It is quite common to see individuals who are broke before every paycheck. These individuals spend every single money they earn before the month ends, and they then have to rely on friends or family for support. If that sounds like you, well, it suggests that you have poor financial habits!
But being financially illiterate isn’t the end of the world; in fact, seeing it as a problem is the first step to turning things around. So if you are up for some financial growth, this video is for you.
Today, we will take a look at 15 signs of financially-illiterate individuals, and of course helpful tips on how you can turn that around! Sounds like fun? Let’s get right to it! If you don’t feel like reading the article here’s the video version:
1
You Spend Without A Budget
This is usually the first and most obvious sign of a person who makes poor financial decisions, spending without a budget!
Some individuals like to believe that budgets prevent them from spending their money the way they want, but the truth is this: having a budget helps you spend your money with a plan! Having a budget also gives you a good idea of how you’ve earned and how you spend it. Budgets can also help you see what you’ve been spending the bulk of your money on!
Spending without a budget does the exact opposite; you are constantly in the dark about your income and expenditure, and it’s only a matter of time before your entire finance structure comes crashing to the ground.
2
You Know Nothing About Your Credit Scores
We know what you are thinking; credit scores are so difficult to understand! So, rather than bother with this largely misunderstood concept, you’ve decided to ignore it entirely. But ignoring your credit scores isn’t going to magically cause it to go away.
And if you are constantly taking loans, there’s a huge chance your credit scores are affected by it! In fact, most banks would not give you loans unless you provide your credit score! Also, understanding your credit score isn’t so much of a big deal; it is basically a scoring model which is used by lenders to determine if you qualify for a loan. Today, FICO scores are mostly used by lenders, so that’s a good starting point to learn about credit scores!
3
You Don’t Like Investing
“Uh-oh, investing, isn’t that for people who’ve got a million dollars in the bank?” Of course not! If you constantly find yourself refusing to invest because you think it isn’t right for you, it sort of shows that you don’t know everything there is about finance!
While investing is for everyone, not every type of investment is perfect for every individual! To invest, it is crucial that you find the investment opportunity that you perfectly understand, and that which fits your income!
For instance, investing in cryptocurrency sounds like a great idea, but how much do you know about this market and volatility?
While making the decision to invest is important, it is equally vital that you find the opportunity that perfectly fits your financial capabilities. Losing all your money to an investment opportunity sounds almost impossible, but hey, it happens, and it sucks!
Here’s a simple lesson to remember when you are about to start investing: stocks mean you are buying an ownership stake in a company, while investing in bonds means you are loaning money to a company, or even the government, to be repaid with a certain interest.
4
You Spend All Your Money At Once
Have you ever met anyone who can’t seem to stop spending money? It’s like they can’t stop until they’ve spent every single dime they have! These individuals are the ones who live from paycheck to paycheck, who take loans each month, yet you always find them using the latest devices and the newest fashion items!
Not only does this show a lack of financial discipline, it also shows that these individuals have no idea what their financial priorities are. They are easily swayed by the newest trend, and they wouldn’t mind spending all their money on it!
5
You Take Toxic Loans
It is impossible not to take loans, especially when we need to make large purchases like a house or a car. But knowing the best loans to take is sometimes just as important as the loan itself!
Ever heard of payday loans? These are no doubt one of the most toxic loans available out there, and it seems like they were designed to specifically target the financially illiterate. First, these loans are usually short-term, which means you have to pay back in a month or less.
However, what makes these loans almost life-threatening is the interest rate on them! Some of these loans can have interest charges of almost 40%, and when you miss a payment, the loan rolls over and there is an increase in the interest!
Remember Squid Game? The main character also took a toxic loan from a notorious loan shark, and it led him to a game that almost took his life.
When you take out toxic loans, you are forced into an endless cycle of interest rates, which you’ll sometimes need another loan to cover, which then again results in another loan and crazy interest rate.
6
You Pay So Much in Bank Fees
We pay for almost everything we do, so wouldn’t it feel a little better if we didn’t have to pay so much banking fees? Well, if you are still paying exorbitant banking fees in 2022, it kind of shows that you aren’t completely in tune with your finances. When you open a savings or checking account, there are a number of common fees you have to look out for.
This includes service fees, transaction fees, insufficient funds fees, and a number of others. But while some banks still charge for these, you shouldn’t be paying any of them in the first place!
In fact, most banks have dropped their overdraft charges, and you can own a bank account without paying these insane fees!
All you gotta do is find the right bank for you, if you are still stuck with a bank whose banking fees take a huge percentage out of your paycheck, it is definitely time for you to migrate to a new bank!
7
You Don’t Know The Difference Between Wealth and Income
We hate to ruin your party but making big bucks at your job doesn’t necessarily mean you are wealthy. Come on, we all know Elon Musk isn’t the richest person in the world because of his monthly income at Tesla! Wealth is built, and while it isn’t your monthly income, it depends on it to a very large extent.
