Are You Financially Healthy?

By Lance Spicer

How “financially healthy” are you? You may already know the bad news, or perhaps things aren't quite as bad as they seem.

When was the last time you sat down surrounded by all your personal and financial documents and took stock of your overall financial situation, including reviewing your spending, savings, future goals, and insurance? ……..Oh dear, that often? If you're like most people, you've either never done this exercise or did so a long time ago.

Financial problems, like many medical problems, are best detected early (healthy living doesn't hurt, either). Here are some common personal financial problems:

Not planning

Human beings were born to procrastinate. That's why there are deadlines — and deadline extensions. With your finances, unfortunately, you have no deadlines, and you may think you have unlimited extensions! You can allow your credit card debt to accumulate or leave your savings sitting in lousy investments for years. You can pay higher taxes, leave gaps in your retirement and insurance coverage, and overpay for financial products. Of course, planning your finances isn't as much fun as planning a holiday, but doing the former will help you take more of the latter.

Overspending

The average Australian saves less than 5 percent of his or her after-tax income (in contrast to those in other industrialized countries, where the savings rate is two to three times that in Australia). We simply have the art of saving and focus to often of “now” and forget about the “future”. Simple arithmetic helps you determine that savings are the difference between what you earn and what you spend (assuming you're not spending more than you're earning!). To increase your savings, you either have to work more (yuck!), know a wealthy family who wants to leave its fortune to you, or spend less. For most people, the “spend less’ option is the key to building savings and wealth.

Buying with credit

Even with the benefit of today's lower interest rates, carrying a balance month-to-month on your credit card or buying a car on credit means that even more of your future earnings are earmarked for debt repayment. Buying on credit encourages you to spend more than you can really afford.

Delaying saving for retirement

Most people say they want to retire by their mid-60s or sooner. But in order to accomplish this financially, most people need to save a reasonable chunk (around 10 percent) of their incomes starting sooner rather than later. The longer you wait to start saving for retirement, the harder it will be to reach your goal. And you'll pay much more in taxes to boot if you don't take advantage of the tax benefits achieved by investing through particular retirement accounts.

Falling prey to financial sales pitches

Great deals that can't wait for a little reflection or a second opinion are often disasters waiting to happen. A sucker may be born every minute, but a slick salesperson is born every second! Steer clear of people who pressure you to make decisions, promise high investment returns (read my Scams and Frauds book and you’ll see what I mean), and lack the proper training and experience to help you.

Not doing your homework   

To get the best deal, you need to shop around, read reviews, and get advice from objective third parties. You need to check references and track records so you don't hire incompetent, self-serving, or fraudulent financial advisers. But with all the different financial products available, making informed financial decisions has become an overwhelming task.

Making decisions based on emotion

You are most vulnerable to making the wrong moves financially after a major life change (a job loss or divorce, for example) or when you feel under pressure. Maybe your investments have plunged in value. Or perhaps a recent divorce has you fearing that you won't be able to afford to retire when you had planned, so you pour thousands of dollars into some risky investment or worse. Take your time and keep your emotions out of the picture.

Not separating the wheat from the chaff

In any field in which you're not an expert, you run the danger of following the advice of someone who you think is an expert but really isn't. If you look in the mirror, you'll see the person who is best able to manage your personal finances. Educate and trust yourself!

Exposing yourself to Catastrophic Risk

You're vulnerable if you or your family don't have insurance to pay for financially devastating losses. People without a savings reserve and a support network can end up homeless. Many people lack sufficient insurance coverage to replace their income or home if something goes wrong. Don't wait for a tragedy to strike to learn whether you have the right insurance coverage.

In addition to the common problems described above there are some elementary causes of money problems that effect most people at some time of their life. Quite often, when you come across a person with money problems you will be able to identify at least one of the following as their problem, sometimes all five will afflict them. They are:

1.  Poor Financial Skills

2.  Poor Financial Attitudes

3.  Unexpected Emergencies

4.  Frauds and Ripoffs

5.  Insufficient Income

Poor Financial Skills

The number one reason for money problems is poor financial skills. Unfortunately, Australia is a nation of financial illiterates. Many students finish high school and university unable to even balance a cheque account. 

It's no wonder. In both high school and university, the typical student never attends a single course in personal finance. How are they supposed to learn?

The Internet has a wealth of materials to develop your new money skills.

Poor Financial Attitudes

There is also a stigma about money. You aren't supposed to ask for help or advice. If one fails to manage money properly, starts getting overdue notices, or has to file bankruptcy, these people think that they have somehow failed as a person.

That's ridiculous! Many great people with awesome talent in other areas failed to manage money properly.

Many people become so lost in obtaining more possessions that they spend every penny they make. I've seen this in all walks of life from single mums to successful surgeons who earned a half million dollars a year.

More possessions are not the answer they are usually the problem.

Another common poor attitude about money is the belief that money management is too complex. People think, "It's just so difficult and I'm no good at dealing with money. It's no use to even try."

In reality, basic money management is pretty simple. Hopefully this book will get you started.

Unexpected Emergencies

Unexpected emergencies are also a contributing factor in many money problems.

In reality, these problems usually occur because the individual has no funds set aside for emergencies.

Emergencies will occur, expect them to come along. At some time in the future, you will face an unexpected major expense. This might be a fridge or air conditioner repair, a new roof, a car breakdown, or a medical expense.

For people who live week to week, these emergencies can and do create serious financial problems.

The way to overcome them is to save for them in advance. You should have about three months salary saved and in a location that you can access quickly should you need extra funds.

Personally, I keep a little less than this in bank accounts, but I have substantially more in shares, which can be tapped for emergency use with about 2-3 days notice.

Frauds and Ripoffs

Another major cause of financial problems are frauds and ripoffs. My book Scams and Frauds – Financial Crime Exposed will reveal just how people lose money to a whole range of clever schemes. I reveal over 200 common frauds.

Insufficient Income

Finally, money problems result from insufficient income. Sadly, this is the case for millions of families, but many people who think they have insufficient income actually have money problems because of poor financial skills and attitudes.

Review your situation.

Do you have good money skills? Do you have great money attitudes? If not, now is the time to change. My book, “Financial Crisis – How to avoid Financial Disaster” describes exactly how people get into great financial mess and to get out of it, and better still how to avoid it. I talk about budgeting, spending habits, investing, how to cope with stock market crashes and how to make money from them, how to make money in a “bear” market, money and asset protect strategies for your family, where exactly to invest your money for good times and bad and some great tips for the future that will ensure you are wealthy later in life. It is currently available from my website at http://www.tridentpress.com.au/category8_1.htm or by ringing us here on 02 95430406.