SMART MONEY SERIES:
In managing finances, things may not go as well as you have planned. So it is important that we should look out for warning signs that should trigger us to seek help.
IN our last article, we learned how to manage our cash flow effectively. However, there may be times when things don't go as well as we've planned. It's important that we look out for warning signs if we need help in managing our finances, particularly our debts.
Below are some indicators that should trigger us to seek help in managing our finances:
Frequent arguments over money
If you are arguing with your spouse frequently over money, then it's a sure sign that you are facing some financial difficulties. If this financial problem is not addressed promptly, it may lead to other marital problems and could result in a divorce.
High debt-to-income ratio
As a rule of thumb, we should limit all our debt obligations to about one-third of our take-home income (generally defined as gross income less EPF, tax and Socso deductions).
If our take-home pay is RM3,000 per month, then our housing plus car loan repayments (including other loans, if any) should not exceed RM1,000 per month. It's not surprising to find many families having a Debt-to-Income Ratio of more than 50 per cent. This would mean that they'd have less than half of their income left for basic living and child expenses.
What about those occasional holidays, gifts, outside dining and entertainment expenditures?
Most likely, they'd be forced into taking on more debt through credit card or personal loans. This will result in a vicious cycle and will only get us deeper and deeper into the debt trap!
Maxing out on credit limits
As a result of the above, that is, when an increasing percentage of our income is used to pay off debts, we would rely on credit cards.
If you notice that your credit balance is increasing each month, this would be another warning signal.
If left unchecked, you'd most likely hit the limit very soon and then start maxing out on the second and third card. Before you know it, you find yourself drowning in a pool of debt.
That's when your "good friend", Ah Long, will throw you a "float" to "save" you, not realising that this "float" of theirs is filled with rocks that will weigh you deeper down into the drowning pool of debt.
Paying the minimum only
Another tell-tale sign is when you start paying only the minimum of five per cent on your credit card balances. The balance would normally attract a finance charge of 1.5 per cent per month or 18 per cent per annum.
For example, if you have an outstanding balance of RM1,000 and decided to only pay the minimum of five per cent or RM50, whichever is greater, the amount of interest charged to you in the first month is about RM14.25.
You might not think of this as a lot but do you realise that if you continue this payment pattern, it'll take two years for you to fully settle your initial balance of RM1,000. The total interest incurred would amount to about RM173.
Imagine if the amount is RM10,000 -- it will take you more than seven years to repay and your total interest incurred would come up to RM3,740.
Of course, these numbers assume that you do not add-on to your present balance, but how can you be sure it will not happen? Yes... only if you cut your cards immediately!
Always late in settling bills
We are so used to the saying, "Better Late than Never!" However, when it comes to paying our bills, this is not a good sign!
Of course, we do not need to settle our bills immediately when we receive them but they should be settled by their due dates. If we are chronically late in paying our bills up to a point where late payment penalties are imposed, we need to re-examine our finances.
We don't want to end up in a situation where our electricity and water supply and telephone lines are cut or our cars are repossessed.
So, if we are a little behind most of the time, it's time to get behind the numbers!
Lots of IOUs
If we realise that more and more of our relatives and friends are avoiding us, most likely it's not because we've not bathed for a week!
Very likely, we have been borrowing money from them and have stacks of "I Owe yoUs" in our drawer!
Another early warning sign is when we tend to borrow to purchase things that we used to pay for in cash. This is an unhealthy sign and we not only lose control over our money but also our friends and relatives.
Sleepless nights
This is also known as the "Sleep Test". Can you sleep well at night or are you having sleepless nights thinking about your money problems?
In fact, the more you think about your money problems, the more money problems you would encounter.
Your mind attracts the things you think about most and we should focus on the solutions rather than the problems. And one way is to seek financial counselling and get started on a well-designed debt management programme.
This is not something that we can "sleep over" and hope that every thing will be fine tomorrow. We have to take action now!
If you do encounter any one or more of these warning signs, you should seek immediate help in getting your financial fitness back in shape.
Source : AKPK
Related post:
Shop smart for the festivals
Resolutions to stay financially fit
Smart ways to spend your bonus
Spend smart during holidays
No problem$ if you plan well
In managing finances, things may not go as well as you have planned. So it is important that we should look out for warning signs that should trigger us to seek help.
