Sure Fire Signs You Are Heading for Long Term Financial Ruin

In discussions with my readers and from what I see online I am constantly amazed at how low a priority folks give their finances. Yes, it is unpleasant to deal with hard money issues. Taxes are a drag. Changing bank accounts for a higher yield is a pain. There never seems to be enough money in our paycheck after monthly expenses. And finding time to discuss money issues with our significant other is rarely a priority.

But the reality is that unless you are on top of your finances, you will surely end up on the path to financial mediocrity. Here are 7 red flags indicating that you may be on the wrong financial path.

1. You don't have a financial plan. A bunch of random mutual funds isn't a plan. Saving whatever little you may have left at the end of the month isn't a plan. Counting on a future windfall or lottery win is definitely not a plan. A plan means running a retirement calculator, identifying a savings goal, making reasonable assumptions about rate of return and taxes, and then deciding how much you need to save and what mix of investments is likely to get you there. And put it in writing. Well, typing in today's world.

2. Doh! It's not how much you make, it's how much you save. I have two friends around the same age, one makes $100,000. The other makes $60,000. But the one earning a lower salary has over $200,000 in savings, while the one with the higher income lives paycheck-to-paycheck. So bottom line is, if you cannot save money or don't know where your money is going (finance 101), you will surely crash and burn when it comes to a secure financial future.

3. You have more credit cards than slots in your wallet or purse. Credit cards are great if you pay off the balance on time and get the benefits of reward points or cash back rewards. But if just pay the credit card balance transfer game, where you move balances between cards, your balance will continue to rise and eventually the credit card debt will take over your life. Forget those promotional offers that are designed to lure you in, instead focus on the question "Do I really need another credit card?"

4. You don't know much about your 401K, and IRA is just an unknown acronym. Less than a quarter of Americans are contributing to an IRA. according to a recent survey by TIAA-CREF. Further the survey found, more than half of those who do own an IRA are investing less than the annual limit each year. Now folks probably do invest in a 401K or 403b, through their employer, rather than opening an IRA. But the point is that 401Ks, IRAs and Roth IRAs are tax advantage plans the government has created to encourage retirement saving. They are by far the easiest and best long term way to save for retirement for most Americans. So do yourself a favor and open an IRA asap.

5. Repeating the same mistakes as others. If you were like me, you probably thought you knew it all when you got out of college and felt very confident in yourself. Well, you may be in for a shock, especially when it comes to finances. The financial jungle out there can be very confusing and there are a lot of smart people and companies trying to sell you things you may not need. Avoid large impulse financial decisions at all times, because once you sign a contract it can become a costly exercise to get out. So rather than repeat the same mistakes as your parents or others who trod in your place before, take heed of the lessons you learn and seek out (i.e. research for) good information/advice at all times. If you get a chance, take a personal-finance class or see a financial planner or counselor.

6. You invest or buy even if it sounds too good to be true. Building on the above point, plenty of people are eager to help themselves to your money by promising secret investment strategies you won't find anywhere else, market returns without market risk, or something involving a hot stock that has recently skyrocketed. Be skeptical. There is no such thing as a free ride, and unless understand what you are investing in, you are more likely than not to lose the shirt off your back.

7. You consider it an achievement to pay the minimum balance on your credit card. If your juggling monthly bills by just making the minimum payments on a regular basis, and never paying balances on time and in full, you are definitely heading down the road to financial ruin. The same goes for constantly paying late and overdraft fees. In both cases, you are just throwing good money away. Living paycheck to paycheck may be required during turbulent financial times or unexpected job transitions, but it should not become a habit.

The above list is not exhaustive, but the point is that unless you are aware of your financial options, saving for the future and somewhat risk-averse, you will more likely than not end up on the wrong side of financial prosperity.