Together we’ve examined ways to know that you’re on the edge of a financial cliff. Whether living paycheck to paycheck, knowing that just one more payment would be the final straw, or having nothing in a savings account or emergency fund, moving back away from the edge begins with knowing how close you really are. But what are the things or situations that pull people to the edge of a financial cliff in the first place?
Pull? Don’t you mean PUSH? No, you read that right. If something pushes you, it probably wasn’t in your control. I’m thinking of medical bills, an extended job layoff, or some other true emergency. In these cases, even a well funded emergency fund can be quickly depleted. No, I’m talking about those things that pull us, that we willingly tie around our necks and allow to drag us to the edge.
Are any of these are pulling you to the edge of a cliff?
1. Too much debt
That one’s an easy no brainer and a contributing factor to many of the other thirteen items. If the majority of your monthly outflow is going to interest, you know you’re in over your head with debt. Sell something to pay it off or learn to make extra money so that you can move back away from the edge.
2. Too much house
While the days of the McMansion are probably behind us (at least temporarily), the mortgage is probably still hanging around. Mortgage payments that exceed 30% of your monthly income is a sign you may be getting too close to the edge.
3. Too much car
Followed by too much debt on said car. There are few things that can pull you to the edge faster than high interest payments on a depreciating item. How much car do you REALLY need? Drive any new car one tenth of a mile and guess what? It’s now a used car. Why not start out used and stay away from the edge.
4. Private school for the kids
If money is already tight, don’t let the education you’ve already paid for via property taxes fall by the wayside while you spend twice that same amount on a private education. It’s an emotional issue – I know first hand. Of course, if you set this as a high priority in your own life, understand that there will be sacrifices you’ll have to make. If you’re okay with that, then more power to you!
5. Too much insurance
As someone who regularly writes about people having too little insurance (particularly life insurance), this may sound odd. But it is possible to be OVER insured. A ten million dollar life policy when you make $45,000 per year or having full car insurance coverage on a bucket of bolts that cost $1,500 cash are perfect examples.
6. Too much entertainment
We seem to live in an age where we demand to be entertained at all times. It’s everywhere, on television, the radio, our cell phones, our computers. Entertainment can rapidly pull you toward the edge of a financial cliff if you don’t quell the desire to be constantly entertained. Premium cable, satellite radio, music and video downloads all are prime examples.
7. Too much food
Whether you’ve gotten sucked into the organic myth, dine out every meal, or simply buy too many groceries, food has a huge pull. Set your food budget and stick to it.
8. Too much clothing
How many pairs of shoes do you really need? How many pairs of $180 slacks, $125 custom tailored shirts, or $1,200 suits? There are perfectly reasonable alternatives for anyone willing to turn down their status meter.
9. Too much vacation
This one is a weakness for me personally. I love taking my family on vacations where we get to experience something together, rather than buy something that will depreciate, break, or become obsolete within six months. Many cities have free or very low cost museums, kid friendly activities, zoos, gardens, or free concerts. We take advantage of those every chance we get.
10. Too much personal care
Whether spent on products or on services, having your spending tilt too far in the personal care category can pull you toward the edge.
11. Too much hobby
I’ve met people with hobbies that would break my checking account. One guy I knew “collected” motorcycles, another, Remington sculptures, still another, spent thousands on tools and exotic woods to build furniture and other things that he gave away. There’s nothing wrong with a hobby, even an expensive hobby, but if it’s pulling you over the edge of a cliff, it’s time to step back.
12. Too much laziness
Yeah, I said it. Sometimes you can get pulled to the edge of the cliff by laziness – not taking care of things, deferring needed maintenance, or putting off those training classes that would put more money in your paycheck. Laziness can rear its ugly head with regards to exercise, cleaning your home, changing the oil in your car or neglecting to get that mysterious lump on the side of your neck checked out.
13. Too little income
14. Too little education
I tied this millstone around my own neck for years … and my family and I paid dearly for it. The year that I finished my degree, my income effectively doubled. In the years following my MBA graduation, I’ve seen my income rise another 30 percent. More education makes a difference.
What other items could pull you toward the edge of a financial cliff?