Monday, July 9, 2012

5 Warning Signals for Future Financial Woes

My last blog discussed why you should have open and honest discussions about money and how it will be handled before you enter into a new life together.  Here are my top 5 red flags for potential future financial trouble. Read carefully and discuss with your partner.
1.      You discover your fiancé’s credit card debt is more than 10% of his income.  If you ask your fiancé how much he/she pays monthly and the answer is “the minimum," watch out.  You could be paying off debt for the next 10 to 20 years of your marriage.
2.      Your fiancé uses the cash advance feature on his credit cards. There is never a good reason to do this.  You pay higher interest starting from day one, whether you pay your bill each month or not.  This demonstrates impulsive behavior.
3.      Your fiancé puts everything on a credit card and does not pay off the balance each month. He uses the excuse that he will pay it off when his bonus comes in.  In the meantime, he is paying 12% to 24% interest.  As the old saying goes, patience is a virtue.  The new couch can be ordered (or whatever the purchase may be) after the bonus is paid.  Impulse buying gets a lot of people into trouble.
4.      No savings account.  If your fiancé has no savings account, no matter what their job is, that should be a red flag.  It indicates they spend all (or likely more) than they earn.  That habit is difficult to break and can cause major problems in the future, especially if you are a saver.
5.      Refusal to make a budget – this goes back to #4.  My number one rule is pay yourself first.  My number 2 rule is don’t spend more than you earn.  Some people stick their heads in the sand because they don’t want to know how deeply in debt they are!
If you have observed any of the behaviors listed below, be aware.  These can be red flag indications for future financial woes!

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