Question: Are you surviving or sinking financially?
Financial survival as I defined it is: ability to increase your net worth in the positive direction.
So Financial sinking is defined as: inability to increase your net worth in the positive direction.
Note: Net worth is defined as your total assets minus your total liabilities. Example follows: Your net worth is $100,000 if you own:
- a house currently valued at $200,000 (with a $150,000 mortgage loan)
- two cars valued at $10,000 each (with two $5,000 loan on each car)
- Furniture valued at $5,000 now (with $4,000 loan)
- Credit card debts of $5,000
- Student loan of $16,000
- Retirement fund of $60,000
If your total annual income is $40,000, and are spending $45,000 yearly, you are sinking because you are spending more than you earn, and your home and auto values are decreasing as well, thus causing the net worth to decrease.
Many people are clearly sinking when they lose a lucrative job and their income drops significantly. Some are going through tough times because of the housing bubble bursting or due to cash flow problem with excessive debt.
In a nutshell, my interpretation of financial survival is this:
Can you see a light at the end of the tunnel, which is not an oncoming train?
In either case (sinking or surviving), we should follow the basic personal financial practices:
- Build up emergency fund of at least $1,000 to repel Murphy
- Cut up credit cards and switch to debit card (move away from credit to cash transactions)
- If you have debts, start paying them down smallest balance to largest.
How do you plead? Are you surviving or sinking financially?
Please rate and comment on this post.
rate
email
print
link to this page
Comments: 16
Swimming
Rae, I assume you mean your net worth is neither increasing or decreasing, and making ends meet?
Whilst I lost about 15K GBP at the start of the recession in the UK and my investments are giving a poor return - I am still managing save and we have paid off our mortgage and have no credit card debts at all.
It doesn't help to look back, Ishbel, but the fact that you are saving, and having no nortgage and credit card debt is a huge light at the end of a tunnel. Congratulations.
The looking back was only in October of last year - I'm still inclined to believe I am allowed to be bitter!
Learn from your mistakes, pick yourself up, and move forward, looking up, not down.
Don't patronise me...! I have no credit card debt - we own (fully paid) two homes, we have a small boat and 2 cars AND no debts....
I'm coming up to retirement age and losing 15K of my savings is hard. There was no 'mistake'. I took shares in a British building society which had taken bank status. I had bought share about 20 years ago. The bank went belly-up. My savings were guaranteed by the British govt - my shares were not.
Hanging in there. Not sinking, but it feels like we're swimming and not making any progress.Refinanced the house last year to make a lower payment, then they raised property taxes and we're back to paying what we did! (At least we got a lower interest rate.)
So happy I never got a credit card though!
EM JAY, you're one step ahead of most people. For every credit card issued, a debit card is going into the hands of wise people.
An unknown benefit of being poor when I was young. I couldn't get a credit card. Once I started making better money, I was flooded with offers. I figured since I got along without them when I had needs, I could get along without them totally. Credit cards are a scam.
When you break it down the way you do, I am sinking. However, even though I am making what I did in the 70s (with everything costing 12 times more), I feel I am coming to the surface. I am doing it by getting a subcontractor job where I can work whatever hours I want and doing just that. I sleep about 6 hours and spend about 2 to 3 on activities of daily living, take one day out of 14 and sometimes only half day off. My hourly wages are about minimum wage but I work a ton of hours. I am about to actually open 3 types of savings accounts and get those direct deposits going into them every 2 weeks, really tiny deposits but deposits none the less. Compared to a homeless person, I am living large.
That's not a reasonable comparison. If I may be bold enough to suggest two excellent books to boost your earnings, I recommend Dan Miller's books:
1. 48 Days to Work You Love
2. No More Mondays
These books will rock your world, and answer your life question: "What do I want to be, when I grow up?"