Having to worry about money is not enjoyable. But finding out how much financial trouble you are in is the first step toward making a plan to get out of it.
In this article:
- Signs of Financial Trouble
- Review Your Income
- Track Your Expenses
- Compare Your Income to Expenses
- Find Your Options
- Reduce Your Expenses
- Increase Your Income
- Specific Options If You Are In a Little Financial Trouble
- Specific Options If You Are In Medium Financial Trouble
- Specific Options If You Are In Serious Financial Trouble
- Take Action
The most important thing for you to do if you believe you are having, (or will be having) financial problems is to take a realistic look at your finances and identify how much trouble you are in. If you don’t recognize the depth of your problem, you won’t know the appropriate action that must be taken.
Most catastrophic financial situations don’t develop overnight. They come after years of not acknowledging your financial difficulties, or not taking action to combat those issues.
This article will help you take a good look at your financial situation.
Some of the signs that you are having money problems are pretty obvious. You’re worried about being able to pay your bills, you lost a job, etc.
However, there are other early warning signs you should also be aware of. If any of these apply to you, it’s time to take a serious look at your finances and see how much trouble you might be in.
- You use credit cards to pay monthly bills
- You only pay the minimum due on your credit cards
- You borrow money from your retirement account
- You have to choose which bills to pay
- Your emergency fund is dwindling or empty
- Your credit cards are reaching their limit
- You are consistently dipping into your savings for routine expenses
- You “float” checks and hope they aren’t cashed until your paycheck is deposited
Review Your Income
The first step toward figuring out how much financial trouble you are in is to start tracking your income and expenses.
Start this by starting a spreadsheet to track your expected income over the next 6 months.
Gather your paychecks and other forms of income:
- Only include income you can depend upon
- Don’t include income you “hope” to have
- Use the amount that will actually be deposited into your account (i.e. after taxes)
- Start a spreadsheet to track expenses for the next six months
- Total up your total income for each month
Track Your Expenses
The next step is to look at your expenses. The reality is that most people have no idea how much money they spend and where they spend it.
It’s important that you are realistic during this exercise. Don’t use figures for what you WISH you would spend, track what actually do spend.
The best way to start doing this is to look back at the last six months of your checkbook and credit cards and include those same types of expenses for the next six months.
Include yearly expenses when applicable:
- Car maintenance and insurance
- Home insurance
- Tax payments
Also make sure to include long-term expenses:
- Savings account
- College fund
- Saving for a new car, vacation, etc.
If you don’t already have an emergency fund built up, you MUST include money in your budget to begin building this.
This exercise is trying to determine how much financial trouble you are in. If you don’t have (and don’t start building) a savings account, when something unexpected comes up, your financial situation will be altered dramatically and could have catastrophic financial consequences.
Total up your expenses for each of the next six months.
Compare Your Income to Expenses
Map out your expenses and income for each of the next six months.
Do you have enough income to cover your expenses each month (which includes long term saving plans)?
- If so – Are you happy with the amount of money you have left over or do you need to improve your situation?
- If not – Is your monthly deficit a small one or a large one?
Knowing the exact number when you subtract your expenses from your income will tell you exactly how much financial trouble you are in.
Find Your Options
Now that you know how much financial trouble you are having, you can start making plans to regain control of your situation.
- Reduce your expenses
- Increase your income
- Options if you are in a little financial trouble
- Options if you are in medium financial trouble
- Options if you are in big financial trouble
Reduce Your Expenses
The first thing you should do is to review your expenses to look for places you can cut back. When you actually track your spending and recognize where your money is going, it is usually pretty easy to identify places where you can cut back.
When making this decision, keep in mind the difference between a Need and a Want. If you are experiencing financial problems, you don’t “Need” a coffee from Starbucks every morning, a Netflix account, or a weekly trip to the movies.
In addition to eliminating Wants from your expenses, you can also look at your true Needs and see if there are ways to reduce those expenses. For example, you do need a phone, but you probably don’t need all of the extra services you are paying for.
