On paper, money management seems manageable, however, life has a habit of getting in the way. Social spending pressure, cost of living, and easy credit access can erode your finances without you noticing. If any of these signs resonate with you, it is not too late.  Here are 5 financial red flags to identify that you might be heading in the wrong direction.

1. Spending More Than Your Income

Out of all the financial red flags, this has to be the most prevalent. It usually starts with a few overspending habits and can snowball into something much worse. Eating out, spontaneous trips, or shopping can easily put one in debt if done regularly.

It is a part of life to have unexpected expenses come up every now and then. However, the real danger lies in the overspending habits. If living beyond your means is a norm, you need to hit the brakes before it is too late.

2. Carrying Only Bad Debt

Not all debts are classified as bad. The loan you took for your house or to finance your education can increase your wealth and earning potential in the long-run. These are termed as good debts.

Bad debt refers to borrowing money for things that become less valuable over time and do not yield any returns. Credit cards, personal loans, and buy-now-pay-later plans for clothing, gadgets, or going out fall into this category. They cost you more over time and leave you worse off.

Make a list of all your debts from the worst to the best. Analyzing the interest rates and the purpose of the debt will aid in this process. Pay down the high-interest bad debt as a priority.

3. Not Having a Budget

Without knowing how much your income is, it’s nearly impossible to control your finances. A budget enables tracking of your income and expenditures while providing clear insight about them. This helps track your spending and make a decision on where to spend less.

Almost everyone tends to underestimate their expenditures when it comes to food, subscription services, or daily habits like coffee and takeout. Start tracking every dollar spent over the span of a month and you will be amazed at the insights you gain surrounding expenditures.

Budgeting is not about restrictions; it is about gaining control of your expenses. When done properly, budgeting allows you to save, invest, and plan your future.

4. Missing or Paying Bills Late

Late payments cause many unnecessary harms, including incurring additional fees. Over time, this habit can lower your credit score and increase your reliance on loans during times of need.

Use reminders or automated payment systems that activate on the due-date. Scheduling payments on due dates allows for prolonged cash retention in your account, while ensuring timely bill payments.

Communicating with service providers can immensely aid those falling behind payments. Most will set up payment structures tailored to working clients’ budgets. Bills should never be ignored as this worsens the predicament.

5. Borrowing from Family or Friends

Asking for funds from loved ones is not unusual. However, if this becomes a frequent occurrence, it indicates a larger issue. Chronic borrowing indicates a systemic problem hidden deeper in one’s budgeting, income, or spending.

Informal lending creates opportunities to hurt relationships. Focus on designing a plan to manage funds instead. This could involve work that generates supplementary income, cut-down spending, or enlisting financial assistance to reduce debt. The primary goal is to regain self-sufficiency as quickly as possible.

Seize the Initiative Before Everything Gets Out of Control

Most people have encountered one or two of these financial red flags at some stage. But if all of these issues are cropping up simultaneously, there is a good chance your financial habits are in dire need of change.

Your first step should involve monitoring every cent you spend and constructing a simple budget. Make sure you pay your bills on time and begin to slow down on accruing new debt. In the long run, small changes make a great difference. With good discipline and the right mindset, you will achieve financial stability.

Do you need assistance with the next step? Then simply head to wealthplaybook.com.au and order yourself a copy of The Wealth Playbook. The book comes with a wealth of practical materials and checklists that help you manage your money better.