4 Overspending Red Flags That Signal Financial Trouble

Financial red flags are warning signs of potential problems that could affect an individual’s finances. From poor budgeting to over expenditure, there are a lot of red flags that a person might have. From compulsions to impulsive expenditure – even mindless ones, people indulge in ways that burn a hole in their pocket.

Most people realise they are not financially prepared only when it’s too late; when they have no savings left to turn to. But financial red flags rarely appear overnight, they manifest through years of neglect, lack of knowledge and lack of discipline over time.

Red Flags To Watch Out For In Your Financial Journey

• Scattered Debt: Relying on high interest debt sources, such as credit cards and high-interest personal loans to cover day to day expenses is a sign of red flag. Making only the minimum monthly payment on credit cards is also a major sign of falling into a debt trap.

• Champagne Lifestyle On A Soda Can Budget: Spending lavishly on luxury goods one cannot typically afford to maintain, but doing so just to maintain an image or perception of being rich, while having difficulty to even meet the basic ends, is a sure shot sign of red flag. Indulging in luxuries is not wrong, but doing it when you don’t even have the basics to spare for food and rent, certainly is.

• Lack of an Emergency Fund: If you haven’t set aside savings for a minimum of three months for emergency purposes, it will make sustenance difficult should your source of income get dry. You will have to depend on borrowings from others, which will make the journey ahead more difficult as it can even put you into a debt trap.

• Constant Borrowing: Aside from loans and credit card expenses, if you frequently turn to friends and family to meet for expenses, then that is a sign of concern. Basic expenses, such as rents, utility bills, groceries should be on your mandatory expense list. If you have to depend on external borrowings to meet your mandatory expenses, then your budgeting and money management skill needs to be looked into.

Needs Vs Wants

The path after noticing financial red flags is to understand the difference between your actual needs versus wants. Then you should try to create a detailed budget to know where your money is going and how you can cut back on the expenses.

After saving a noticeable sum you can build on it for your emergency funds. One way to make this faster is financial literacy. One way is to constantly learn about things that can serve you on your journey towards financial security and stability, a lack of which is the major reason behind people facing financial hardships.