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11 Alerting Signs You’re Unprepared for Financial Emergency

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By Alessia Barranca

Frugal Feature

Published on

Life throws curveballs, and sometimes, those curveballs come in the form of unexpected financial emergencies. A healthcare bill, a car repair, or a job loss can mean chaos for your finances if you need to prepare. But how do you know if you’re ready to weather a financial storm? Here are 11 alarming signs you might be one unexpected expense away from trouble:

Living Paycheck to Paycheck

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Waiting desperately for your paycheck each month is a classic sign of financial vulnerability. Any disruption to your income stream can be catastrophic if your income barely covers your monthly expenses, leaving no room for savings. The first step to getting control of your finances is understanding where your money goes. Keep track of your income and expenses for a month to identify areas where you can cut back.

Maxed-Out Credit Cards

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High credit card balances leave you with little to no borrowing power in an emergency. Ideally, it would help if you aimed to minimize credit card debt and only use them for manageable purchases you can pay off quickly. Paying down your credit card balances is the most effective way to improve your credit utilization ratio. Aim to get them below 30% of your credit limit, ideally even lower.

No Emergency Fund

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An emergency fund is your financial safety net, giving you peace of mind knowing you can weather unexpected financial storms. It should ideally cover 3-6 months of living expenses to act as a buffer during unexpected situations. Without this cushion, a financial emergency can force you into debt or a problematic living situation.

Neglecting Your Health Insurance

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Health insurance saves you from the financial burden of unexpected medical bills. Skipping health insurance to save money now can cost you significantly more. Many employers provide health insurance plans to their employees. Consider the plan offered by your employer and weigh the costs and benefits.

Putting Off Retirement Savings

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Retirement might seem far off, but every missed contribution adds up. Not having a retirement plan or consistently neglecting to contribute can leave you financially insecure in your golden years. Compound interest allows your earnings to earn additional interest, creating a snowball effect over time, even with the most minor savings each month. Many employers provide retirement savings plans like 401(k)s or 403(b)s, which you should take advantage of. 

Ignoring Bills and Debt

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Ignoring bills and debt allows problems to fester and become unmanageable. Late fees and interest charges can quickly become out of control, making it even more difficult to manage your finances. Try to use your credit card only when you know you can pay it back, and avoid paying the minimum amount each month.

No Budget or Financial Plan

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Without a budget to guide you, it’s easy to overspend and live paycheck to paycheck. This can lead to accumulating debt, missing out on financial goals, and constantly stressing about money. A budget helps show you the areas where you can cut back and allocate those funds toward savings goals. With a plan, you might take advantage of opportunities to save for emergencies, retirement, or other important milestones.

Unrealistic Financial Expectations

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Living beyond your means is a recipe for financial disaster, as you will eventually need help to keep up. Don’t feel pressured to keep up with the Joneses and buy items to look good. It would help if you prioritized your financial well-being by living within your means and saving for any treats you would like to provide for your family. 

Lack of Knowledge About Personal Finance

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Financial knowledge is critical for making educated financial decisions, but it is not something our parents always teach us. Teach yourself personal finance topics like saving, investing, and debt management. Many banks and financial charities offer online courses or one-on-one coaching if you need more in-depth financial information. It would help if you took advantage of any help you can get to get your finances back on track.

Fear of Talking About Money

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Talking about money can be taboo, but open communication is essential, especially with romantic partners or roommates. Discussing finances openly helps ensure everyone is on the same page and working towards shared goals. The next time you worry about saying yes to something because you cannot afford it, be honest, as it is better than getting into debt just because you fear talking about your finances. 

Procrastination When it Comes to Financial Goals

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The longer you wait to fix financial issues, the bigger they might become. Saving for a down payment on a house or building an emergency fund becomes more challenging the longer you wait. Take what you can do today. Start saving for emergencies, paying down debt, and investing for your future; the sooner, the better.