Money makes the world go round. Without it we struggle and become stressed. With it our world opens up. Opportunities are limitless. We thrive.
However, some people thrive more than others. Managing your finances isn’t always easy, especially if your life changes unexpectedly. Being able to survive the hard times makes the good times all the more sweet.
But how do you know you’re failing financially? It’s not always clear. Here we share 11 signs that show you may be facing financial trouble, and what you can do to avoid the pitfalls and maintain good financial wellbeing.
1. Non-existent budget
Being unable to stick to a budget can be devastating for your finances. Without knowing what you are spending in relation to what income you have coming in means you will be living month to month—unless you are a high earner where money isn’t an issue.
If you find it almost impossible to budget, there are now a number of free online platforms you can use to help track your spending. ASIC’s MoneySmart website has a handy online budgeting tool and a downloadable Excel spreadsheet to help get you started.
If you’d prefer not to use branded or online software, search within Excel itself to find their selection of ready-to-go budgeting templates, which may suit your needs better.
2. Inability to save
You know you should save, but for the life of you, you can’t remember the last time you deposited money into your savings account. And every time you think about savings a guilty feeling washes over you. No doubt, it is hard. Especially if you’re on a low income and just about make ends meet from month to month. And if you’re not in the habit of saving, it is hard to start.
Financial advisor and mortgage broker Nicole Heales of Nicole Heales Financial has a novel way of looking at saving money. “Not spending is a habit you can establish too. The easiest way is to turn it into a game. Try downloading one of the many smartphone apps designed to help you visualise your goals and make savings fun. Remember to set rewards for yourself when you hit targets–like your own personal bonus program.”
3. Maxed out credit cards
Credit cards are great if you’re able to pay off the balance at the end of each month. They’re even better if you can accrue frequent flyer points by using them, but if you have no means of paying them off every month it’s easy to spiral into a black hole of debt.
In December 2017, new statistics released by the Reserve Bank of Australia revealed credit card debt was the highest in 33 years, with the nation owing $52.9 billion on plastic. It’s not surprising considering Australia now has one of the highest costs of living in the world, yet wages have not increased to match this.
Jennifer McCain, a married mum of two from Sydney, managed to tot up $4,500 worth of debt using her credit cards. “I started out with one credit card. I had a limit of $1,500, which I managed to spend in a matter of months. Before I realised, I had maxed out both cards. It happened without me really noticing. I only paid the minimum amount each month, which didn’t help.”
If you’re drowning in credit card debt, try not to get too stressed; there are ways to deal with it.
Consolidate your debts onto a 0% balance transfer credit card, divide the outstanding balance over the time limit of your interest-free period and just pay it off. If you’re prone to missing the payment due date, tap into specialised tools offered by credit card providers which allow you to set a monthly automatic payment.
4. You keep using your overdraft
You know you’re in trouble if you end up being in the red each month. You think your overdraft is there to be used, why not use it?
Overdrafts are just another line of credit that you eventually have to pay back. On top of that, most banks charge a fee for going into your overdraft so it’s best to not use it unless you really have to.
Sally Bryans, a single woman in her 30s renting in Melbourne, used her overdraft one month when she was particularly stuck. “I honestly thought it would be for just one month. I had an unexpected bill–my car had to be fixed–and I had no other option but to use my overdraft. I wish I hadn’t. It was so hard to get out of. Because I dipped into it, my wages were already low the next month, but I couldn’t manage to figure out how to pay it off. Then I got charged $30 for each month I was in the red, which only added to the debt. It was a real worry at the time.
“I got lucky a few months later when I received my tax rebate, but I’m still not sure how I would have coped had I not received that cash boost.”
Instead of always going into your overdraft, be strict with yourself to get back on track. Make sure you have enough to pay your essential bills, like rent and utilities, for one month be strict with yourself so you avoid going into the red. Don’t buy anything unless it’s absolutely necessary. Once you’re back on track, start an emergency fund (separate to your savings). If you keep topping this up every month, eventually, when you run into problems you’ll have that to dip into rather than your overdraft.
5. Borrowing money from others
How many times in your twenties did you hear the line, “Can you lend me some money till next week?” You knew you’d hear it in Uni at least once a month from someone. Alarm bells should start to ring if you’re still tapping your mates on the shoulder for money in your late thirties.
Borrowing from others until payday is a vicious cycle that’s hard to escape–you can never get ahead of the game. Saying you’ll pay someone back when you get paid next month will just leave you short again and you’ll never be able to get in control of your finances.
Borrowing money from others can quickly become a habit. To break the cycle, as well as living incredibly frugally and cutting out whatever vices tend to drain your bank balance, you need to look at why you’re short every month. If it’s an income problem, you may have to think about taking on a second job, at least until you’re back on your feet. If you’re already on a decent income, are you living a life you can’t afford? Once you’ve identified the source of the problem it’s easier to make better financial decisions.
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6. You're a shopaholic
You know who you are. You can’t resist a browse online for the latest fashions, you “just HAVE to have” the latest trend, and if you’re in a slump you feel better by hitting the shops. But you’re broke.
“Spending money can be like a drug,” says psychologist Dr Louisa Hoey. “Spending stimulates the reward centres of the brain normally associated with addiction. It makes them feel good.” So when people say they feel better after a spot of retail therapy, they probably really do.
However, it’s not the best solution if you’re already finding it hard financially. It will only make things worse. It’s difficult to explain why people keep shopping even though they know it’s not a good idea. Dr Hoey says, “It’s similar to why people keep eating when they are overweight and suffer from diabetes or heart disease. They’re driven by compulsion or an underlying cause that needs to be addressed.”
