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12 SIGNS THAT YOU'RE "IN OVER YOUR HEAD" FINANCIALLY AND HOW TO GET BACK INTO THE SHALLOWS 

When you get over your head financially, it is easy to look for a single event to explain how you  got there. But, it is not always a catastrophic event that leads to a large amount of debt.  Instead, it is more often the accumulation of bad financial habits that lead to an increase of debt  beyond what you can handle. Read this list of five of the most common mistakes people make.  See if you are starting to fall into any of these financial sink holes. 

1. YOU DON’T HAVE A BUDGET 

No one likes to budget. They think they won’t stick  to it, so why bother? Or they fear it will prevent  them from buying things they want, or even need.  But a budget has been shown to be one of the most  effective ways to create financial stability…beyond  even creating additional wealth.  

2. YOU DON’T HAVE AN EMERGENCY FUND 

Disasters happen. They will happen. It could be loss  of a job, a death in the family, medical emergency,  car breakdowns, roof leaks, etc. Don’t rely on credit  cards for emergency funds! While having an extra  emergency credit card is a good idea, an even better  idea is to put away six months of living expenses.  Historically, a figure of 10% per paycheck is  recommended for emergency savings. 

3. YOU OVERUSE CREDIT AND THINK YOU’LL  PAY IT OFF 

Watch the warning signs when you purchase. Are  you thinking you’ll pay the purchase off before high  interest kicks in? Are you thinking it’s not a huge  purchase and you’ll be able to handle a small  increase in payments? Are you thinking you deserve  a reward and isn’t that why you have a credit card?  All of these are warning signs that you may be  ignoring the realities of high interest. While the  concept of usury has been muddied by the  acceptance of high interest rates, consider that you have a personal usury level…some interest is just too  high for you to escape once it has a pull on you, and  you’ll pay a huge amount over your original  purchase price. Get used to saving up for things you  want. 

4. YOU MAKE MINIMUM PAYMENTS ON  YOUR CREDIT 

Once you have made a purchase, you may be  thinking the minimum payments are sufficient to  maintain your credit standing and allow you to live a  comfortable lifestyle. But those minimum payments  will catch up to you, piling up like a backed up drain.  At first you don’t notice, but gradually the backup  grows until it bubbles up and you have a real mess  on your hands. Keep your credit card debt to no  more than 20% of available credit. 

5. YOU SPEND BEYOND YOUR INCOME 

You want that nice car, that new furniture, that cool  phone. The companies make it easy with credit and  low payments. You want those new clothes, those  game tickets, that night out. You deserve it! Instead,  adopt a perspective that’s within your means. Then  plan ahead for extras that you want, and figure out  how to create the income you need to get what you  want. If you need a new car, don’t get sucked into  the easy $200 payments for your dream car when  the $99 payments on the base model will do just as  well.

6. YOU MISS PAYMENTS OR OVERDRAW  YOUR CHECKING ACCOUNT 

Even missing one payment is a strong warning sign  that you’re sinking financially. It may be an  accident—you simply forgot. But even that is a sign  you’re not paying enough attention financially. A  missed payment can, of course, lower your credit  score and prevent you from getting important credit  in the form of a car loan or house loan, or make that  credit more expensive. Missing payments can also  add to your stress, which can make it harder to focus  on getting back on financial track. Stay positive and  figure out how to get make your payments.  

7. YOU DON’T SAVE FOR THE FUTURE 

Along with saving for emergencies and saving for  desired purchases, you need to save for retirement,  when you may have no or a reduced income. We all  need to be responsible for our own old age care, and  that means starting young to put money away in a  retirement account, investments, and possibly a  house purchase. Little bits matter! Start with even  $50/month and add to that as you can. Make it  automatic, such as withdrawals from paychecks. 

8. YOU DON’T HAVE A ROUTINE PROCESS  FOR PAYING BILLS 

This is an item you may not usually see on lists of  how to create financial stability, but it’s an important  detail. Routines create stability. Have a place for  your bills. Pay them immediately when they come in,  or have two days each month when you pay all the  bills that have accumulated. Make sure each bill  goes into the right time frame so that it is paid  before it’s due. Keep envelopes and stamps handy,  or online login and account numbers in one secure  location so you won’t have to hunt for those things  each month. 

