Thursday, September 19, 2013

Financial Health: 5 Warning Signs You're Living Beyond Your Means

Below is an interesting article with regards to our personal financial health. I have been in this condition before and it is a struggle to try to live according to your financial capacity. Hope we all learn a few lessons. 

Financial Health: 5 Warning Signs You're Living Beyond Your Means
by Success Resources in Finance (submitted 2013-09-16)

Sometimes we look at those people who get in trouble financially and wonder how they ever got to that point. We think, That will never happen to me, or there's no way I'll ever approach a loan shark. The thing is, getting into debt is one of those things that sneaks up on you and when you finally realize you're at that point, it's too late. Kind of like that familiar story of a frog in boiling water.

We need to identify these symptoms of financial sickness early so we can get treatment and start working towards being financially healthy.

1. You are constantly discontent.

Do you find yourself constantly wishing you had more? Is it a challenge to watch your friends and relatives upgrade to nicer cars, bigger homes, better furniture or even more expensive independent schools for children?

If you're quietly saying yes, then your discontentment may be driving you to impulse financial decision-making. Reflect on your spending habits and evaluate whether many of your purchases are done out of true need or out of a need to fill some void in you or due to social pressure. Decide today that you will no longer live to impress others by spending money you don't have on the things you don't really need.

2. You can't afford to lose your income.

If today you, or you and your spouse, lost your income, would you be able to survive for the next 6 months only on what you have set aside in your savings? If the answer is a definite NO, you may be overspending on today's wants while sacrificing tomorrow's needs.

If that's the case, take a hard look at your current spending. Do you have a spending plan or a budget? Make one. Are you fully aware of how every dollar you earn is spent? Get to the bottom of this and make sure that you assign every cent to a specific budget category. Track your spending for the next 30 days to reveal all potential "waste" areas. Your goal should be to eventually have 6 months of your living expenses set aside and available in case you experience a complete income loss.

3. Credit is your best friend - or so you think.

Are you using one credit card to pay off another one? Is your monthly credit card balance growing instead of declining? If the answer is yes, then you are most likely financing a "beyond your means" lifestyle.
Take the next few days, look over your credit card purchases and see exactly what you are buying. Is it expensive clothing? Have you fallen for the "buy now, pay much much later" offers? Now that the payment time has come, are you struggling? If this is you, whatever "it" is that you are using credit for, first make a decision to stop. Leave your card at home if you have to and away from your computer. Create a realistic debt repayment plan and do not pick up a credit card until you have paid your balances off and are ready to be a responsible consumer.

4. You don't have a pre-determined plan to manage your money.

Saving is truly the foundation of healthy finances, yet so few of us actually save. One of the most common excuse for not saving is "I have too much debt." What people don't realize is that, unless they prioritize putting money aside, debt will always be an issue.

Apportion 10% of your monthly income towards an investment account that you NEVER TOUCH. This is seed money for your financial freedom and should be used only to grow your wealth. Another 10% should go towards long term savings for those big ticket items you need or for an emergency fund.

5. You spend more than 25-30% of your gross pay on your mortgage.

Are you counting on two incomes in order to make your mortgage payment? Are you spending more than 35% of your gross income just to pay your monthly mortgage? Would you be in deep trouble if you experienced a reduction in income (going from two to one incomes due to job loss, having hours cut, having pay reduced, etc.)? If the answer is yes, you may be paying for more home than you can afford.

Here are two rules of thumb to follow in regards to mortgage payments: - Stay within 25-30% of your gross income - Are you a two-income family? Buy as if you had just one income. This way you are creating margin in case of a job loss or if we ever experience an interest rate hike.

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Monday, November 8, 2010

Basic Tips to Manage Money

So you already earned your money. The next question presented to you is what you are going to do with it. Even when one has the list of payables and obligations to liquidate the monthly charges, a means of properly handling the money is required to be able to maintain a stable and consistent budgeting. Here are some basic tips to manage money.

Know When To Stop

Probably the hardest thing to do is to stop when it is needed, especially in terms of having more than what could be paid off. We should be able to know what things are plausible and valid to be supported with our own means of productivity. When we get more than what we could support, chances are that we end up giving them up, or worse, wrongly choosing what things to retain and what things to let go.

The idea of knowing the needs and wants also fit in this description as we should be able to determine first what things we need than want. This prevents us from being biased in our judgment in acquiring. More often than not, the things that we want are more appealing and are a greater risk of snagging us in a trap of financial burden and chaos in the long run.

Taking time to stop and think first and then evaluating what to prioritize first is essential to a progressive and stable money management.

Impulsiveness Means Disaster

One of the basic tips to manage money is to stop ones self from being impulsive. Even if we have already determined what to prioritize, we still have to further evaluate for alternatives and not actually spend on the first offer that comes our way. When we are impulsive, there is a very high chance that we risk our money into spending for something that we could have gotten away with at much of a lesser price.

Risk Is Healthier Than Full Security

Risking the resources we have for a productive cause and viable profit earner is a healthy practice to take by an individual. Though this may mean a loss of capital in the form of personal money, not investing and instead just putting it in your personal safety vault or the bank will stagnate your extra resources.

Nevertheless, careful planning and feasibility study of a business venture is needed to determine the most efficient way to establish and commence a risky business deal into a promising profit earner.<p>

Planning Ahead Is Essential

Even if we still have a lot of flexible time to just sit around and enjoy each day as it passes by, planning ahead of schedule in terms of a few months to several years is important in projecting one's self when the future comes. It does not have to be followed as rigidly as it should be, but just enough to become a basis of many activities and choices by the individual. Knowing where to go and what to do lessens the chances of getting stuck up in a crossroad of future choices. Furthermore, this lessens the worries and anxieties that a person might be thinking as important dates draw near. In addition to that, these pre-set guidelines would serve as a means to calibrate the performance of the self with the intended output, therefore allowing him to properly reset or recalibrate the means of work and production in order for him to further increase the expected outcome reasonably.

These basic tips to manage money are just a few of the many means to effectively have more resources than just getting break evened with your salaries and allowances.

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