There’s the obvious signs that you’re terrible with money – firstly being that you don’t have any… but there are subtle other overlooked things that even those who think they have control of their finances need to consider.
1.You don’t know how much you earn or spend: The first step of getting your finances in order is knowing where you stand with your income compared to what you spend. If you don’t know how much money enters and leaves your bank account each month, you’re setting yourself up for overdrafts, overspending and debt.
Solution: Consider using an app like mint to start keeping a record of your income and expenses. Knowing how much you earn and spend will reveal how much you can afford to save, spend or splurge. It also creates graphs to give a clear visualization of where you stand with all of your assets and debts, giving you the opportunity to see in what area you can trim some of your spending.
2. You’re carrying credit card debt: Unlike good debts that come from investing in your future, bad debts that come from spending on a bunch of crap you don’t need end up holding you down with high interest rates and damage to your credit score.
Solution: Make paying your card debt a priority. Because of the debts high interest rate, it has the potential to quickly compound and spiral out of control, costing you thousands in interest. If you have money in savings, you’re best to put that towards your card debt – or look into combining your debts onto a card with 0% interest that you can pay down within a year (when the intro 0% offer generally ends).
3. You’re scrambling to pay bills each month: If you’re living paycheck to paycheck, what will you do if there an emergency cost like a hospital bill? How will you pay for the things that you want in your future (new car, wedding?), or even just a simple weekend away?
Solution: You either need to earn more or spend less. To go the first route, try to negotiate a raise at work or make extra cash on the side. To spend less, make a big impact by reducing one of your larger costs like rent (roommate? new location?) or transportation (downgrade your car? take the train?).
4. You’re putting off saving for retirement: Though retirement may seem far away, the power of compound interest means that starting as early as possible is the best thing you can do for your savings.
Solution: Consider what you want your retirement lifestyle to look like and start putting away money as soon as possible. A company sponsored 401K or an IRA are two of the most popular saving vehicles.
5. You’re terrified at the idea of investing: I get it – it can feel overwhelming, but investing your money has the potential for growth far beyond what you’d see in a traditional savings account.
Solution: My financial crush Warren Buffet recommends a conservative approach, such as low-cost index funds, and the growth of online services like Wealthfront and Betterment have made it easier to understand the ins and outs of investing on a day to day basis. If you’ve got a little stash of money and no debt, consider finding a financial advisor to help you out.
6. You’re living a lifestyle beyond your means: If your social network includes people who have money and therefore don’t mind spending it, it can be difficult to not want to try and keep up. Even just going to dinners and splitting it can add up and get you into serious debt, and you may be embarrassed to admit you just can’t afford it.
Solution: Keep yourself out of situations where you will be tempted to spend money. Skip the social shopping trips – if you go to dinner with a group bring cash to cover what you ordered. Be upfront with those close to you about your situation so that no one puts pressure on you to spend what you don’t have. If you’re already in too deep, the National Foundation for Credit Councelling, or companies like Learnvest and Personal Capital have programs that can help.