Financial Health: What are your symptoms?

By Doug Crowe
www.dougcrowe.com

Money, credit, and living...it seems that there are seasons in our lives where there is often more debt than income.  This can create stress, anger, indecision, and sometimes poor decisions.  If you find yourself in a situation where there is more debt than income, you may be headed for trouble.  It is never too late to fix some of your challenges.  However, time is NOT on your side.  The more you do to attack the situation early on, the better for you in the long run. Take a look at the three stages of financial trouble, assess where you are and take ACTION NOW!

The checklist below will help you to take an unemotional look at where you are and where you are headed.  Financial challenges are a major cause of stress, divorce, and heartache.  Your situation, while unique to you, is not uncommon.  Millions of Americans are one or two paychecks away from bankruptcy and the skyrocketing foreclosure rate is at its highest point since the great depression.

While these statistics might not shed any light on YOUR living needs for today, the following checklist and action steps might help to delay or even cure your financial woes.  Remember, above all else, you cannot solve a permanent problem with a temporary solution.  All financial struggles relate around three simple issues:

·         Income            (How much you earn or bring in)

·         Expenses         (What do you spend and how do you manage those expenditures)

·         Credit              (Your ability to borrow and REPAY your obligations)

INCOME
How much you earn is often viewed upon as a decision by an employer.  You can ask for a raise, work more hours, but for most people, "the man" determines how much you earn, where you live, what kind of car you drive, and where you vacation (If at all).  For many people, this is simply an accepted fact of life.  For others with an entrepreneurial personality, they have more control over their income.  If an entrepreneur wants to earn more money, they can do more work, roll out a new product, or otherwise try to affect the level of their income.  They are called entrepreneurs because with this variable income stream comes risk.  Employees normally don't have the risk of wide swings of income, and with that security comes limitations on income.  Sales professionals who work for companies also share the risk/reward curve of entrepreneurs and have a greater degree of control for their income.If you are an employee, you should continually ask yourself WHAT you can do to get a raise, promotion, or get more hours in to create more income for yourself.  There are many books on this subject and it behooves most people to reflect and review their job and career at least on an annual basis.  Taking control of your income can be frustrating, liberating, or downright exhilarating.  The operative phrase is "taking control."  Without control, you will always be at the whim of the economy, the company or your boss.

EXPENSES
When it comes to expenses, studies have shown that most people do not have a formal or even an informal budget that they live by.  Most Americans simply spend what they earn (or for many, they spend MORE than they earn!).  The attached budget should be filled out by anyone who wants to get a handle on their expenses.  By tracking ALL of your expenditures, you can find areas for savings.  Many people use their budget skills as a hobby.  Clipping coupons and shopping for bargains not only makes fiscal sense, but it can be fun, too!Use the budget process to understand your spending habits and take ACTION on what habits you can modify, replace, or cancel.  Not knowing where you are is a fatal mistake most people make when trying to affect any change in their financial health.  Just as it is impossible to plan a trip without a starting point, planning to create and stick to a budget is fruitless without an honest evaluation of where you are today.

CREDIT
The largest "double edged sword" on this list is your credit.  For those people who have mastered their credit, they can live a bountiful life by paying off consumer debt and carefully employing asset-based debt.  Knowing the difference and being judicious with both of these instruments can easily make or break a family fortune. Simply stated, consumer debt is any debt that used borrowed funds to purchase items that are expendable or depreciate in value.  This includes food, rent, vacations, consumer goods, automobiles, utilities, etc.  When a person borrows money for an asset that depreciates or disappears, depending on the rate they are being charged, end up paying 1.5 to 2.5 the value of the goods or services.  Look at any financial statement on a car loan and you can easily see how that $20,000 vehicle cost you over $40,000 during the life of the loan.  With items that are consumed, the price is infinitely higher.  Cut back or eliminate all debt associated with consumables or any item that depreciates in value.  From a pure mathematical point of view, it can save you hundreds of thousands of dollars.

PHASE I
"Financially I'm not feeling very well"
Symptoms

• No savings
• Living paycheck to paycheck
• Using one credit card to pay off another one
• Credit scores have dropped recently
• Large unexpected expense arose

PHASE II
"Financially I'm very ill"
Symptoms

• I'm late with a rent or mortgage payment more than 30 days
• I have recently had service (phone, utilities, other) turned off temporarily
• All my credit sources are tapped out (credit cards at maximum)
• Credit scores are so low, I cannot establish new credit lines
• Large lapses in income

PHASE III
"My finances are on life support"
Symptoms

• Notice of default or behind on payments 3 months or longer
• Feelings of hopelessness
• Thoughts of drastic solutions (lottery, arson, etc.)
• Illogical denial of the situation

Treatment & Cures
Save some amount of money each month.  Start with $10 and lock it away.  Do this every month and develop a HABIT of saving some amount of money.  While the amount may not affect your situation immediately, the habit can.  Next year increase that amount by $10 more dollars and before you know it, you will have a savings account worth thousands of dollars.

