Everybody knows when times are tight at home. There seems to be "too much month at the end of the money". There isn't enough cash to go out and do things that are "fun" without worrying about how bills are going to get paid. In effect, you're "robbing Peter to pay Paul." But how do you know if it's just a temporary setback, or if you're in deep, deep money trouble?

Looking back at a time in my life when money problems were a constant worry, I can remember five distinct signs that I had to take drastic action immediately, or my family and I were going to end up living in my sister-in-law's basement:

1. You frequently have overdraft notices from the bank. If your financial life is in harmony, you should never have overdraft notices from your bank. If you are constantly finding yourself with more going out of your checking count than coming in, you've got big problems.

2. You avoid answering the phone because you're afraid a creditor is calling. This is just another sign that you owe somebody money -- money you can't afford to pay.

3. You avoid going to the doctor because you can't afford the bill. If you don't have adequate insurance through your job, it's time to find another job. There is nothing more important than your health.

4. You have no "extra" money. If all of your money is going to household bills, and you have nothing left over, you need to start paying your most important creditor first: you. Everybody, notice I said "everybody", should have something in a savings account.

5. You are constantly behind on basic necessities like rent and utilities. You either can't afford the home you have, or you are spending too much money on things that aren't really necessities.

A few years ago, I had all of the financial symptoms listed above. At the time, I really didn't know how to pull myself out of this situation. After all, there was only so much money to go around. After finding myself practically homeless, I finally took a good, long, hard look at how I was managing my money, and I realized that I wasn't really managing my money at all. I just paid what I could when I could. That is no way to live. Here is what I did to finally get my financial house in order:

1. I became obsessive-compulsive about my checking account. I opened a checking account in my name only (my wife was not pleased, but she made her own money and she opened her own account). All household bills are paid from this account, and nothing gets spent without it being noted in the check book register. I balance this account DAILY. The overdrafts stopped.

2. I contacted my creditors. I didn't wait for them to call me. I worked out payment plans with all of them. Some of the creditors wouldn't leave me alone, so I wrote them a letter telling them to stop calling me. You are allowed to do this under the Fair Debt Collect Practices Act. This doesn't let you off the hook for your debt, but creditors cannot harass you by phone if you tell them to stop.

3. I got a different job with adequate health insurance. Sure, I liked my previous job, but I've got to look out for number one. A job is no good to you if you are too unhealthy to work.

4. I made saving a higher priority than spending. My savings account gets paid before any of my creditors. Period. Nobody is going to take care of me in an emergency except me.

5. I downsized my life. I came to realize how many of my "needs" were really "wants". You may "want" a nice TV, a gym membership and a subscription to Netflix, but you don't really "need" it. It's a matter of priorities. What is more important: providing your household with its basic necessities, or spending money on a bunch of things that won't matter five years from now? Once you have that figured out, the rest of your financial life will fall into place.


  1. Jenn // March 6, 2008 at 5:48 PM  

    Love your comments. Especially the last one. My dh and I turned in our leased vehicle two months early today. . .all I heard was, why and we could have financed a cheaper vehicle through the dealership. NO, I wanted to scream. I want the payments to stop. I want to stop owing. Just owe on the house now, and have two older, but paid off cars. Feeling good about that. . . Now, just the house to tackle. . .

  2. SavvyFrugality // March 7, 2008 at 8:59 AM  

    You're right, it is so much better just to own something "free and clear". In my case, my car died about six months after I paid it off, so I'm back to making car payments, but I plan to pay it off early.

  3. Mr. Debtbeater // March 18, 2008 at 11:31 PM  

    At one point, I was seeing all 5 of these. However, the first time I actually hesitated to take my kid to the doctor (it was usually just me until then) because of money I started turning things around a little. Here i am 10 years later finally getting serious about turning things around because I'm just sick of it. So sick that I'm doing half the stuff you were doing to correct things. In fact, I think I've looked at my bank page twice today already. LOL

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