When something bad — like a job loss, illness, etc — happens, people typically hunker down, watch their spending and costs, and even save. That is a normal reaction as they anticipate the situation to worsen and wonder when about the long-term impact. The problem, however, is that the hit may be too hard to recover from and it could be already too late.
A better approach is to plan ahead and keep an eye out for any red flags for impending trouble. By doing so, you may be in a better position to handle the financial aspects of an upcoming crisis as soon as it happens. It also means that you will help yourself direct your resources to the right channels early on.
To do so, you must be alert and aware of these red flags to avoid unpleasant financial crises.
Faltering economy
You don’t need to be an economic analyst to know when the economy is headed south. All you need is to follow reliable news sources, check job numbers, and make conclusions accordingly. If the economy is stalling, employers likely will be cautious in their spending and hiring. So don’t expect pay raises or better paying jobs to come along easily. If the economy begins to struggle, expect scaling back on workforce and layoffs.
When you follow these sorts of trends, you will be able to make informed financial decisions not only about your situation now, in terms of income and stability, but many months or even years down the road.
A competitive market can weed out weak players. If your employer is one, you should be concerned. In a market where things are picking up, survival can be for the fittest and, in some cases, the biggest. So try to look also at your employer’s status in the market, performance, etc. If you see troubles ahead, this may be a good time to consider a move to a job that offers better financial security.
Personal crises
Even if everything is going well as work, a big change in your personal life can throw your budget off, and push into debt. This can be as positive as getting married or having a child — but these are typically planned changes. More concerning are changes like a death or a divorce. While the former may be hard to foresee, the second probably brews for a while over differences. If you’re in a situation like that, probably you should be watching carefully your spending and your new commitments. In short, put off purchasing that new car or going on that luxury vacation until things are sorted out.
Similarly, if a family member has been diagnosed by a terrible disease, it may be a good idea to see the full scope of expenses that the treatment may require before you decide on shelling out any big amount of money on anything. By doing so, you may be able to cushion the fall in income or the increase in costs without resorting to credit or family help.
Irresponsible behaviour
Falling into a deep hole of debt doesn’t happen overnight. One way to foresee this problem is to review your behaviour as well as those who are close to you — your spouse and children. If any of you has adopted an irresponsible approach to handling money, it may be a ticking bomb to a crisis.
You don’t need to wait to handle the problem when collection agents are knocking on your door. You should begin immediately by looking into how to stop the behaviour, estimate the amount of debt that you’ve begun to accumulate, and draw a roadmap to get it paid. By doing so, you may be preempting a big trouble from happening and impacting your financial status. This awareness also will help you and your family maintain a healthy attitude toward finances.
Rania Oteify, a former Gulf News Business Features Editor, is a Seattle-based editor.
