While the steps necessary to avoid a financial disaster are simple, they are not always easy.
In a country full of consumerism and non-stop marketing and advertising, it can be difficult to change our mindset about money and financial health.
But that is what is necessary to avoid a financial disaster in your life. We need to change the way think about money and our finances.
19 Steps To Avoid A Financial Disaster
If you want to take control of your finances, you will need to seriously consider the following 19 steps.
- Spend more than you earn (duh!)
My college professor told us that for a business (or home) to succeed), the income must be bigger than the outgo because eventually, you will run out of money and people willing to loan it to you.
- Rely on only one source of income
If 100% of your income goes from one company. What happens if that company has layoffs or moves? If there are “cost-cutting” measures put in place, that might mean a reduction in your hours or your job completely. The wealthiest individuals have multiple sources of income.
- Stay at a job you hate
If you hate your job, it will show. A boss will only put up with an employee with a bad attitude for so long. So you might not last as long as you think.
- Deny you have a spending problem
The first step in addressing any problem is admitting you have one. None of us has our finances in 100% order. Once we are honest with ourselves, we can start working to fix things.
- Never balance your checking account(s)
It is amazing that people do not know how much money is truly in their bank accounts. They allow the bank to balance things for them. Most banks will hide their fees in the middle of the statement and the account holder doesn’t realize that they are being charges $100s a year in fees and overdrafts.
- Have nothing in a savings/emergency fund
What would happen if you were faced with a $1000 repair? If you are like most Americans, you would not have the cash to pay for it and would need to use credit. How fast could you save $1000 to be part of the 39% of Americans that could afford it?
- Avoid funding a retirement account
Most likely you will not work until the day you die. You will want to retire. If you do not set aside money while you are younger, you will not have the resources to retire. Gone are the days of a nice dependable pension. Good luck living on Social Security (if it is still around)
- Continually borrow or refinance to pay off old debts
You are not the U.S. Government. You cannot continue to borrow more money to become debt free. Once your debt gets to a certain point, it will eat you alive. STOP borrowing money. If you do refinance, take all the credit cards you paid off and lock them away somewhere you cannot access. If you pay them all off and immediately close them, that could affect your credit score. Talk with a CPA about that.
- Max out your credit cards
Again, you are NOT the U.S. government. Maxing out your ability to borrow is a great way to set yourself up for a financial collapse.
- Not having adequate insurance (health, disability, homeowners, auto, etc.)
One of the biggest reasons people face a financial crisis is because of health-related issues. Make sure you have the necessary insurance to cover you and your family. It is better to go without cable or satellite than to not have insurance. Ask yourself if you need that expensive car with its expensive insurance and huge car payments. That could clear up some money to make sure you have the right insurance coverage.
- Don’t pay off your credit cards each month
Would you like to make a guaranteed 18% to 25% return on your money? Pay down your credit card bills and if possible, pay them off each month. The finance charges are ridiculous.
- Don’t plan where your money goes (aka creating a budget)
The word budget has a bad reputation. All it is really is a plan to tell your money where it should go and to track if you have done what you said.
- Don’t know where your money goes
If you don’t know where your money is going, it’s the same as having a leak in your boat. To keep from going under, you need to plug the leaks. But first, you need to find them. Know where your money is going and keep yourself afloat.
- Try to keep up with the Joneses or whoever
Do you buy things to impress others? To “one-up them?” Why? Be yourself. Don’t try to impress others if it means spending money you don’t have.
- Not being able to distinguish between wants and needs
We need reliable transportation to get back and forth to work. Do we need a car with a $523 payment (the average payment for a new car according to Experian Information Solutions)? Or would a less expensive car do?
- Buy something based on being able to afford the monthly payments
Just because you can “afford” that $523 new car payment does not mean you should.
- Failing to communicate with your spouse about money matters
“According to a new survey by Ramsey Solutions, money fights are the second leading cause of divorce, behind infidelity. Results show that both high levels of debt and a lack of communication are major causes for the stress and anxiety surrounding household finances.”
- Always worrying about your financial situation
Thinking that the sky will fall any minute is not helpful. Stressing like that can lead to health issues and foolish mistakes.
- Never worry about your financial situation
The opposite is also true. Never thinking that the sky could fall is not helpful. We need to plan and be mindful