Managing money is an incredibly important life skill. Whether you make $40,000 a year or $400,000, how well you take care of your finances is critical to your well-being. It’s common for people to make a comfortable living yet live paycheck to paycheck. In fact, a 2018 Harris Poll survey found that over 50% of Americans have experienced some sort of financial stress recently. If you’re one of them, there’s a good chance that your money management skills are a key contributor to your financial anxiety.
Here are five signs you’re a poor money manager.
1. You Don’t have a Budget
The best way to keep your finances in order is to have a plan for how to save, spend, and invest your money. However, few actually take the time to make a household budget. A U.S. Bank study indicated that fewer than half of all Americans actually have a budget. Moreover, many of the people that actually take the time to create a budget don’t end up following it later on. Instead, most Americans budget their money from day to day, by the seat of their pants. If you don’t have a real budget, you won’t be able to avoid financial risks, and you won’t be able to take advantage of fleeting opportunities to save or invest. This is a clear sign that you’re not managing your money effectively.
2. You Have a Low Credit Score
One of the best ways to determine if you’re managing your money effectively is to check your credit score. The credit bureaus use several factors to compute a credit score, including how well you pay your bills, the amount of debt you have, and how often you apply for new credit. Nearly one-third of Americans have a credit score below 601, the dividing line between fair and bad credit. If you’re one of them, it’s a strong indicator that you should be paying closer attention to how you’re managing your money.
3. You Rely Heavily on Debt
How often do you use debt to get you through the month? Most Americans rely heavily on credit cards; the average household credit card debt carried each month is about $16,000. Heavy use of credit cards can be an indicator of many things. It could signal that you’re living beyond your means and need to adjust your spending to reflect what you earn each month. It could also be a sign that you need to be more disciplined with your spending by limiting spur of the moment purchases. However, most of all, heavy debt use indicates that you’re not managing your finances as well as you need to.
4. You Aren’t Ready for the Unexpected
What happens if your car breaks down tomorrow and needs repair, or your home’s HVAC system needs to be replaced? Do you have the funds on hand to deal with these emergencies? Many Americans unfortunately do not. Only about 40% have $1,000 or more in the bank to deal with an unexpected financial expense. When the unforeseen occurs, many have to rely upon credit cards or wait until they enough funds on hand to make a major repair. Therefore, if you’re not ready right now to deal with an urgent and unexpected expense, it’s a clear sign that you need to manage your money more effectively.
5. You’re Racking Up Overdraft and Late Fees
Are you constantly paying your bills late, often with penalty fees? Do you rely heavily upon your checking account’s overdraft protection to get you through each month? If so, these are clear indicators that you aren’t managing your money that well. Paying bills late can destroy your credit rating and make it difficult to gain access to loans for critical life purchases, such as a home or a new car. Additionally, heavy use of overdraft indicates that you’re not monitoring your spending closely enough and need to assume greater control over your money habits. If you’re managing your money well, you should be paying your bills on time and have the funds on hand in your checking account to avoid using overdraft protection.
Get Help with Managing Your Finances More Effectively
If you’re guilty of one or more of these five money management errors, not all is lost. You can improve your financial habits and get the most out of the money you make each month. However, it can be difficult to get on the right track by yourself, so get some help. Try to find a trusted financial advisor such as an accountant to help you set a clear budget, so you can save, spend, and invest more effectively. Additionally, you should seek out the help of a credit counselor if you’re deeply in debt and don’t know how to begin paying off your credit cards. Finally, if you’d like to avoid the pitfalls of poor money management, consider the 10 tips in this video as well.
In any case, if you believe that you’re a poor money manager, start taking all the necessary steps to get control of your finances as soon as possible!