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Red Flag! 8 Personal Finance Red Flags & What To Do If They Are Waving!

October 24, 2021

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8 FINANCIAL RED FLAGS

Here are 8 financial red flags to be on the lookout for in your life! 

1 – YOU DON’T HAVE A BUDGET

Flaming flag would be that you’re thinking: “what’s a budget?”

You need a budget, friend.

No, checking your statements or balancing your checkbook at the end of the month isn’t enough.

No, tracking your spending isn’t enough.

No, trying to “be good” or “spend less” or “save more” isn’t enough.

Yes – you need a written or digital plan for your money this month, this pay period, this week! 

Yes – it takes energy.

Yes – it is the single best thing you can do to win financially. 

Your budget should be: 

Realistic – in line with your current lifestyle – you aren’t spending $20 this month on food and we both know it. Don’t suddenly write a budget that is drastic and deprives you of the things that you love. 

Agreed Upon – if you live in partnership with another human being – they need to be agreeing to this budget! 

Written Down – it cannot exist only in your mind – on paper, in a spreadsheet, in a trusted app – it has to be written down, ideally before the month begins. If you are listening to this MID MONTH do not skip – write a budget for this month, taking into account what already came in and out of your wallet. 

Values Based – a budget that funds the categories that matter most to you is the single best way to feel good about budgeting and at peace with where your money is going. Head back to BONUS episode 5 for a detailed look at values based budgeting. 

4 things: Realistic, Agreed Upon, Written Down, and Values Based. 

2.  YOUR CREDIT CARD BALANCE MAKES YOU NERVOUS

Everyone has a different threshold for this but if your credit card balance makes you nervous, gives you that uneasy feeling in the pit of your stomach or is rising instead of falling month-after-month- it’s a red flag. 

The on fire flag would be if you don’t even know what your balance is right now – if you are scared to look – or if you know and you are refusing to address it, not paying extra and acting like your line of credit is never ending. 

If this is you: pull your credit report.

Check your credit card balances.

Create a plan to start feeling better about the balances.

Choose the debt snowball, the debt avalanche or some combination therein to start reducing your debt! 

3. YOU ARE ARGUING REGULARLY ABOUT MONEY

If you are consistently getting into little disagreements, arguments or full on fights with your partner about money, it’s a red flag. 

The on fire flag here is if the word divorce is flashing in your mind right now. 

Getting a handle on your money can be challenging.

Doing it in partnership is threefold. You have to create a plan. You have to compromise. You have to deal with an entire other human who has their own thoughts, plans, baggage, debts, systems and habits. 

If this is you: 

Start with a Money Meeting.

Click the show notes and download The Money Meeting Checklist. It walks you through a framework to structure your money meeting in a way that keeps it short, highlights how each of you is feeling, and gives you action items to run with going forward. 

4. YOU “CAN’T AFFORD” TO DONATE TO YOUR FAVORITE CHARITABLE ORGANIZATION

You want to give but you can’t swing it. 

You’d love to give more, to write checks, to attend the benefits, to be more involved and to be more generous but you “can’t afford it”. This is a symptom of one of two things: You don’t have a budget or your lifestyle has been creeping up on you.

If you don’t have a budget. See No. 1 – you need one! 

If your lifestyle has been creeping up on you and eating away at that tithing or giving category of your budget – it’s time to go back to the drawing board. If charitable giving is important to you, what can you skim, trim or cut out of your budget all together? 

5. YOUR FAMILY RELIES ON YOUR SALARY 

OK – you might be thinking – OF COURSE they rely on my salary… What I’m talking about here is that you don’t have a plan for if you were to become disabled or, heaven forbid, you were to die. 

You NEED life insurance. More specifically you need term life insurance that provides a benefit to your family of 10x your net income (or your take home pay). 

You NEED disability insurance. Both through your work, if they offer it, as this is often a good deal, but also a policy that you maintain on your own. Typically you can get long term disability insurance with a 180 day elimination period (that’s the amount of time before they start paying those benefits out) of 60% of your income.

In the 180 days before your long-term disability policy kicks in, you can use your emergency fund of 3-6 months of expenses to cover you. 

6. YOU KNOW YOUR CREDIT SCORE AND NOT YOUR NET WORTH 

Ouch. If this is you, don’t worry! Here’s what to do instead.

Calculate your net worth.

Take your assets (Everything you own) and subtract your liabilities (Everything you owe) = Your Net Worth… if it’s positive pat yourself on the back! If it’s negative, what can you do to reduce debt and increase assets to get in the black? 

Knowing your credit score isn’t inherently bad… just know it’s a score that measures your ability to borrow and pay back money, not a score that accurately reflects wealth. You could win the lottery and your net worth could increase by $10M and your credit score wouldn’t change! 

7. YOU HAVE NO IDEA WHEN YOU WILL BE ABLE TO RETIRE

How much do you have in retirement?

Is it invested well?

Is it earning good returns?

Are you maximizing your tax sheltered retirement options?

Are you leveraging your employer match?

How many more years until you are financially independent and ready to retire? 

You need a plan! You need to be saving for retirement! You need to have your finger on the pulse of this, my friend! 

8. YOU AREN’T TEACHING YOUR KIDS ABOUT MONEY 

They are watching from and learning from you whether you like it or not! Be intentional about teaching your kids where money comes from (work), how to save, how to spend, the joy that comes from giving, the power of compound interest and more! 

If this is you, and you have young kids (less than 7) start by giving them a job to do, a chore – clean up their bedroom, help with laundry, unload the dishwasher, clean the playroom and pay them a dollar. Put the dollar in a jar that’s clear, so they can see their crumbled up dollars build and build and then use them to buy a toy they’ve been wanting. Watch as they bloom and ask you for more and more jobs to do. For a few dollars a week you can start to create healthy habits with earning, saving, spending money in an age appropriate way! 

If you have older kids 8-14, they can work more and earn more. You can have them create envelopes for saving for long-term purchases, spending for pocket money and savings. 

When our kids are 13 we go to the bank and open a checking account with them. We practice saving in that account, balancing the checkbook, knowing the balance, writing checks for school field trips, addressing envelopes and mailing checks.

If you have teenagers, have them get a JOB where they are earning money from someone other than mom and dad. Help them to write up a monthly budget. Hold them accountable for keeping their checkbook balanced, paying their bills, putting gas in their car, whatever you decide is your kiddos responsibility. 

As they grow, teach them the things you wish you’d learned along the way. Tell them how credit works. Teach them how compound interest works. Open up an investment account and let them buy mutual funds or Disney or Apple stock and have the paper statements come to your house monthly. Watch the money grow. Watch them learn the power of compound interest. 

OK – there you have it 8 Financial Red Flags and what to do if each one of them is waving RED, warning you to change tack or take a look at what you’ve been doing in the past!

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