Learning from financial symptoms

The Frugal Doctor Is In

by Gary Foreman


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Recently I had a physical. Outside of being a little overweight and growing older, I don't have any obvious health issues. I did, however, describe some minor symptoms to my doctor, which prompted him to order some tests. I was glad that he could read the symptoms and know what to test for. Fortunately the tests found nothing seriously wrong.

It occurs to me that our finances are somewhat similar. Often everything looks healthy. We might have a small concern about a symptom that we see. Yet we don't know what it could be or what to do about it. Just like with our physical health, we need a professional to help us read the financial symptoms.

So let's look at some financial symptoms and see what we learn from them.

Symptom #1: Just making your monthly minimums without anything to spare. You'll look healthy. No bill collectors will be calling. And, your credit card companies won't be raising your interest rates or hitting you with late fees.

But, if you're just paying the minimum, you don't have any margin for unexpected events. Just one new large expense (auto repair or appliance replacement) could raise the minimum over your ability to pay it. Or, any interruption in your income (a cutback in the number of hours) would put you over the edge.

Prescription #1: Find a way to pay down your credit cards to reduce your minimum payments. Look for something in your budget you can cut for awhile and use that money to pay the card with the highest interest rate. Or, if you can't find anything to cut, look for some type of part-time income until you get the credit balances (and minimum payments) down.

Symptom #2: Each car loan is longer than the prior one. Yes, you'll be stylin' with your new wheels. Friends will ask how you like your new car. And, just like the salesman promised, you can afford the "easy monthly payments."

The hidden danger is that you're increasing the time that you're "upside down" in your loan. At some point in the future, you'll be committed to two or three years of payments on a broken down car that you can't afford to repair or replace.

Prescription #2: Find a way to reduce the length of your auto loan. That means prepaying some principal, preferably each month. Again, you'll need to find some money from your current monthly budget or an additional source of income, but a little inconvenience today can prevent a major problem later.

Symptom #3: Not being able to put money away for your retirement. You really won't notice it. Unless you spend some time studying your 401k and IRA statements.

Even though friends and family think you're doing fine, time has a way of sneaking up on us. And, when it does, you'll be happy to have some income besides Social Security. Failure to save now could mean a difficult retirement.

Prescription #3: Find a way to save at least a few dollars out of every paycheck. You may find that if the first check you write is to your retirement account, that you won't be any tighter at the end of the month than you were before.

Symptom #4: Changes in your job security. No one has been laid off. You're still drawing a paycheck every week. And credit card companies are sending you invitations to apply for their card. So how bad can it be?

It might be worse than you think. If your company sales are just holding steady or decreasing, you could be in trouble. Or if technology is gradually replacing your profession, it's time to take action. Don't wait until you're told to clean out your desk.

Prescription #4: Prepare for a job loss before it happens. Consider taking a job at another company. Or if opportunities in your profession are limited, begin taking night classes now to learn new marketable skills.

Symptom #5: Not having an emergency fund. Only you know that you don't have any money saved for unexpected expenses. And, just as long as you don't have an emergency, everything looks fine.

But when that unexpected bill comes due (and sooner or later a car, appliance or your home will need repair or replacement), you'll be forced to borrow money to pay it. So you'll also be paying interest along with the emergency expense. Making it even harder to save for the next unplanned expense.

Prescription #5: Plan for the unplanned expense. These expenses really aren't that unexpected. You know that autos and appliances break. You just don't know exactly when. So include money in your monthly budget for those expenses. Put it in a savings account so that it will be available when the "unexpected" bill comes in.

If you're experiencing any of these financial symptoms, you might want to take a financial physical. Who knows? Perhaps you can avoid a long-term financial disability later!


Gary Foreman

Gary Foreman is a former financial planner and purchasing manager who founded The Dollar Stretcher.com website and newsletters in 1996. He's been featured in MSN Money, Yahoo Finance, Fox Business, The Nightly Business Report, US News Money and he's a regular contributor to CreditCards.com. You can follow Gary on Twitter or visit Gary Foreman on Google+. Gary is also available for audio, video or print interviews. For more info see his media page.

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