Warning signs on the road to financial ruin are almost as essential as warning signs you see on a highway while driving. But there are fewer warnings for financial decisions. Still, financial ruin can affect you, your family, and your future. What are the signs that you might be traveling in the wrong financial direction?
Five Warning Signs of Financial Ruin
We are not publishing the warning signs of financial ruin to condemn or embarrass you. But we want them to sound alarm bells that it is time to address the issue and take another route.
Five warning signs include:
You do not know the amount of your debt without looking it up – A credit report can give you a list of your creditors.
You have exceeded or increased your credit balance more than once – Overspending without the money to pay can create a cycle of requesting higher credit limits.
You pay for vacation with money that you will earn after you return – Travel now, pay later is a practice of many American families.
You do not know how much money you should save – Most experts recommend saving at least 20% of your income.
You do not have three to six months of income in savings – Saving the income helps prevent a greater financial crisis when unexpected illness or emergencies affect your family.
Rerouting Off the Road of Financial Ruin
There is a difference between being on the road to financial ruin, staying on the road, and experiencing defeat. John Hunt of Raleigh is a financial advisor with a commitment to his clients. He will help you see potential hazards, teach you how to navigate them, and help you prevent some future money problems. Let John help you and your family get on the financial road to recover. Call or text him at 919-480-8418 or send him a message through our contact form.
Your environment, peers, family background, and other factors can affect your spending habits. But are you a debtor, a wealth creator, or another type of spender? Did you realize that the way we choose to pay for items can have more of a long-term financial impact than what we buy? We will discuss how major capital purchases can affect your wealth. And you will learn to identify the type of spender you are and how it affects your wallet.
What Is a Major Capital Purchase?
A major capital purchase is something we buy but cannot pay in full, so we must finance it. Cars, weddings, a new roof on our home, or vacations are significant expenses for many Americans. And they pay for them with a credit card or another type of financing. For many consumers, the result of some major capital purchases is owing creditors more than they accumulated.
What Is Your Buying Profile?
Your buying profile is the way you spend money and make purchases. Spending habits vary. But are you the type to pay with a credit card, save money until you can pay cash, or are you a wealth creator who tries to find a low-interest loan?
Consider the graph below:
Spending Habits and Wealth Creation: Revealing Facts
Each line on the above graph is described below with a buying profile that describes spending habits to help you identify your buying profile. And the profile will help you understand if you are on track to becoming a wealth creator. Can you identify your profile?
1. Zero Consumer
A zero consumer is a person who neither has nothing nor owes anything. The black line in the graph represents the zero consumer. But whenever you owe more than you own, it positions you below the zero line.
2. The Debtor
A debtor is someone with no savings or resources who must borrow to pay for expenses. The debtor’s spending habits often involve borrowing money against future earnings and working to pay them off to rise above the red line and return to the zero line. If you are a debtor, you financial advice can help you get out of debt.
These factors also characterize the debtor:
Working to pay off debt before another need arises
Spend life working to pay off debt with interest
Depend on future earnings to support their lifestyle
Loss of control of resources, because creditors control them, not you
3. The Saver
A saver is a person who remains aware of the costs of borrowing at interest. Rather than spending money they don’t have, a saver postpones purchases until they have enough money to pay upfront. The saver pays with cash—in full. The blue line in the above graph represents the saver.
What are the effects of a saver’s spending habits?
Consuming their savings for major purchases that move them closer to the zero line.
Continuously moving through a cycle of having access to money then needing to spend their saving.
Draining savings accounts to avoid paying interest.
Although saving money to pay with cash seems to be the best way to pay for things and avoid interest, it has some disadvantages:
Eliminates the ability to earn interest on savings
Requires saving money—and that takes time
Often becomes taxable income
Increase risk of draining savings on a major or unexpected event
4. The Wealth Creator
The wealth creator takes responsibility for creating wealth through an approach that saves and spends money while still earning interest and not depleting income. Represented by the green line in the above chart, the wealth creator has unique spending habits. They save and use savings as collateral for a loan with lower interest than the interest rate on their savings.
Advantages of the wealth creator’s strategy include:
Helps you avoid draining your savings for purchases
Allows uninterrupted compounding interest on saving
Ability to negotiate on loan interest rates
Savings increase as the loan is repaid and continues to earn interest
Uninterrupted compound interest works best in the long term. Moving interest-earning dollars from one account to another is not an efficient purchasing strategy. And the wealth creators understand that.
Schedule a Consultation to Help Create More Wealth
Did you identify your buying profile? Are you a saver, debtor, or wealth creator? If you think you need to improve it by making the most of your available resources, contact John Hunt of Raleigh. We will teach you how to become as efficient as possible while avoiding wealth transfer.