Dig deep and figure out why you’re spending. Is it something you can pinpoint? If you shop because it makes you feel better, try to fill that time with something else like exercise. If you’re prone to splurging online, block shopping sites on your computer and when you’re tempted to shop head out for a run or to the gym instead.
7. You love the ‘buy now–pay later’ deals
It seemed like a great deal at the time. How else could you afford a brand new 50 inch screen television?
Now you have the fancy flat screen and signed up for the ‘pay later’ deal, you realise you may not have the money to pay for the TV at the end of the deal’s timeframe. That’s where the companies make their money. Few people have the cash to pay off the entire amount once the 0% interest period is over. The interest rate hikes up, you can’t pay off the full amount and you’re locked into another debt paying the bare minimum every month. And the company makes more money from you in the long run. Deals are incredibly enticing, but it’s best to only buy what you can afford upfront.
If you’re tempted by a deal, work out exactly how much the repayments are so you pay off the product within the interest free period. If you can’t afford the repayments, don’t take the deal. Wait until you have the money to buy the product outright.
8. Selling your assets to raise cash
Sometimes getting into debt happens much too easily and the only way out is to sell whatever you can to make ends meet.
Katherine Kay, a 40-year-old account manager from Melbourne, got into debt after contracting Glandular Fever early in 2017. She was unable to work for a number of months and had to dip into her overdraft and use credit cards to pay bills and rent. “I was off sick for seven months. I had no family support in Australia and no partner to fall back on. I had already used all my savings and because I’m a Kiwi I don’t qualify for benefits in Australia. It meant I had to sell anything I owned that was worth anything.
“I sold my good SLR camera and all the lenses, my iPod, my stereo, clothes, shoes and two thirds of my furniture. That helped keep me buoyant for a while but I eventually had nothing to pay my rent and received eviction notices. It was an unbelievably stressful time and one I don’t want to ever have to repeat. I got pretty close to having to move to the UK to live with family. Thankfully, my health came good and I managed to do some temp work to get back on my feet.”
Selling your assets to pay off debts is pretty savvy to begin with, but if you have savings or an emergency fund in place you may be able to keep hold of some of your belongings.
9. You are forced to move back in with family
It’s most people’s worst nightmare after having savoured the freedom of living out of home, but sometimes it’s got to be done. The only way you can claw your way out of debt is to move back in with your parents.
As long as you have a decent relationship with your parents, it may not be all that bad. In fact, due to rising house prices in Australia there’s a growing trend of young people moving back in with their parents to be able to save money for a house deposit.
In a recent interview, Head of home loans at ME bank Patrick Nolan said saving on rent was the biggest benefit of living at home. “Even with the strictest savings plan, the cost of living, steep rent, higher education and rising property prices can continually push the goal posts further out.” he said.
“Living at home can be a smart way to reduced expenses and accelerating your savings.”
If you’re not that fond of the idea of moving back in with the parentals, start budgeting and saving now so you don’t find yourself on the slippery slope to your old front door. Check out some of the tips mentioned in this article.
10. You've been threatened by the bailiffs
There are few things that conjure fear like the threat of the bailiffs landing on your doorstep. It’s enough to keep most people on the straight and narrow financial path. Yet some people just can’t do it. They get into debt and for one reason or another get so deep that there’s no other way out but for the authorities to command possession of their belongings.
“It was and still is one of the scariest, and low, moments of my life.” says Ellie Bray. Bray, now in her 40s and a homeowner, had a good job, but spent way beyond her means. “After gathering a grand collection of credit cards that I couldn’t pay off, the bailiffs came to my house. I had tried to reason with them at the council but they said they couldn’t do anything once the notice had been served. I was sharing a house at the time and I didn’t realise until the bailiffs told me that unless I could prove the goods in the house belonged to my flatmate, they were legally obliged to take anything of worth from the premises. They said all goods would be sold to recoup my debts. I had over $15,000 of debt at this point.”
Bray continues, “They were actually much nicer than I expected and helped organise a payment plan. They also told me to contact all my creditors and arrange some way of paying off my debts. They went away without taking anything, but I had to follow up what I was doing to rearrange my finances, and I still had to pay them what I owed them. I had a different view of bailiffs after my experience.”
Having debt collectors call to your house really is a nightmare scenario. Before calling at your house they will first have to send letters or call you. If possible, arrange a payment plan when they first make contact. Ignoring letters and calls won’t make them go away. The only way to tackle this is head on. If you’re unable to make payments on a debt you owe, seek free legal advice.
11. Involuntary bankruptcy is looming
Defaulting on payments to your creditors on a regular basis will inevitably result in them chasing payment by whatever means necessary. You’ve had your threatening letters, yet you’re still not in the position financially to be able to pay. In this instance, your creditors may serve you a bankruptcy notice, or a formal demand for payment. This means bankruptcy proceedings are underway.
According to the Australian Financial Security Authority, “You have 21 days from the day you receive the notice to come to an agreement with your creditor.” And if you can’t reach an agreement, “Your creditors can make you bankrupt by order of the court.”
If you do get made bankrupt you will lose your possessions, including your house. The only goods you can keep are those relating to your work i.e. van and household necessities for you and your family.
If you’ve been served a bankruptcy notice, you may still be able to avoid it. Speak to your creditors directly to see if a payment plan can be arranged, and seek legal counsel, which is available in every state and territory in Australia.
The best way to avoid getting into trouble financially is to monitor your income and expenditure. Don’t buy things you don’t need and live within your means. If you find yourself sliding down the familiar slippery slope to debt, stop spending and talk to a financial advisor. Once you recognise the signs of financial trouble, it’s easier to keep from falling into old ways.