Here is a list of signs that indicate someone is likely to be poor in the future. If any of these apply to you, it might want to consider making some changes.
10. The only type of CDs you know about play music.
Not understanding basic investment tools is one sure sign that you will mismanage your finances. This is especially true because a basic financial education is so readily accessible on websites, through library books, etc.
9. Your bank account balance goes down each month.
You don’t need any fancy charts to see if your net worth is improving or decaying. If you usually have less money in your accounts each month then your lifestyle is not sustainable on your current income. You’ll have to change something to keep from running out of money. Until you make some significant changes, you will continue to become poorer.
8. You carry a balance on your credit cards.
Normal interest rates on credit cards are extremely high. If you are willing to pay 20% in interest each month, it is very unlikely that you’ll make wise financial decisions in other areas. Even if you do, the amount you are paying in interest is likely to offset any gains in other areas.
7. You leave money on the table.
Not participating in an employer matched retirement plan is one way people leave money on the table. Health savings plans and other tax savings setups are other opportunities you shouldn’t overlook. If you regularly skip over opportunities to get free money you are unlikely to do well financially.
6. You look forward to getting a large tax refund.
A large tax refund usually means you didn’t plan ahead correctly. Any extra money you gave the government is basically an interest free loan. If you plan correctly your refund should be very small or you should have to pay a small amount.
5. You notice the “cost per month” price on items.
If the first price you notice on a new item, is the cost per month you aren’t thinking like a financially responsible person. This is especially true on items that you shouldn’t borrow money to purchase like consumer electronics. For items like a car or house, you should make sure you can make the payments, but your starting point for determining if something is worth the cost or not should be the price not the payment.
4. Social Security is your retirement plan.
Social Security may still be around when you retire. It can offer some nice life insurance style benefits right now, but if your entire retirement plan is based on Social Security you aren’t thinking like a financially responsible individual. If this describes you, I’d suggest you immediately sit down and see what your projected SS benefit will be and decide if you can live off that amount. And don’t forget to calculate in 6% inflation which means $100 today will only have the purchasing power of $96 next year and so on. If you were to get fired today, you would be broke in two weeks.
3. Your bank fees each month are more than any interest you earn.
This is similar to leaving money on the table. Financially responsible people pay attention to bank fees. If you are being charged $10 per month by your bank you should know why and you should have a plan for making that charge go away. Banks should be paying you for the privilege of keeping your money, not the other way around.
2. Your retirement plan projects receiving large inheritance.
If your parents or a relative leave you a large amount of money when they die that is great. However if that is your financial plan you may be in for some disappointment. First, if they are truly wealthy they are probably going to be more interested in leaving their money to someone who displays financial responsibility. Second, they may find other uses for their money. It isn’t uncommon for someone to spend their life savings on healthcare costs at the end of their life. With some of the newer technology being developed, it may be possible for people to increase their lifespan but at a very great expense. Don’t count on that money being there.
1. Your wheels cost more than your car.
It doesn’t just have to be the wheels on your car. Any time your financial priorities are out of balance it is a pretty sure sign you aren’t going to acquire any wealth. Other examples include: Your video game collection is the largest portion of your net worth. You don’t have any money to repair your car, but you a new plasma television.
Good management of your finances can have one of the biggest impacts on your productivity because it determines how efficient you convert your time into money into the things you need. On Wednesdays we are discussing the financial aspect of productivity. Watch for more financial posts in the future.