Not long ago, I picked up my daughter from school and discovered that her entire class was punished because another child misbehaved and interrupted the day’s instruction.
After hearing her story, I recalled that the same classmate disrupted the class the previous week, causing everyone to miss recess. These two events led me to wonder about the impact of one child’s antics on the group’s ability to learn; if this pattern continues, where will the students be at the end of the school year?
I raise the issue because, over time, small disruptions in our finances — an overdue credit card bill here or a missed payment there — can overturn our financial lives. Problems occur that seem to pop up out of nowhere, but have been bubbling all along just beneath the surface. And there’s nothing you can do once the bubble bursts.
Here are some examples of disruptions that can cause our financial lives to unravel:
Creeping credit card balances. Your balance continues to increase, but it doesn’t stop you from using a credit card to pay for daily or unnecessary expenses. One day, you swipe the card to pay for an important item, and your card is declined.
Car loans of five years or more. You decide to buy a new car, but can only afford a monthly payment if the loan is five, six or even seven years. But once you get the loan, other expenses make it difficult to make the car payment and suddenly you’re saddled with a car you can’t afford.
Late tax and homeowner’s insurance payments. You believe that as long as your mortgage is paid, everything will be fine. So you fail to pay your property taxes on time or keep up with homeowner’s insurance, and now there are penalties from the IRS or you can’t get insurance.
Failure to save for a long-term need, such as a child’s college tuition. You are keeping up with all of your monthly bills, but failing to plan or develop habits for long-term savings. When your child reaches high school, no money is in the bank for future college expenses.
At the end of the day, you’ll avoid these disruptions with good decisions and proper planning. Here are a few tips to keep the financial cauldron from bubbling over:
- Always make payments on time and make at least the minimum payment. If you ever need to transfer a balance from one card to pay another, it’s time to get help. A nonprofit credit counseling agency can provide you with budget help and possibly with a repayment plan with lower interest rates.
Don’t buy the car you can’t afford. If the payments are too high or stretch out for too many years, choose a new car that costs less or a used car.
- Don’t miss tax deadlines and keep up with homeowner’s insurance. If you don’t have money for your taxes, file for an extension and consider speaking with a tax accountant about your options.
To save for long-term needs, start with small amounts and slowly build your savings. Even saving 1 percent of each paycheck will add up. Start with a small savings goal and as you receive pay raises or tax refunds, increase the amount. You will be surprised how quickly it will build — and it how you will avoid the aggravating disruptions to your financial life.