9. YOU DON’T HAVE ENOUGH INCOME 

In the past, you could rely on a single job to supply  all the money needed to live a comfortable life. But  those days are slipping away. Sure, if you live within  your means, you’ll do fine, but it is becoming increasingly difficult to save and spend wisely even  on a regular job income. If you don’t make enough  on your job, consider creating an extra income  source. Even a little extra can help. $100 or $200  can be your car payment, or go directly to your  retirement. Look for an online job or something you  enjoy doing that won’t take a lot of time. 

10. YOU’RE NOT TAKING CARE OF WHAT YOU HAVE 

By not repairing or maintaining what we have, we  end up spending more over time. The world has  developed a disposable mentality. Because of that,  many of us have lost interest in sewing, rebuilding,  patching, calibrating, cleaning, and reusing. We  break a cup and toss it out instead of gluing the  handle. We break a chair leg, we toss it instead of  having a carpenter repair it. Our upholstery looks  tired, we get a new couch instead of re-covering it.  Part of the problem is purchasing low quality,  disposable products in the first place. There may be  a case for spending more on higher quality with the  intention to keep it longer and maintain it, rather  than spending repeatedly on lower quality products.  

11. YOU’RE SPREADING CREDIT OUT FOR THE  LONGEST PERIOD POSSIBLE 

Taking a 6-year car loan may lower your payments  considerably, but you’ll spend a vast amount more  on that car than you would with a shorter term loan.  Same for furniture, housing, and other term-based  credit purchases. Taking long-term loans is a sign  that you may not be able to afford what you’re  purchasing, and by making that purchase, you’re  making your future financial stability less certain. With the exception of housing, where a 30-year  mortgage is standard, most long-term financing  should be avoided, either with a higher down payment or a lesser priced item. 

12. YOU’RE WORRIED ABOUT MONEY 

You know you’re over your head financially when  you worry about money. That’s when you need to  look over this list and spot the problem areas. Then  develop a plan around those problem areas to  combat them. As soon as you create the plan, you’ll start to feel better. Taking action on your worries  will improve the situation, even before the actual  problem is handled. That’s because our intention  tends to create movement in the right direction, which reduces resistance.  

This is a long list of financial “shoulds,” but it’s also a  realistic list. Notice that many of the items are about  perspective and process more than lack of income.  By living below your means, avoiding credit card  debt, taking lower term loans, saving, budgeting,  creating extra income if needed, purchasing wisely,  and maintaining what you have, you can live a  comfortable and financially stable life. There is  nothing so wearing on a person’s psyche than  financial troubles. So starting right now, look over  your finances and start creating a plan. 

USE FINANCIAL CONTROL TECHNIQUES 

∙ For instance, use the rapid credit card pay-off  strategy: If you have a lot of credit cards, for  instance, start paying extra on the highest  interest rate card. Once that’s paid off completely, roll all of that card’s payment into  the next highest rate card you have, and pay  that one off even faster! Then do the same for  the third highest card, which you may be able to  pay off in just a few payments.  

∙ Or the envelop spending control system: This is  a strategy for controlling variable expenses...the  WHY BOTHER? 

ones that vary from month to month and are  easy to lose track of. For instance, clothing,  groceries, and entertainment. Grab an envelope  for each of your variable spending categories.  Write the name of each category on the  envelopes. Look at your budget for each item  and write it on the front of the corresponding  envelope. 

Let’s say you have budgeted $500 a month for  groceries. When you receive your first paycheck  of the month, cash $250, and put the cash in  your groceries envelope. No money, zero,  comes out of the Groceries envelope except to  pay for food at the store. If you go food  shopping and leave the envelope at home by  mistake, turn the car around and go back to the  house to get it. Make sure to take enough  money to cover your groceries for that trip. If  you take $150 and you tally up a bill for $160,  take some things out of the cart. Don't  overspend. If you get change, put it back in the  envelope. When you get paid again, write  another $250 check. That’s your $500 for the  month for food. Repeat the process with each  envelop. 

Student debt, car debt, house debt, store debt, not enough income, disasters…all of these things equal pressure,  and no one likes to feel stressed. Stress makes it harder to live a happy life, to appreciate what you have. Getting  control of your finances, getting above water, will make you feel better about life than any number of luxury  purchases. And curiously, by feeling more in control financially, you may very likely start to see more financial  opportunity. 

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