15 Signs You Are Less Financially Healthy Than You Thought


Here’s an unfortunate truth about money: Earning a high salary doesn’t mean you’re rich. It means you have the potential to be rich.

The difference is profound.

While you may believe you’re managing your finances well, there could be underlying issues that, if left unaddressed, may lead to financial instability. Here are 15 signs that you might be less financially healthy than you realize.

High Credit Card Balances


One of the clearest signs of financial strain is consistently carrying high credit card balances. It could be a red flag if you cannot pay off your credit card bills in full each month and instead rely on revolving credit.

High credit card balances indicate that you’re living beyond your means and are likely paying hefty interest fees, which can hinder your financial progress. It’s essential to prioritize paying down these balances to regain control of your finances and avoid sinking deeper into debt.

And if you don’t have an emergency fund, start one now! I’ll explain this further in a bit.

Living Paycheck to Paycheck

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Do you count the days until your next paycheck, struggling to cover essential expenses? Living paycheck to paycheck indicates that your financial situation is less stable than you may have assumed. It’s never good to be one paycheck away from debt.

While it’s common for individuals to experience occasional financial tightness, consistently scraping by with no room for savings or emergencies can leave you vulnerable to financial shocks. Take a close look at your spending habits and consider budgeting strategies to break free from the paycheck-to-paycheck cycle and build a financial safety net.

No Emergency Savings Fund

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An emergency savings fund is a crucial buffer against unexpected expenses or income disruptions. If you don’t have one in place, or your savings are insufficient to cover at least three to six months’ living expenses, your financial health could be at risk.

Without an emergency fund, you may resort to high-interest loans or credit cards to cover unforeseen costs, further exacerbating your financial strain. Start prioritizing savings by setting aside a portion of each paycheck until you’ve built a sufficient emergency fund.

To simplify, use an automated bank transfer to send money from your primary checking account (where your paycheck gets deposited) to a separate HYSA, or High-Yield Savings Account. Set it up once, then forget it.

Neglecting Retirement Savings


Retirement may seem like a distant milestone, but failing to save for it adequately can have severe consequences in the long run. You may be jeopardizing your financial future if you’re not actively contributing to a retirement account or only making minimal contributions.

Remember that the earlier you start saving for retirement, the more time your investments have to grow. Ignoring this aspect of your financial health could leave you scrambling to catch up later in life, potentially forcing you to delay retirement or rely solely on government assistance.

The two best ways to save for retirement (if you live in the U.S.) are the traditional 401(k) and Roth IRA. If your employer offers either of these investment options, take advantage of them.

Overreliance on Debt

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While debt can be a useful tool when used responsibly (good debt exists), relying too heavily on it can signal financial trouble.

If you consistently take out loans or use credit cards to cover everyday expenses, it’s a sign that your financial situation may be less stable than you think, and you’re one step away from high-interest credit card debt. Accumulating debt without a clear repayment plan can lead to a cycle of increasing interest payments and financial stress.

Take steps to reduce your reliance on debt by budgeting effectively, cutting unnecessary expenses, and prioritizing debt repayment.

Only Paying the Minimum on Loans


Paying only the minimum amount due on your monthly loans may seem manageable, but it can keep you in debt for years.

Minimum payments mostly cover interest charges, allowing the principal balance to linger and accumulate additional interest over time. If you cannot pay more than the minimum on your loans, it’s a sign that you are stretched thin financially. Consider reallocating your budget to increase loan payments and accelerate your debt-free path.

Another option is to volunteer to work overtime or start a side hustle to earn more money. Then, use that money to pay down your debts.

Borrowing from Retirement Accounts


Tapping your retirement savings prematurely should be a last resort, yet many individuals do so out of financial necessity. It clearly indicates financial distress if you’ve resorted to borrowing from your retirement accounts or cashing out investments to cover immediate expenses.

It’s one thing if you’re paying off an unexpected emergency or job loss. But, it’s another if you rely on your retirement savings to fund your lifestyle.

