A financial crisis is an unexpected disaster that often comes with warning signs. Enduring a financial crisis is something nobody desires. However, most people often undergo financial disasters at least once in their lifetime.
The current pandemic and subsequent economic challenges have created the perfect environment for job insecurity that often leads to prevalence of financial crises. The best way to avoid getting into a financial disaster is by being wary of the signs that indicate you are headed for financial crisis.
Here are some signs to watch out for, along with steps you can implement to avoid a serious financial crisis.
Table of Contents
You don’t have an emergency fund.
Emergencies are common and expected things for everyone. These may range from medical to job security emergencies. Given that no one is immune to such emergencies, you should be prepared for such outcomes by building up an emergency fund. If you have an emergency and don’t have any funds set up then it is a warning sign that you are headed for financial crisis.
If you are dealing with an emergency and do not have any sources of funds to address it, then you might not be in a financial position to create an emergency fund. If this is the case, then you should begin researching on any grants and resource programs that have been created by state, local, or non governmental associations to help you out.
Once you have resolved your emergency then you should endeavor to create an emergency fund that should be at least 10% of your total net worth or income.
Dipping into savings or retirement
Some people often dip into their savings or retirement funds for a couple of reasons which range from medical expenses to mortgage loan troubles. Most savings and retirement funds often come with compound interests which are affected once you use them for other purposes. Dipping into your savings and retirement is like stealing from your future which is a sign that your present circumstances are headed in the wrong direction. The early withdrawals, particularly from retirement funds also comes with incurred tax expenses that end up creating more problems than solving them.
You should avoid dipping into your savings or retirement unless you it is the last option and you have no other sources to use to solve your emergency because it’s not an excellent option short term because the long-term impacts can be devastating.
You are borrowing money from loans, credit cards or a line of credit to pay for your monthly bills
Borrowing money from credit facilities like loans and credit cards to pay your monthly bills is a sign that you are headed for financial disaster. At the minimum, your income should be able to pay for your monthly expenses. However, if you have no source of income, which has become a reality for billions of people globally because of the pandemic, you should endeavor to reduce your living expenses and find other ways of creating an income. Checkout our list of 50 Best Free Blogging Sites in 2021 (Create a Blog for Free and Make Money that you can use to create a passive income.
You don’t pay your bills on time.
Struggling to pay your bills on time are a sure sign of impending financial doom. This is because late bill payments sometimes come with higher fees which can negatively impact your credit score. Additionally, late bill payments may imply an inability to meet these needs which means that you need credit to pay them. Depending on your situation, you might be able to get financial relief from the late fees. These service providers may have programs and systems that may allow you to make your payments in simpler and easier installment schemes that will not affect your credit score.

Fighting with your partner over finances
When you fight over money with your partner or husband it may prove that money in your pocket is just not available or that you have no way to meet your expenses. One of the easiest ways to solve the debt issue is with cooperation. When listening to your partner you have to reflect to see which part they say it is true. What about your debt problem? If you are going through a hard time and are riddled with heavy debt then it could be the indicator of inequitable financial stability. Strive to achieve financial equity and independence by building your net worth.
You often borrow money from others.
Borrowing from your social circle to pay your bills or resolve any emergencies is a sign that you are headed for financial disaster. While one-time borrowing from your social circle may indicate a temporary financial setback, it might also be a sign of impending doom if you keep asking for financial assistance in incremental values. One of the best ways of resolving this issue is creating a budget that will show you where you are spending your money, your income sources, and things that you need to eliminate to improve your financial status. Read our guide on How to Track Expenses in 4 Easy Steps and Never Fail at Budgeting Again to help you create an accurate budget that reflects your needs.
You don’t have any savings to cover emergency expenses or needs
Savings are absolutely integral for any individual looking to avoid financial disasters.. Without savings one has to go back into their credit cards every month or two when an emergency appears. It’s much better to start yourself a lifeline by saving up to three month of expenses in your savings account. Deposits to your savings accounts should be viewed as mandatory expenses that are included in your monthly income/expenditure routine. If you do not have a savings fund to are unable to make these mandatory savings payments then it might indicate that you are headed towards a financial crisis.
You spend more than you earn
Having higher expenses than your income is a sign that you are headed towards a financial crisis as you are living above your means. Being unable to meet your monthly expenses particularly if you are working demonstrates a breakdown in your ability’s to meet your needs. To be able to salvage this situation you need to create a solid plan on cutting on your expenses. Eliminate any unnecessary expenses, such as subscriptions for streaming platforms like Netflix or gym fees. You can always go back to these subscriptions once you are in a better financial position.
You heavily rely on credit.
If you often use credit cards even just if you are making very small and negligible purchases, then it is an indication that you are actually buying more than you earn. Heavily relying on credit can cause your debts to balloon which will affect your net worth. It is also important to note that credit card companies thrive on this kind of usage that often comes with high interest rates. Additionally, if you are unable to pay the debt at the given period, usually at the end of the month, then the interest is accrued on the balance. You should strive to minimize your credit card reliance while simultaneously increasing your financial health and ability to sufficiently address all expenses and emergencies in your life. If you are unable to borrow from your social circle, then you should seek debt help and support from reputable not-for-profit lenders.
You take out loans to pay for other loans.
This happens particularly when people have sought out payday loan. The outrageously high rate of interest makes this practically impossible to repay so many people start to take out new ones. It grows exponentially and becomes more costly as it continues to increase until you are unable to pay. To get back on track, you could endeavor to eliminate the payday loans by putting a limit on your bills to ensure that you have enough money to completely eliminate the loans. Taking out loans to pay for other loan demonstrates serious financial trouble.
Treating your home like a piggy bank
If you have used your home to take out loans to meet your current needs then it might indicate that you are headed towards financial crisis. Treating your home like a piggy bank jeopardizes your financial position and will definitely affect your future. You should only take out secondary mortgages on your house if it is absolutely necessary and you have exhausted all other avenues for financial relief.
Bill collectors call you — and it’s not to say hi.
Having to constantly deal with bill collectors is definitely a sign that you are headed towards financial trouble. Bill collectors are warning signs that come when you have been unable to pay your existing bills and the company or entity that you owe has sought the help of bill collectors. Paying your bills on time is integral in getting back on track by addressing your personal finance status. It will also help you avoid financial disaster.
Reaching or going over the limit on your credit card
While going over your credit limit does not necessarily demonstrate impending financial crisis, it is a sign of financial trouble. This is because your credit score is often calculated using your balance on your credit limit. A debt exceeds the legal limit could prevent you from getting loans, and other credit lines that can be denied. This will affect your personal fiscal ability and your future endeavors. Do something that your future self will thank you for by always remaining within your credit limits.
Final Word
If you have these warning signs, then you should evaluate your personal finance status and endeavor to eliminate some of these red flags. If you are looking for ways of addressing these issues, read our article on 8 Money-Saving Apps That Do The Penny Pinching For You in 2021 to address your situation.
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