want to have at least one credit card for emergencies and for times when you’d rather not carry cash. But if you carry several credit cards and use most of them, you may be asking for trouble. It’s easy to forget how much you’ve charged when you’re using more than one or two cards. And, having several cards with open credit lines — even if you haven’t charged anything on them — can lower your credit score.
Charging too much. Being at or near your credit limits on one or more credit cards is a sure sign that you’re overspending. If you can’t pay off the balance each month when the bill comes due, you may be headed for trouble. When you’re making only the minimum payments on your cards, it may take you several years — 20 or more — to pay off a large balance. Think about that the next time you’re ready to charge an item like clothing or electronics that will already be in the garbage bin long before you’ve stopped paying for it!
Not preparing for emergencies. If you had to replace your roof or pay medical bills that aren’t covered by insurance, where would the funds come from? Putting money into an emergency fund to cover unexpected expenses is one of the best ways to take control of your finances. Not having cash for emergencies can put you in a real financial bind.
Running out of money before payday. Does your paycheck just cover your bills? Does buying something extra during the month leave you short of cash for necessities? Being constantly out of money is a warning sign that your resources are overcommitted. If you have little or no money left after each paycheck, it’s time to change your spending habits.
How well are you managing your long-term finances? Share the approach that’s working for you or tell us where your pitfalls are.