When living paycheck to paycheck, people find the strategies of savings and budgeting extremely difficult.  By developing the savings habit, you will be forced to give up $10 of expenditures.  The choice of that sacrifice will be yours.  It could be 2 packs of cigarettes, a lunch or taking a walk once a week instead of driving a car.  The effect will be small, financially, but the habit of reducing your expenditures will become one of control.  Your first few months may be painful, but eventually, you will embrace the habit and use it as a force to grow your financial intelligence.  Earning a raise, maneuvering for a promotion or getting new training for a new position will also help to set you up for an increase in pay, of course.  However, most Americans spend every increase they get, so be sure to develop the budget, start the savings plan, and manage the expenses before and during your journey to increasing your income.

Paying off credit card debt should be a crucial goal for everyone.  When that debt is associated with consumables or depreciating assets, the objective should be to:

1. Restructure high-interest debt to low-interest debt
2. Pay off that debt entirely
3. Use a debit card OR develop the habit of paying off your cards EVERY month
4. If you are unable to develop either habit in #3, you should lock away your cards and use them only for emergencies

Understanding and improving your credit scores takes time, patience and perseverance.  Prompt payment is a sure way to keep your scores high and your ability to borrow healthy.  If you think you will have to be late with any payments, the best time to notify the creditors is BEFORE you are late.  Often times, creditors can defer payments for you.  But, they almost never do this after the fact.  Open communication and responsible, honest communication is the key to success.

Improving your scores can be done over time.  Visit the following sites and get a FREE credit report from each of the three agencies; www.experian.com, www.transunion.com and www.equifax.com.   Get help from your banker, accountant, or other trusted advisor to understand and interpret what is on there.  The key to improving your scores is to get the bad information off of your report.  Check for inaccuracies, old data, and wrong addresses.  Identity theft is rampant nowadays and reviewing your history is important.  You can dispute any bad or negative information to the bureaus.  The fair credit reporting act states that a creditor must respond to your inquiry and prove the information is valid within 30 days.  A clever trick often used by consumers is to dispute EVERY piece of bad information the day after Thanksgiving.  Since the 30 day period between Thanksgiving and Christmas has many people taking time off, and the postal service often slows, many negative items on reports get deleted simply because the creditors can't respond in a timely fashion.

When it comes to the psychology of financial trouble and foreclosure the devastation can be tremendous.  A majority of divorces occur because of financial issues and the tension caused by these woes spill over into nearly all areas of life.  Most experienced business owners will tell you that life is not about the ups and downs, but how you manage the frequency and pace of change.  It is never a matter of "if" a challenge will show up...it will.  All that matters is the attitude and plan you have in order to cope with those issues.  Ask anyone who has recovered from cancer about financial stress and they'll tell you, "I thought I had problems when I lost my house, but when I recovered from a major illness, my perspective changed and nothing else seemed as important anymore."  Indeed, money comes and goes.  Fortunes are made, squandered, and created again.  Your situation may be bad and it may get worse.  The fact remains that as long as you have your health, you can ALWAYS recover financially.  Over 70% of self-made millionaires in this country have been broke at least once in their life.  Their ability to recover and THRIVE in the face of adversity is the ammunition they use to win the financial battles in their life.  The book, "How to stop worrying and start living" by Dale Carnegie has been credited with changing and pacifying the anxiety of millions of people.

In summary, prevention is the best cure for any illness (financial or physical).  Below are the steps you need to take to prevent, treat, and cure your financial illness forever.

1. Start a savings program TODAY.  It doesn't matter how much.  Start with any amount and stick to it.  Increase it each year and NEVER touch the account. 
2. Create a plan to increase your income.  Train for a better job, become invaluable at work, work more hours, start a part-time business, and continually strive to earn more.  You are worth more than you are paid by most employers-it is up to you to become difficult to replace.
3. Budget your household.  Use the household budgetizer to understand WHERE you are and where all that money goes.  You cannot plan a trip to financial prosperity if you don't know where you are today.
4. Cut back on unnecessary expenses.  Use the budgetizer as a game!  Have fun saving money and use your financial goals of savings to help you in other areas of your life (health, environment, etc.)
5. Be proactive in your communication.  Don't let bills slip by without contacting your creditors.  It doesn't guarantee they will be any more pleasant, but you'll feel better knowing you were professional, responsible, and polite.  Ask for help if you need it.
6. Restructure bad debt.  Transfer balances of high interest cards to low interest cards.  Start and stick to a plan of reducing and eliminating all consumer debt forever.
7. Monitor and improve your credit scores.  Contact the bureaus and initiate a credit repair program right away.
8. Read about success.  Every month read a story of someone overcoming adversity.  It will not only inspire you, but you may get an idea that you can use to make lemonades out of the lemons in your life!

Doug Crowe