What Are The Early Warning Signs of Financial Problems?
From time to time, people can get into financial trouble.
Unfortunately, working out whether you have money problems isn’t always easy, especially if nobody ever trained you in financial matters.
Debt is quite deceptive at the start.
When you owe a small amount of money, interest fees are low, and repayments small.
Over time, though, the percentage of your income going to creditors starts to rise, and eventually, you don’t have the money you need to live.
Like investments, debts tend to compound.
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They start small and then snowballs, often catching you off-guard.
If you think you might have debt problems, you’re not alone.
Here are some facts about private debt in Canada:
- Average household debt is $114,000, rising to $144,000 for couples;
- Only 31 percent of households have incomes over $100,000, but they represent 37 percent of total debt;
- University graduate debt was 60 percent higher than for those with no post-secondary education;
- 48 percent of debtors had outstanding credit card balances;
- 38 percent of debtors had personal loans, and 1 percent had payday loans.
Debt isn’t just a financial matter, but an emotional one too.
Those who owe a lot of money can experience depression, relationship breakdown, and problems in their careers.
Owing money can have an outsized effect on the quality of life.
Early Warning Signs Of Financial Problems
So what are the early warning signs of financial problems?
Let’s take a look.
You Frequently Find You Have No Money In Your Account
Those with money problems typically have less money in their accounts than they expect.
They use their debit cards, assuming they have the cash to spend when they don’t.
You’ve Withdrawn Money From Your Pension Pot
Most people contribute regular sums of money to their TFSA and RRSP accounts to build up the savings they need to retire.
Those in financial difficulties, however, may find themselves regularly dipping into these funds to meet day to day expenses.
You Can Only Afford The Minimum Repayments On Your Credit Cards
Ideally, you should be able to pay off your credit cards in full at the end of the month.
If your income is substantially lower than your outgoings, though, you can find yourself short.
When you let the balance roll over, you incur additional interest costs, setting you back further.
You Don’t Have A Budget
Going through life without a budget is a bad idea.
You don’t know whether you’re on track to reach your financial goals or whether you’re sticking to your money plan.
You Regularly Spend More Than You Earn
You will sometimes spend more money than you earn (for instance when you move house), but it shouldn’t be the norm.
Most months, you should have a sizable chunk of money left over to contribute to savings or pensions.
You Don’t Have Money To Deal With Emergencies
People teetering on the edge of financial problems rarely have any money left over at the end of the month.
They spend everything that they earn on various expenses and entertainment, which puts them in a bind when trouble strikes.
If you find that you can’t afford to pay for emergencies or seasonal expenses outright, it could indicate that your finances are on the brink.
You Rely On Your Overdraft And Lines Of Credit
When your money doesn’t stretch far enough, you regularly rely on your overdraft and lines of credit to make ends meet.
And, consequently, you wind up paying interest and fees, which eat into your budget for the following month.
Sometimes it isn’t clear to you whether you have financial problems or not.
For this reason, it can be a good idea to ask somebody you trust privy to your financial situation about their opinion.
Your spouse or partner will often give you the unvarnished truth, providing you with a valuable opportunity to turn things around before your debts get out of control.
Where possible, try not to play the blame game.
The important thing is to identify whether you have a problem.
If you do, then you can take action to solve it.
How To Overcome Financial Problems
Overhauling your finances can feel a little overwhelming sometimes.
Often it is hard to know where to start.
You’ve organized your entire life around a particular spending pattern, sometimes for many years, and it can be hard to change.
Overcoming financial problems, however, is straightforward once you break it up into smaller, manageable chunks.
The first thing to do is come up with a system for tracking your income and expenses.
You can use a notepad or a spreadsheet if you want, but modern apps are usually much better.
These link to your accounts and automatically update whenever you get paid or spend money.
Next, you want to break down the figures and take a look at what’s going wrong.
Look at your income and work out how much cash you have at the end of the month after essentials expenses.
Ideally, you want this figure to be more than 30 percent of your take-home pay.
If it isn’t, then it suggests your basic lifestyle is too expensive.
Sometimes, the problem is where you live – the area is just too costly.
Often though, the issue is excessive loan repayments and high-interest rates.
Use the data you collect to evaluate where you might be spending too much money.
It could be on your vehicle, property maintenance, debt repayments or even entertainment.
Create a record of where you’re losing money and use it to help you identify the source of the issue.
How To Get Help With The Early Warnings Signs Of Financial Problems
When it comes to financial problems, it doesn’t pay to sit on your hands.
Acting now will help to eliminate pain in the future.
If you’re worried about your finances and would like advice, you should speak with an accredited financial counsellor.
They can evaluate your current situation and tell you what you need to do next.
The sooner you ask for help, the better off you’ll be.
Information on Consumer Proposals
Consumer Proposals in Canada – An Alternative to Bankruptcy
What is a Consumer Proposal?
How to Amend a Consumer Proposal
What are the Benefits of a Consumer Proposal?
What are the Steps in a Proposal?
Consumer Proposal Eligibility
What Debts Are Erased in a Consumer Proposal?
Is There Life After a Proposal?
How to File for Bankruptcy
What is Bankruptcy?
How Does Bankruptcy Work?
What is the Cost of Bankruptcy in Canada?
How to Rebuild Credit Following Bankruptcy
Personal Bankruptcy in Canada
What Debts are Erased in Bankruptcy?