3 Warning Signs: You’re Adding Too Much Debt
When it comes to personal finances, are you reactive or proactive?
Most of us tend to be reactive to a crisis, and don’t take preemptive action to address a potential issue. By assessing possible risks before they occur, you’re more likely to create a plan and lessen the impact of a financial problem.
Here are a few scenarios to consider, and reactive/proactive approaches for each one.
Injury
You have an injury that affects your ability to work.
Proactive: Prepare for this event by building an emergency fund of at least 3-6 months of expenses, which enables you to sustain your lifestyle if you can’t work for a period of time.
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Reactive: Without an emergency fund, you must consider other options: do you have any savings, family support, or access to retirement savings? If the injury from a car accident in a company car wasn’t your fault, you call a company vehicle accident attorney for legal advice.
How About Insurance?
Proactive: Speak with an insurance agent, so that you understand your insurance coverage, including the dollar amount of coverage for life, health, and care insurance.
Reactive: If you don’t understand your insurance policy and the coverage amounts, you can’t determine if your need more coverage to be protected in the event of an accident. In the short term, you can make use of your emergency fund to help with financial support- but that doesn’t solve the long-term problem of an injury or illness.
Issues of Divorce
In the US, 40% to 50% of marriages end in divorce, and divorce can have a serious financial impact on both spouses.
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You may not see a divorce coming, but it could leave you without a partner and in debt.
Proactive: Many couple write a prenuptial agreement to avoid the potential of future losses in the event you separate later in life. You could argue this ruins romance, but divorces are common.
Reactive: Facing the loss of your partner’s income in your financial planning, you may simply panic.
A Plan
Here are some steps you can consider, in order to avoid the scenarios listed above:
• Create a budget, even if that budget is simply on notebook paper. If you’re more of a tech person, you can find some great mobile apps to create a budget.
• Separate your expenses between fixed and variable, and take a hard look at your variable spending.
• Take steps to cut your variable expenses each month and put the amount you save into a separate savings account.
This is a starting point to get your finances back on track.
Change is hard
The reason that people don’t diet, don’t exercise, and don’t resolve bad personal relationships is that change is hard. As a result, we don’t really, truly change and grow unless we’re in real pain. When we’re at that point, the pain of change is less severe than that pain of not changing.
Discipline and time
With discipline and time, I think most people can accumulate far more wealth than they think is possible. But growing wealth requires change- which is precisely why most people don’t make the effort.
You can do it!
This post is for educational purposes only.
Ken Boyd
Author: Cost Accounting for Dummies, Accounting All-In-One for Dummies, The CPA Exam for Dummies and 1,001 Accounting Questions for Dummies
Co-Founder: accountinged.com
(email) ken@stltest.net
(website and blog) http://www.accountingaccidentally.com/
(you tube channel) kenboydstl
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