You also have to invest wisely, save when necessary, and totally avoid high-interest loans if you want to build wealth. Also, you might want to cut back on the excessive spending as quickly as possible.
8
You Pay Bills Late
It is quite common to miss a payment, but it becomes a problem when this becomes a regular part of your finances. Paying bills late has a sort of ripple effect on your finances; it begins with additional charges which could typically mess up your budget.
Also, being late on a debt will affect your credit score, bringing it down drastically! And we all know too well that it takes a whole lot of work to get this score back up!
To avoid late bills payment, you can use mobile finance apps to keep tabs with due dates and deadlines, so you never have to worry about forgetting your payments due dates.
9
You Don’t Have A Financial Safety Net
Not having a savings account is similar to not having a back-up plan; what would you do if you suddenly lost your job? Would you fall back on your family and friends for loans? Or just get by with your savings?
But if you haven’t got a savings account, you have no other choice than to take out a loan. Now, depending on where you get this loan from, you might either have to pay exorbitant interest rates, or pay back these loans in an almost impossible time frame.
This also means that the first income you earn at a new place of work will be for servicing your loans, rather than taking care of your basic needs! But guess how you can avoid all of these? By setting aside a few bucks each month as your savings!
10
You Don’t Have The Necessary Insurance
Insurances were designed to help us stay afloat in the event of financial loss, so having none basically means you are leaving yourself out in the wild. While that might sound a little extra, not having the right insurance policy is enough to have your entire finances in ruins!
Let’s take this scenario as an example; you own a restaurant you inherited from your parents. This restaurant is doing so well that you have more than enough to live your best life. But unfortunately, you have no insurance protecting this business because you believe that since your parents never had insurance, there’s really no reason for you to.
However, a terrible fire breaks out one morning, and the restaurant burns to the ground, leaving you with nothing. Now, if you’ve got insurance, you should have enough money to build this restaurant back up. But without insurance, you are left with nothing but a burnt building and destroyed business.
11
You Don’t Have An Emergency Funds Account
If an individual hasn’t got a savings account, a strong insurance policy, and an emergency funds account, it is safe to say this individual is completely out-of-touch with their finances. As we mentioned in our previous video, emergencies are a part of life, and even though we never know what type of emergency awaits us, it will do us a whole lot of good to plan against it.
But here’s the thing: a savings account is quite different from an emergency funds account. While a savings account is to help you survive on rainy days, an emergency funds account is geared towards helping you afford whatever emergency you might face, such as medical bills.
12
You Don’t Completely Understand The State of Your Finance
Financially illiterate individuals live by the sentiment that what they don’t know won’t harm them. Well, not with your finances. Ignoring to pay attention to your finances wouldn’t make them go away.
In fact, your lack of supervision will only complicate things further. This is why most individuals in this category tend to pay huge bank and credit card fees, simply because they have no idea what’s going on with their finances! They simply make money, and spend however they like!
13
You Live Above Your Means
There’s no harm in buying the newest mobile phone, or the latest Nike sneakers, but it becomes concerning when you buy it even when you know you really cannot afford it.
Strangely, some individuals wouldn’t mind taking out a loan to buy the latest iPhone! Living above your means not only puts you at the risk of constantly being broke, it also means you wouldn’t have enough to take care of your basic needs!
14
You Are Not A Part Of Your Employer’s 401(k) Plan
We know you’ve heard of a 401(k), it’s one of the most common ways you can prepare for your retirement. But you know what’s even more common? A belief that your employer’s 401(k) plan isn’t right for you.
When you refuse this plan, you are basically passing up free money, and worse, you aren’t doing enough for your retirement plans.
If you have a 401(k) plan where you put in $100 each month, you would have saved up thousands of dollars when you are retired!
15
You Run Out of Money Before The Bill Gets Paid
If you realise that you always run out of money before you can settle your bills, then you aren’t doing something right.
This could be partly due to the fact that you spend without a budget, and it could also mean that you buy things that you don’t need.
Defaulting on your bills means you’d have to pay extra fees for late payments, which in turn will affect your next paycheck.
To avoid all these, create a list of every bill you have to pay each month, and then strive to pay them first after every paycheck. This way, you don’t have to worry about your telephone or electricity lines getting cut off. And there you have it! 15 interesting ways you can identify a financially-illiterate individual. Did any of these sound like you?
16
You Make No Effort To Learn About Your Finance
When you make no effort to become better with your finances, it just shows that you don’t care about it, or you have no idea how important it is. But searching for knowledge goes beyond knowing about your finances, how about learning about investment opportunities?
Or learning about your taxes? Dear Aluxer, the possibilities are endless, you just have to be willing to turn your finances around! Thank you for spending some time with us today, we are so glad you did! If you found value in today’s video, please give us a like! Hit the bell icon to never miss an upload, and don’t forget to subscribe!
