When to worry about your personal finances?
While this observation started with noticing American behavior, the symptoms described below can be hold universally true regardless of the location. It's people's habits that puts them into financial trouble and not the location but American are used to exploit it to the extreme end of the spectrum.
Americans are known to live beyond their means. American Consumer Debt, US Govt Debt, and everything around Debt have sky-rocket records around Americans. Most of the Americans would look for path of least resistance to earn the extra dollar that they need. They rather buy Lottery, which is poor man's tax, than doing actual work which will make them millionaire. Statistics have shown that you have a better chance of getting hit by a lightning storm than winning a lottery yet people are willing to do the same thing over and over and expecting a different result each time. It's sad but the truth is most of the American Wealth is highly skewed to the right where few people own most of it and others barely put food to the table.
Following framework might show symptoms when to worry about your personal finances:
1. Your income is not increasing (or perhaps decreasing) but you are still spending too much money on credit cards. A simple outstanding balance of "Month Over Month", MoM, will paint the picture clearly.
2. You are doing credit card balance transfers too many times. With each Balance Transfer, credit card companies charge a one time processing fee. So, you already paid more money in Bank's pocket than keeping in yours.
3. You are applying for new credit cards all the times since you maxed out on your existing ones
4. You are missing payments on your credit cards or paying the minimum payment most of the times
5. You are using credit cards for every little purchase such as Gasoline or even to pay your rents
6. You are using credit cards with merchants even when they charge a convenience fee of 2.5 - 5%
7. You have converted your Amortized Mortgage to an Interest Only Mortgage to lower down your payment schedule
8. You do not have an accurate picture of how much debts you truly have (Exclude Primary Mortgage)
9. You might have borrowed money from your 401K or IRA or any other Retirement Fund
10. You have taken money from your family or friends that you are not ready to return yet
This framework gives some guidelines when people are already into the trouble or very soon will be entering into it if appropriate actions are not taken.
How to avoid these pitfalls or manage finance better?
Money management is an art than science. Most of it comes with a discipline and strong adherence to the rules that money management brings. If you don't follow it or try to find back-door to escape from it, you will get into financial catastrophe.
Following framework might help you to manage your finance better:
1. If you can't pay your credit card balance completely with your monthly statement, don't use it. You should start getting into the habit of using ATM cards aka Debit Cards than credit cards. Since Debit cards debit your account right away, you will have a much clear picture of your savings. Don't get caught up by those Air miles on credit card if you can't make full payment on credit card by End of Month.
2. Check your Bank Account on daily basis or at least every other day to ensure that you don't have any surprised bank fees. If you see so, call bank immediately and ask for a one time waiver. Make sure you understand why such costs were there so you don't get into the same situation
3. Stop Spending money on things that are not needed until your credit cards are paid off. I know you would have to convince your wife to stop spending but it's worth it. In the long run, a wife with a debt free husband will be much happier than indebted husband. So, be ready for the fights but convince her that this is the right thing to do.
4. Pay the credit cards that have the least balance first. And, just follow the same protocol until you have paid off everything
5. Be proactive to make your payments. Set up alerts or automatic withdraw from your checking account. Don't make payments on the last day and pay convenience fee to the merchant. These are just scams.
6. Stop carrying too many credit cards in your pocket. In fact, don't ever bother to carry more than one. It's OK to not use them. It won't bring down your status in society
7. You must Save. You can open up a Systematic investment Plan with a broker or your own bank. Look more into it based on your preference.
8. Try to eliminate anything and everything where you are paying interests. If it means no discretionary spending for next 2 years, so be it.
That's all I can say about it. Please feel free to comment or any feedback you would like to share.
-Nitin
While this observation started with noticing American behavior, the symptoms described below can be hold universally true regardless of the location. It's people's habits that puts them into financial trouble and not the location but American are used to exploit it to the extreme end of the spectrum.
Americans are known to live beyond their means. American Consumer Debt, US Govt Debt, and everything around Debt have sky-rocket records around Americans. Most of the Americans would look for path of least resistance to earn the extra dollar that they need. They rather buy Lottery, which is poor man's tax, than doing actual work which will make them millionaire. Statistics have shown that you have a better chance of getting hit by a lightning storm than winning a lottery yet people are willing to do the same thing over and over and expecting a different result each time. It's sad but the truth is most of the American Wealth is highly skewed to the right where few people own most of it and others barely put food to the table.
Following framework might show symptoms when to worry about your personal finances:
1. Your income is not increasing (or perhaps decreasing) but you are still spending too much money on credit cards. A simple outstanding balance of "Month Over Month", MoM, will paint the picture clearly.
2. You are doing credit card balance transfers too many times. With each Balance Transfer, credit card companies charge a one time processing fee. So, you already paid more money in Bank's pocket than keeping in yours.
3. You are applying for new credit cards all the times since you maxed out on your existing ones
4. You are missing payments on your credit cards or paying the minimum payment most of the times
5. You are using credit cards for every little purchase such as Gasoline or even to pay your rents
6. You are using credit cards with merchants even when they charge a convenience fee of 2.5 - 5%
7. You have converted your Amortized Mortgage to an Interest Only Mortgage to lower down your payment schedule
8. You do not have an accurate picture of how much debts you truly have (Exclude Primary Mortgage)
9. You might have borrowed money from your 401K or IRA or any other Retirement Fund
10. You have taken money from your family or friends that you are not ready to return yet
This framework gives some guidelines when people are already into the trouble or very soon will be entering into it if appropriate actions are not taken.
How to avoid these pitfalls or manage finance better?
Money management is an art than science. Most of it comes with a discipline and strong adherence to the rules that money management brings. If you don't follow it or try to find back-door to escape from it, you will get into financial catastrophe.
Following framework might help you to manage your finance better:
1. If you can't pay your credit card balance completely with your monthly statement, don't use it. You should start getting into the habit of using ATM cards aka Debit Cards than credit cards. Since Debit cards debit your account right away, you will have a much clear picture of your savings. Don't get caught up by those Air miles on credit card if you can't make full payment on credit card by End of Month.
2. Check your Bank Account on daily basis or at least every other day to ensure that you don't have any surprised bank fees. If you see so, call bank immediately and ask for a one time waiver. Make sure you understand why such costs were there so you don't get into the same situation
3. Stop Spending money on things that are not needed until your credit cards are paid off. I know you would have to convince your wife to stop spending but it's worth it. In the long run, a wife with a debt free husband will be much happier than indebted husband. So, be ready for the fights but convince her that this is the right thing to do.
4. Pay the credit cards that have the least balance first. And, just follow the same protocol until you have paid off everything
5. Be proactive to make your payments. Set up alerts or automatic withdraw from your checking account. Don't make payments on the last day and pay convenience fee to the merchant. These are just scams.
6. Stop carrying too many credit cards in your pocket. In fact, don't ever bother to carry more than one. It's OK to not use them. It won't bring down your status in society
7. You must Save. You can open up a Systematic investment Plan with a broker or your own bank. Look more into it based on your preference.
8. Try to eliminate anything and everything where you are paying interests. If it means no discretionary spending for next 2 years, so be it.
That's all I can say about it. Please feel free to comment or any feedback you would like to share.
-Nitin
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