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  1. Using credit cards to pay ordinary expenses and not paying off the credit card at the end of the month. We all use credit cards to pay ordinary expenses and that’s fine, but the difference between doing that and having the red flags waving is not paying off the bills at the end of the month. If at the end of the month you have credit card balances that are not paid in full, wave the mental red flag and save yourself before it’s too late. Get spending under control before it controls you. Understand this about credit and debt, there is no happy medium, there is no “live and let live.” Either you control credit and debt or credit and debt control you. If debt goes on long enough, it will literally enslave you. Certainly, we all have special circumstances such as emergencies or starting a business when we need to go into debt. But generally speaking when there are no emergencies or entrepreneur activities, spending needs to be under control at all times for your own long-term security.
  2. No plan to pay off your debt. If your loans, bills, credit card debt keep growing each month and each year, it should be a major red flag. You need to stop spending and create a plan to pay off all of your debt as detailed elsewhere on the website.
  3. No emergency fund. An emergency fund is critical in today’s economy. The days of keeping a job or two jobs for all of your career are done. Today, you family’s finances can change in a flash. Today, many of us simply use our credit cards as an emergency fund. That may work for a week or a month, but what if you are out of work for six months or a year? The reality is, you need to have an emergency fund of cash to pay expenses for six months or a year. You need to have the higher figure of 2 years if you are self employed, as the recent Great Recession demonstrated to many small business people. The wonderful thing about an emergency fund is that you never need to spend it. You can save it and watch it grow and use it when you retire.
  4. Continually dipping into a home equity line of credit, or if you are a small business, continually dipping into the business line of credit to meet ordinary expenses. Both should set off major red-flag alerts and a fire alarm to boot. Here’s the problem: You are spending more than you are earning and you can keep at it for years. Let’s say you are spending $30,000 more a year than you are earning. To make up the difference, you write out a home equity line of credit check to cover the expenses. The problem is, as the Great Recession taught us, the price of housing rises and it falls. If you are in a falling housing market, your home equity line is maxed out and you lose your job, you have a recipe for financial disaster. Will it happen again, who knows. But why set up yourself. Why not get spending under control and actually pay off your home equity line of credit. It is the same with a business line of credit. It may be easy to get a $50,000, $100,000 or even a $250,000 business line of credit. Year after year, however, you have a spending shortfall let’s say once again $30,000. After only three years, you could owe $90,000 that you are paying back month after month at a high interest rate. It saps your cash and causes you to dip into that account at a faster and faster rate until it is maxed out. Then it is like dragging a giant boulder behind you everywhere you go.

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