How Do I Know I Need Help In Managing My Finances?

There may be times when things don’t go as well as we’ve planned. It’s important that we look out for warning signs if we need help in managing our finances, particularly our debts. Below are some indicators that should trigger us to seek help in managing our finances:


1. Frequent Arguments over Money

They say that during courtship, the guy would do most of the talking while the girl listens. In the first year of marriage, the wife would do the talking while the husband listens. After a year, both the husband and wife would do the “talking” while the neighbours listen! If you are arguing with your spouse frequently over money, then it’s a sure sign that you are facing some financial difficulties. If this financial problem is not addressed promptly, it may lead to other marital problems and ultimately resulting in a divorce.


2. High Debt-to-Income Ratio

As a rule of thumb, we should limit all our debt obligations to about one third of our take-home income (generally defined as gross income less EPF, tax and SOCSO deductions). What it means here is, if our take-home pay is RM3,000 per month, then our housing plus car loan repayments (including other loans, if any) should not exceed RM1,000 per month. It’s not surprising to find many families having a Debt-to-Income Ratio of more than 50%! This would mean that they’d have less than half of their income left for basic living and child expenses. What about those occasional holidays, gifts, outside dining and entertainment expenditures? Most likely, they’d be forced into taking on more debt through credit card or personal loans. This will result in a vicious cycle and will only get us deeper and deeper into the debt-trap!


3. Maxing-out on Credit Limits

As a result of the above, i.e. when an increasing percentage of our income is used to pay-off debts, we would rely on credit cards. If you notice that your credit balance is increasing each month, this would be another warning signal. If left unchecked, you’d most likely hit the limit very soon and then start maxing-out on the second and third card. Before you know it, you find yourself drowning in a pool of debt. That’s when your “good friend”, Ah Long, will throw you a “float” to “save” you, not realizing that this “float” of theirs is filled with rocks that will weigh you deeper down into the drowning pool of debt! Beware!!!


4. Pay the Minimum Only

Another tell-tale sign is when you start paying only the minimum of 5% on your credit card balances. The balance would normally attract a finance charge of 1.5% per month or 18% p.a. For example, if you have an outstanding balance of RM1,000 and decided to only pay the minimum of 5% or RM50 whichever is greater, the amount of interest charged to you in the first month is about RM14.25 only. You might not think of this as a lot but do you realize that if you continue this payment pattern, it’ll take 2 years for you to fully settle your initial balance of RM1,000? The total interest incurred would amount to about RM173.00. Imagine if the amount is RM10,000 – it will take you more than 7 years to repay and your total interest incurred would come up to RM3,740! Of course, these numbers assume that you do not add-on to your present balance, but how can you be sure it will not happen? Yes… only if you CUT your cards immediately!


5. Always Late in Settling Bills

We are so used to the saying, “Better Late than Never!” However, when it comes to paying our bills, this is not a good sign! Of course we do not need to settle our bills immediately when we receive them but they should be settled by their due dates. If we are chronically late in paying our bills up to a point where late payment penalties are imposed, we need to re-examine our finances. We don’t want to end up in a situation where our electricity and water supply, telephone lines are cut or our cars are being repossessed. So, if we are a little behind most of the time, it’s time to get behind the numbers!


6. Lots of I.O.U.

If we realize that more and more of our relatives and friends are avoiding us, most likely it’s not because we’ve not bathed for a week! Very likely, we have been borrowing money from them and have stacks of “I Owe yoUs” in our drawer! Another early warning sign is when we tend to borrow to purchase things that we used to pay for in cash. This is an unhealthy sign and we not only loose control over our money but also our dear friends and relatives.

We may even owe it to ourselves that long overdue medical or dental visit or even our car service. These are certain necessary expenditures that take a back seat because budget is tight every month and they are deemed not “urgent” yet. Things like these are important and when they become urgent, most often it’ll be too late!


7. Sleepless Nights

This is also known as the “Sleep Test”. Can you sleep well at night or are you having sleepless nights thinking about your money problems? In fact, the more we think about our money problems, the more money problems we would encounter. Your mind attracts the things you think about most and we should focus on the solutions rather than the problems. And one way is to seek financial counseling and get started on a well-designed debt management programme. This is not something that we can “sleep over” and hope that everything will be fine tomorrow. We have to take ACTION now!

If you do encounter any one or more of these warning signs, you should seek immediate help in getting your financial fitness back in shape. Next week, we’d be journeying through “The Road to Managing Your Debt Wisely” and you might want to join us for the ride. Together, let’s “Make Prudent Financial Management A Way of Life!”