EARLY SIGNS OF CASH FLOW PROBLEMS

Identifying early signs of potential cash flow problems can give you the time needed to correct the situation before experiencing a serious financial hardship, and can often make the difference in losing your home to foreclosure or even filing bankruptcy.  According to the Mortgage Bankers Association, 1 in every 200 homes will be foreclosed upon and an average of 250,000 new families enters into foreclosure every three months.  Below are some signs that you may need to reevaluate your cash flow and secure your financial future.

Rising Debt-to-Income Ratio
Mortgage lenders have learned that families rarely default on their mortgages if they spend no more than 28% of their gross income before taxes for housing and no more than 36% of gross income for their total consumer debt including cars, credit cards and housing expenses.  Business Week reported that American consumer debt-to-income ratios have raised approximately 25% since 1992 and most authorities agree that a debt to income ratio of 50% or higher is a flashing red light, as one emergency could topple the consumer.

Lack of Retirement Savings
Most experts agree that individuals will need between 70% and 80% of pre-retirement income to live comfortably; yet, according to a study done for the brokerage firm Merrill Lynch, current low-savings statistics show that many individuals are falling far short. Trends such as the disappearance of pensions, uncertainty of Social Security and Medicare and rising health care costs are making saving for retirement even more critical. A recent article in the Wall Street Journal described the deficit of Social Security and Medicare as a "$74 Trillion = Crisis." Today more than ever, planning for your financial future demands that you stay ahead of the financial factors that shape our economy.

Denied Credit
Another key indicator of a cash flow crisis, one that has recently rocked the American financial sector, is lack of access to credit.  Access to credit at an affordable interest rate gives you protection against a catastrophic event or severe financial hardship.

Late or Missed Payments
If you find that your monthly budget is running out before the end of the month, you must immediately cut your expenses and increase cash flow or you could be facing a severe financial hardship.  According to the Homeownership Preservation Foundation, missed or late payments are two of the top five reasons for losing a home to foreclosure.

No Emergency Savings
Your emergency savings account is your last line of defense against a serious financial hardship.  We recommend an FDIC insured savings account, with the equivalent of three to six month's worth of normal living expenses, to prepare for major emergencies or sudden unemployment.  Your emergency savings is the single most important thing you can do today to protect your family against unexpected losses that might otherwise keep you from meeting your financial goals.

Author
Chad Sunyich