Not only does this erode your long-term savings potential, but it also incurs penalties and taxes that further diminish your financial resources. Explore alternative solutions to address your financial challenges without jeopardizing your retirement security.

Inadequate Insurance Coverage


Insurance is a vital safeguard against unexpected events that could derail your finances, such as medical emergencies, accidents, or property damage. You expose yourself to significant financial risk if you’re underinsured or lack essential coverage.

Evaluate your insurance policies to ensure adequate protection for your assets and liabilities. While increasing coverage may entail higher premiums, the peace of mind and financial security it offers are invaluable.

Remember, we never need our insurance coverage…until we do.

Ignoring Financial Statements


Do you routinely ignore or gloss over your financial statements, such as bank statements, credit card bills, or investment account summaries?

Failing to review these documents regularly could prevent you from detecting potential issues, such as unauthorized charges, billing errors, or fraudulent activity. Mistakes always happen; if you don’t pay attention, you will never catch them.

It’s essential to scrutinize your financial statements monthly to identify discrepancies and ensure your accounts are in good standing. Ignoring these documents may result in missed opportunities to improve your financial health and mitigate risks.

Lack of Financial Goals

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Having clear financial goals provides direction and motivation for managing your money effectively. If you haven’t defined specific objectives or milestones for your financial journey, you are probably drifting aimlessly without a plan for success.

Whether saving for a home, paying off debt, or building a retirement nest egg, establishing measurable goals enables you to track your progress and make informed decisions.

Set SMART (Specific, Measurable, Achievable, Relevant, Time-bound) financial goals that align with your values and aspirations.

Failure to Invest in Yourself


Investing in yourself through education, skill development, or personal growth initiatives is crucial for long-term financial success. Neglecting opportunities to enhance your earning potential or expand your expertise may limit your financial prospects.

Whether pursuing higher education, attending professional workshops and conferences, or acquiring new certifications, investing in yourself can open doors to higher-paying job opportunities and increase earning potential over time.

Always be on the lookout for ways to improve your skills and experience.

Overspending on Non-Essentials


Excessive spending on non-essential items or lifestyle upgrades can quickly deplete your financial resources and hinder your long-term financial stability.

Take a look at all that stuff in your garage or closet. That stuff used to be cash!

If you frequently indulge in luxury purchases, dining out, or entertainment at the expense of your savings goals, you may be living beyond your means. While treating yourself occasionally is essential for maintaining balance and enjoyment, it’s essential to prioritize needs over wants and practice moderation in discretionary spending to achieve financial security.

Lack of Financial Literacy

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Financial literacy is the foundation of sound money management, yet many individuals lack basic knowledge about personal finance principles and strategies.

You may be more vulnerable to making costly mistakes if you navigate financial decisions without a solid understanding of budgeting, investing, or debt management. Invest in your financial education by reading books, attending workshops, or seeking guidance from trusted sources to empower yourself with the knowledge needed to make informed financial choices.

Hiding Financial Problems


Keeping financial problems hidden from loved ones or avoiding discussions about money can exacerbate existing issues and hinder your ability to seek support. If you’re concealing debt, overspending, or other financial challenges from your family or partner, you’re depriving yourself of valuable resources and potentially straining your relationships.

Open and honest communication about financial matters is essential for collaboratively addressing problems and finding solutions that align with shared goals and values.

The key to communicating about money effectively is not being judgmental during the conversation. Judgment will never help improve the situation.

Feeling Overwhelmed or Stressed About Money


Persistent feelings of overwhelm, anxiety, or stress related to your finances are clear indicators that your financial health may be compromised.

Constantly worrying about money can affect your mental and emotional well-being and impact other areas of your life. If financial stress is weighing heavily on you, it is crucial to take proactive steps to regain control of your finances and alleviate your concerns.

Talk to a financial planner, explore debt management strategies, and practice self-care techniques to restore balance and peace of mind. Remember that prioritizing your financial health involves investing in your well-being and prosperity.