Here are additional resources to reduced your monthly expenses for:
In some cases, reducing your monthly expenses will be enough to dramatically help your financial situation.
After reducing your expenses, the next step is to see if you can increase your income to fix your financial problems.
You may also be able to solve your financial problems by looking for ways to increase your income.
Of course, this can include looking for a traditional second job, but there are also many new ways to generate additional income.
Here are some ideas:
- Rent out a room in your home
- Sell your sperm
- Sell your old stuff online
- Start your own part time business
- Make money online
- Part time or freelance work
- Alternative ways to make money
If you are still in a poor financial situation after trying to reduce your expenses or increasing your income, you should look at the following additional alternatives.
Options If You Are In A Little Financial Trouble
If your income and expenses are relatively close, or if your financial difficulties appear to be short term, you may not need to take significant steps to improve your situation.
You can look for short term options which can include:
- Contact your creditors and ask for programs they may have to help
- Contact your mortgage company and inquire about deferment, a repayment plan, or other options
- Look for programs to help with monthly expenses(see below
- Find less expensive options for doctors, dentists, etc
Here are some articles that can help:
- Getting a Loan in Hard Times: Alternative Loan Solutions
- How to Appeal If You Are Denied Unemployment Benefits
- Debt Collection Strategies: Collecting Money That People Owe You
- Learn 10 Tips That Can Help You Eliminate Your Debt
- Negotiating With Debt Collectors…Successfully
- Tips for Collecting Unemployment Benefits
- Are Personal Installment Loans A Good Answer?
- Can’t Make Your Car Payment? Here’s What to do:
- Consolidated Student Loans Can Save You Money
- Understanding Credit Card Balance Transfer Offers
- How to Get Your Unemployment Benefits Extended and What to do if You Can’t
- Steps to Take After You Lose Your Job
- What To Do When You Can’t Pay the Bills
Of course, you may want to check out some of the links below to improve your situation even more.
Options If You Are In Medium Financial Trouble
If your situation is more serious and/or you don’t see an end in sight, you are in a little more financial trouble and will need to take more significant action.
- Working with a Credit Counselor to Manage Debt
- How to Apply for the Home Affordable Foreclosure Alternatives Program
- Can’t Pay Taxes Owed to the IRS? Here’s What to do:
- Pros and Cons of Instant Cash Payday Loans
- Understanding Federal Government Grants
- Who Qualifies for Welfare and How to Apply
- How To Apply For Medicare RX
- Food Stamps Application and Eligibility Information
- Government Housing Assistance: Application and Eligibilty Information
- Single Parent Benefits and Government Aid
- Home Energy Assistance Program (HEAP): Application and Eligibilty Guide
- Get Help With Medical Bills By Using a Medical Negotiator
- What To Do When You Can’t Afford Your Child Support Payments
- How to Consolidate All of Your Debt into One Payment
- How To Successfully Negotiate A Debt Settlement With Your Credit Card Company
- Are You Behind On Mortgage Payments? Here Are Some Options
- Interest Only Home Loans – Advantages and Risks
- Understanding HAMP Loan Modification Programs and Eligibility
- Who Can Benefit From a Reverse Mortgage
Options If You Are In A Little Trouble
If you are having significant financial problems, it’s time to get real with your situation. You may need to think about filing for bankruptcy, foreclosure, etc.
Here is some additional information on some of these more serious options:
- Talk to (free) credit counselors to get advice
- How to Choose Between Bankruptcy, Short Sale or Foreclosure
- The Process to Filing for Bankruptcy
- How Do Deal with a Mortgage that is Underwater
- How to Delay Foreclosure for as Long as Possible
- What to do if You Become Homeless
Now that you have a better understanding of your financial situation, it’s time to take action. Use the links above to start looking for help.
The sooner you start taking control of your finances, the easier it will be to regain control.
Note: If you are truly having financial problems that you believe are significant, you should contact a debt counseling service to get advice from a professional.