IN our last article, we learned how to manage our cash flow effectively. However, there may be times when things don't go as well as we've planned. It's important that we look out for warning signs if we need help in managing our finances, particularly our debts.
Below are some indicators that should trigger us to seek help in managing our finances:
Frequent arguments over money
If you are arguing with your spouse frequently over money, then it's a sure sign that you are facing some financial difficulties. If this financial problem is not addressed promptly, it may lead to other marital problems and could result in a divorce.
High debt-to-income ratio
As a rule of thumb, we should limit all our debt obligations to about one-third of our take-home income (generally defined as gross income less EPF, tax and Socso deductions).
If our take-home pay is RM3,000 per month, then our housing plus car loan repayments (including other loans, if any) should not exceed RM1,000 per month. It's not surprising to find many families having a Debt-to-Income Ratio of more than 50 per cent. This would mean that they'd have less than half of their income left for basic living and child expenses.
What about those occasional holidays, gifts, outside dining and entertainment expenditures?
Most likely, they'd be forced into taking on more debt through credit card or personal loans. This will result in a vicious cycle and will only get us deeper and deeper into the debt trap!
Maxing out on credit limits
As a result of the above, that is, when an increasing percentage of our income is used to pay off debts, we would rely on credit cards.
If you notice that your credit balance is increasing each month, this would be another warning signal.
If left unchecked, you'd most likely hit the limit very soon and then start maxing out on the second and third card. Before you know it, you find yourself drowning in a pool of debt.
That's when your "good friend", Ah Long, will throw you a "float" to "save" you, not realising that this "float" of theirs is filled with rocks that will weigh you deeper down into the drowning pool of debt.
Paying the minimum only
Another tell-tale sign is when you start paying only the minimum of five per cent on your credit card balances. The balance would normally attract a finance charge of 1.5 per cent per month or 18 per cent per annum.
For example, if you have an outstanding balance of RM1,000 and decided to only pay the minimum of five per cent or RM50, whichever is greater, the amount of interest charged to you in the first month is about RM14.25.
You might not think of this as a lot but do you realise that if you continue this payment pattern, it'll take two years for you to fully settle your initial balance of RM1,000. The total interest incurred would amount to about RM173.
Imagine if the amount is RM10,000 -- it will take you more than seven years to repay and your total interest incurred would come up to RM3,740.
Of course, these numbers assume that you do not add-on to your present balance, but how can you be sure it will not happen? Yes... only if you cut your cards immediately!
Always late in settling bills
We are so used to the saying, "Better Late than Never!" However, when it comes to paying our bills, this is not a good sign!
Of course, we do not need to settle our bills immediately when we receive them but they should be settled by their due dates. If we are chronically late in paying our bills up to a point where late payment penalties are imposed, we need to re-examine our finances.
We don't want to end up in a situation where our electricity and water supply and telephone lines are cut or our cars are repossessed.
So, if we are a little behind most of the time, it's time to get behind the numbers!
Lots of IOUs
If we realise that more and more of our relatives and friends are avoiding us, most likely it's not because we've not bathed for a week!
Very likely, we have been borrowing money from them and have stacks of "I Owe yoUs" in our drawer!
Another early warning sign is when we tend to borrow to purchase things that we used to pay for in cash. This is an unhealthy sign and we not only lose control over our money but also our friends and relatives.
Sleepless nights
This is also known as the "Sleep Test". Can you sleep well at night or are you having sleepless nights thinking about your money problems?
In fact, the more you think about your money problems, the more money problems you would encounter.
Your mind attracts the things you think about most and we should focus on the solutions rather than the problems. And one way is to seek financial counselling and get started on a well-designed debt management programme.
This is not something that we can "sleep over" and hope that every thing will be fine tomorrow. We have to take action now!
If you do encounter any one or more of these warning signs, you should seek immediate help in getting your financial fitness back in shape.
Source : AKPK
Related post:
Shop smart for the festivals
Resolutions to stay financially fit
Smart ways to spend your bonus
Spend smart during holidays
No problem$ if you plan well
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