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We all want to keep ourselves from a financial ruin. For some people though, this is easier said than done. They have immersed themselves in so much debt and other financial obligations that it is difficult for them to establish a long lasting financial security.
An article in LA Times that was published almost a year ago (Jan 30, 2013), discussed a study that revealed distressing news about the average American household’s finances. The article published in the LATimes.com revealed that 44% of households are in a financial situation that makes them vulnerable to be in a financial crisis. If one emergency happens, their financial standing will come crashing down on them.
The article explained that a financial ruin is when a household does not have enough to spend on their basic needs - at least enough to cover three months. In case someone gets sick or requires an unforeseen expense, they will not have any money to avoid a crisis from happening. The study also reveals that one third of Americans in early 2013 does not even have a savings account. This lack of financial security is even more dangerous in light of the fact that a huge percentage of households have some form of debt. It could be on mortgages, student loans, credit cards and auto loans. These are the usual debts that consumers have to pay off. With a lot of them living from paycheck to paycheck, you can just imagine how one additional expense that is unexpected could tip them over the edge.
8 habits that will keep you from ruining your financial situation
Staying out of a financial ruin does not only require preparation, it also requires you to practice the right habits that will keep it at bay. Sometimes, preparing to survive a financial crisis is unnecessary if you learn how to prevent it in the first place.
In most cases, people actually know what is wrong. However, a lot of us refuse to face up to the music. We ignore the problem while it is brewing. The only time that we acknowledge it is when it is already too late - we are already in so much trouble.
To help you avoid this, here are 8 habits that will keep you from ruining your financial situation.
Not relying on a future paycheck. Debt happens because you are relying on a future income that may or may not come. You have to be very careful of this mentality. Whenever you use your credit card, that is what you are doing. The needs of today are financed by your future income. This is a mindset that has to change if you really want to avoid the devastating effects of too much debt.
Keeping your bills organized and paid on time. A study shows that paying the bills is one of the top financial concerns of American household. That means this is a staple item in your life. To keep yourself from being late on your payments, you need to keep your bills organized. Know when every account is due and try to set up a system that will help remind you of your obligations. One of the signs you are nearing a financial crisis is when you always have late penalty charges on your bill and you can’t seem to keep up with your payments anymore.
Limiting your credit card accounts. When you have too many credit cards, any of the two habits mentioned above will be developed. If you wish to keep yourself from depleting your income even before it arrives, you have to use your credit card in moderation. When you have more cards than you can count, organizing the bills and tracking all of their due dates will take too much effort. Managing multiple credit cards without ending in debt is more work than you imagine. Keep only the card that you really need. You do not need store cards for every establishment that you visit. That is a quick way to end up in a financial ruin.
Avoiding overdraft fees. When you are withdrawing more money on your checking account than what is allowed, you are setting yourself up for financial failure. Make is a habit to avoid incurring overdraft fees so you will not waste your money paying it off. It is bad enough that you almost have nothing left after all the financial obligations are met. When you include all of these unnecessary fees, you will be throwing away money that could have gone to more important expenses.
Discussing money matters with your partner in a peaceful way. Money is one of the leading causes of conflict between couples. Do not let financial ruin destroy your relationships. DIscuss money problems before they become out of hand. Make sure that you are both honest with your financial habits. There is such a thing as financial infidelity that can lead to the destruction of trust between you and your partner. Communication is the key to keep this from happening.
Securing your retirement money. One of the best ways to reward yourself is to keep your retirement money intact. Regardless of the situation, you need to avoid using this fund unless it is a matter of life and death. There are penalty charges and double tax payments that will waste your money. Look for other options before you consider using this fund.
Refraining from using the equity of your home. Your house builds up equity over time. As you pay the mortgage off and as the value of the land increases, you will be tempted to borrow against your home to finance the debt payments that you can no longer afford. Try not to do this unless you have no other choice. Your home’s equity can be a source of emergency resources but it should never be your first option. When all else fails, having a home is one of the things that will keep your from falling over the edge of financial ruin.
Growing your savings. Your savings will help you get out of the unexpected expenses that will almost inevitably happen in your life. Financial security happens when you can go through an emergency without fear because you know that you do not need to borrow money just to finance it.
Combine all of these to keep financial ruin from hurting your future. The rewards of that will be a stress free present and comfortable future for you and your family.
Key to survive a financial crisis
There are many things that you can do to keep yourself from a financial crisis. What you need begin with is to grow a sizable amount of emergency fund to ensure that you will not be left wanting when you need it the most.
Bankrate.com conducted a study back in June 2013 regarding the financial security of American households. It revealed the following statistics.
27% of respondents do not have any emergency savings. 23% have less than three months saved, 21% have 3 to 5 months saved and 24% have enough to cover at least 6 months worth of household expenses.
55% of women respondents have less than 3 months of emergency funds compared to 45% of men.
32% of respondents feel less comfortable about their savings - compared to a year ago.
54% feel that they did not improve their net worth compared to the previous 12 months.
For 49% of the respondents, they feel that their overall financial condition is about the same as a year ago.
Based on these statistics, we still have a long way to go to keep ourselves from a financial ruin. You have to act now to improve your financial situation because if not, it could be too late for you. The financial situation that you are in right now will only get worse if you let it unravel on its own.
Here is a video from National Debt Relief that we hope can help you get started on your emergency fund.