Published on: 22 October 2018
Modified on: 10 April 2023
As you analyse your month-end finances, you realise you owe more than you can afford. How did this happen? Were there early signs that you failed to notice or chose to overlook
Every disaster has certain warning signs. Let us showcase to you 5 warning signs that indicate a financial crisis awaiting your future.
When you experience shortage of money or you’re low on cash, you tend to borrow from friends or family or take a loan. You then borrow more to cover it and end up finding yourself trapped in a vicious cycle. Borrowing more than your ability to repay is one of the top causes that leads to cash crunch, especially among spendthrift millennials. First thing an individual needs to do when it comes to improving their financial situation is to realise why they are stuck.
The beginning of a month awaits monthly bills that need to be paid on time. These expenses include your rent, electricity bill, EMIs etc. Then comes other daily expenses like fuel, food etc. These are variable expenses that are spread out throughout the month. After you have paid your fixed monthly bills, if you barely have enough to cover the rest of your expenses, then you are in a financially unstable state.
Credit Score is an indication of the reliability of the borrower or his credit repayment behaviour. In simple words, if you take a loan and may the repayments on time, your score will be good. Lenders look at your credit score to decide whether or not they can give you a loan. When you miss a loan repayment, it has a negative effect on your credit score. If your credit score is decreasing, then it is definitely a warning for an impending cash crunch.
When all the monthly bills come together and you don’t have enough money to pay them all, you decide to put off a few to be paid the next month. This level of cash shortage conforms to a bad financial situation and warrants some serious reconsideration of your money management skills.
When you are running short of cash, insurance may seem like an avoidable expense. So you don’t purchase the essential insurance policies like health insurance and life insurance to save the money you would have to spend on the premiums. Be warned as this might end in an even bigger expense!
If any of the above points resonate with your current situation, then caution! You are definitely headed towards a major cash crunch. You need to take a step back and re-evaluate all your expenses. You either need to reduce your spending or go for smart borrowing and investment options to avoid financial disaster.
Category : Finance
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