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Money Management (04/16/2008)
Five signs your finances are in trouble

The loss of a job, a sudden illness or another crisis can spell financial trouble for any family. Sometimes, however, people make small mistakes that add up over time to create big problems for their finances, according to the Minnesota Society of CPAs (MNCPA). CPAs recommend that you watch out for these warning signs that can signal potential financial pitfalls.

1. You have no budget

With a budget, you can take stock of how much money you have coming in each month, what your expenses are and whatís left over once youíve paid them. Without this realistic assessment, itís easier to spend too much-often without even realizing youíve done it-óand harder to reach your financial goals. Budgeting is an important first step in managing your money so take the time now to itemize each month what you earn and what you spend.

2. You have a budget, but you usually overspend it

Creating a budget is a good start, but then you have to follow it. If you find yourself spending far more on discretionary items such as entertainment or clothing than you budgeted for, itís time to cut back. If you want to splurge, set aside some cash each week for fun, but donít spend more than you planned for.

3. You pay only the minimums on your credit cards

Credit cards make it easy to spend, but they can be tough to pay off if you charge too much. If you make only minimum payments on your debt each month, a $1,000 debt can take up to 22 years to pay off. And during that time, you will continue to pay interest charges well in excess of your original purchases.

If you find yourself in this position, limit future spending by cutting back to just one card that you use only in emergencies. Then chart a new budget that will allow you to increase your monthly payments and begin reducing the size of your debt.

4. You are using one credit card to pay off another

This is a clear sign that spending is seriously out of control. Itís also an expensive way to manage debts since instead of erasing your outstanding balance you are simply shifting it to a new card with its own interest payments. A related warning sign is using your credit card to pay for regular expenses-ósuch as food, rent or car payments-óbecause you donít have enough cash to cover those costs. There are both indications that itís time to rein in spending.

5. You have no savings

Families are saving less than they have in the recent past and taking on more debt, according to the Federal Reserve. Without a savings cushion, itís harder to bounce back from financial setbacks and less likely that youíll be able to afford vacations and other indulgences. To fix this problem, start with small weekly deposits to a savings account Stick with your savings plan and youíll be amazed how your balance will add up over time.

Take control

As part of the professionís 360 Degrees of Financial Literacy program, CPAs have created a special Web site to help people with all their financial concerns: www.360financialliteracy.org. The site contains many articles and tools that you can use to gain control over your financial life. Remember, too, that your local CPA can offer smart ideas and recommendations to help you with any aspect of your finances.

Information and resources are available to the public on the MNCPA Web site (www.mncpa.org/information) including state and federal tax forms and information and financial planning information for individuals and small businesses. A free CPA referral service is also available on the Web site or by calling 800-331-4288. The MNCPA is part of the national 360 Degrees of Financial Literacy campaign to help Americansí improve financial literacy; information and resources are available at www.mncpa.org/360.



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