5 Key Signs You Might Be Poor by the End of 2024
It’s easy to feel financially comfortable if you have a steady paycheck, you’re making ends meet and you’ve got a decent standard of living. But financial distress sometimes has a way of sneaking up without you realizing until it’s too late. In a matter of just a few months, you could find yourself in a surprisingly poor financial situation.
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There are a few telltale signs that could indicate you might be headed for financial hardship if you’re not careful. If you’re aware of these risks, you can be proactive about keeping your financial stability through the end of the year and beyond.
You Don’t Have an Emergency Fund
One of the most fundamental pillars of financial stability is being able to cover unexpected costs. Without an emergency fund, even a relatively minor expense like a car repair or medical bill could send you into debt. As a general rule of thumb, you should have enough cash set aside to cover three to six months’ worth of living expenses.
“An emergency fund is the first step to financial wellness,” said Mark Henry, founder and CEO of Alloy Wealth Management. “If you don’t have an emergency fund and don’t prioritize building one as soon as possible, there’s a good chance you’ll be in debt by the end of the year. No one is immune to unexpected expenses. If you aren’t hit by one this year, you probably will be eventually. Without an emergency fund, you’ll have to take out a loan or use a credit card to cover the first surprise medical bill or car repair, which often leads to high-interest debt that will eat away at your finances and force you to repeat the cycle.”
Building an emergency fund should be your top priority to protect yourself from a disaster that could completely derail your finances.
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You Carry a Balance on Your Credit Cards
Credit card balances can quickly weigh you down. If you find yourself relying more and more on high-interest credit card debt to make ends meet, or if a significant portion of your income is going toward paying interest charges each month, you may be headed for trouble. Every time your credit card balance rolls over, the interest charges mean your debt is accumulating additional debt.
“Misusing your credit card can quickly destroy your finances,” Henry said. “When used properly, a credit card is a great way to build credit and get rewards for money you are already spending. However, if you’re using your credit card as an excuse to buy things you can’t afford, you’ll find yourself in high-interest debt that can become overwhelming and very hard to get out of. If you use credit cards and don’t pay them off every month, there’s a good chance you’ll be struggling financially by the end of the year.”
If you can’t pay off your statement balances in full each billing period and find yourself making only the minimum payments, it probably means you’re spending more than you’re earning. Prioritize paying off those credit card balances now, before the interest gets further out of control.
You Don’t Track Your Spending
If you have no idea where your money is actually going each month, it’s going to be extremely difficult to spot where you can cut back when you need to.
“Spending money without knowing where it’s going can lead to debt, overdraft fees and ongoing financial stress,” Henry said. “Tracking your spending helps prioritize necessities, identify wasteful spending and find ways to cut back and save.”
Not knowing how much you’re spending (and on what) makes it impossible to rein in your budget. Regain awareness over your spending so you can get your money under control.
You Give In to Lifestyle Creep
If your income has increased over time, it can be easy to feel a little richer and start treating yourself by upgrading your lifestyle with newer devices, a fancier wardrobe, etc. This is called lifestyle creep. But if you reflexively spend more every time you earn more, that just means you’re left with the same amount of cash on hand, no matter what your paycheck says.
“Buying things you can’t afford simply because you saw them on social media or want what everyone else has is a great way to end up poor or in debt,” Henry said. “Spending money on going out to eat multiple times a week, keeping up with the latest trends, or any other attempt to buy status can quickly stress your budget. Remember that what you see online can often be far from reality, and people who seem to have everything may be in debt that they don’t share with the public.”
Lifestyle creep prevents you from ever actually getting ahead financially. Instead, live well within your means so you can be sure that your savings grow.
You Invest Without a Plan
Investing is crucial for long-term wealth, but throwing money into the markets without a plan is essentially gambling. You’re taking an unnecessary risk that could be devastating.
“Don’t invest without a long-term plan, and don’t try to be a day trader and move money around every time the market dips,” Henry said. “Working with a financial professional before getting involved in the stock market can be worthwhile and save you a lot of stress and money in the long run.”
Remember that investing is a way to create wealth over the long term and that you’re extremely unlikely to get rich quickly. Before you make any moves, have a well-defined strategy with clear objectives.
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This article originally appeared on GOBankingRates.com: 5 Key Signs You Might Be Poor by the End of 2024
