Warning Signs You’re in Financial Danger

9 warning signs you’re in financial danger

Due to the complexities of modern life, our finances can often be the last thing on our minds. However, many Kiwis are likely closer to financial danger than they think.

In our consumer-driven society, living beyond your means without realising it is all-too-common. Our environment is saturated with targeted advertising that makes it effortless to succumb to impulse buying — whether for designer goods, luxury experiences, new technology, or big-ticket items like a new car. On top of that, the proliferation of credit cards, buy-now-pay-later (BNPL) platforms, and personal loans has made instant gratification more accessible than ever.

Unfortunately, it can put us in tricky financial situations, including being saddled with consumer debt or cashflow issues. Considering how easy it is to impulse buy online, use a BNPL system and load up on credit cards, we can easily end up spending more than we make.

This process has become so normalised that we overlook the financial dangers, neglect long-term aims, and live a lifestyle that can be too expensive for our own good.

While it may seem okay because so many are living beyond their means, it shouldn’t mean you need to endanger your own financial priorities.

Add in other features of modern life, such as increasingly complex family situations, and the fact we’re living longer so need larger retirement nest-eggs, and you’ve got a recipe for financial troubles.

Financial Danger, Defined

Everyone sees money differently, but financial danger is clear: you're living beyond your means or about to. This looks like:

• Leaning on high-interest debt (like credit cards) just to get by.
• No contingency cash to fall back on if the unexpected were to occur.
• Shaky job security.
• Getting blindsided by big, unexpected bills.
• Perhaps even letting extra cash sit idle instead of investing it for the future.

Warning signs range from constant bill-related stress to maxed-out credit cards and feeling trapped in a job you can't leave just because you have bills to pay.

1. You’re Trying to “Keep Up with The Joneses”

Forget keeping up with the Kardashians, if you haven’t heard the saying “Keeping up with the Joneses” already, it just means that you are trying to match or surpass what your neighbours, friends, family members, or colleagues have. It could be just the fear of missing out (“FOMO”) too.

Learn more: What is lifestyle creep?

Nowadays, with social media, we have quicker access to everyone’s possessions, homes, travels, cars, or apartments. Many people buy things to put pictures online to seek validation. This might cause others to feel the need to keep up with what their friends are doing and buying.

But this is what gets you to overspend, start making bad financial decisions, and can put you in unnecessary debt.

When you start comparing yourself financially, remember:

• Try to ignore what others have, instead stay focused on you
• Realise that most of those people are also financially struggling or in massive debt
• Ask yourself, “Will upgrading or worrying what others have, make me happier?”
• Acknowledge that social media is just a series of ‘highlight reels’ that don’t usually reflect the behind-the-scenes reality!

2. You are Living Payday to Payday

One in three New Zealanders are reportedly living payday to payday. This doesn’t even mean spending more than you earn, this just means spending about the same amount each pay cycle! This means each time money hits your account, it’s immediately allocated to cover bills, debts, and routine weekly expenses, with little or nothing left over.

Right away, this might not be a signal that you are living beyond your means. You might be between jobs, living in an expensive area, working through a period of transition such as a relationship split, or have some other financial circumstances putting you in this situation.

However, some people may be upgrading their lifestyle or just overspending, which causes you to barely squeak by every pay period.

Take a step back, look at your payslip and track your expenses to see where your money is going every week, fortnight, or whatever period you are paid over. You may discover that there are areas where you can spend less.

When you start to live within your means, it will help you begin to escape the payday-to-payday grind.

3. You’re Paying Too Much in Mortgage or Rent

There’s no doubt the cost of living in New Zealand isn’t getting lower any time soon!

Housing is usually the biggest single cost we face.

Many times, we bite off more than we can chew, which can put us in financial hurt.

For housing, just because a bank gives you a loan or says you can afford to borrow more than you already have, doesn’t mean you should necessarily do it. The same goes for renting a costly apartment or house. In either case, you’ll want to be proactive and do the calculations yourself to ensure you’re financially comfortable.

Obviously, the lower the amount you spend keeping a roof over your head, the more you’ll have to allocate elsewhere to the things that really matter, including long-term ambitions, probably including retirement.

4. Lack of Contingency Cash

If your job disappeared tomorrow, could you still pay your rent or mortgage for the next three months while you found a new one?

If your car broke down this afternoon, could you cover the repair without borrowing?

We all need a quick and accessible stash to meet the curveballs that life throws our way every now and again. Commonly called an emergency fund, this is to meet unexpected costs such as car repairs, appliance replacements, dental bills, or the cost of living should you suddenly find yourself out of work.

If you don’t have dedicated funds like this, it might be because you’re struggling to get by.

Not everyone is going to be able to save a big percentage of their income but try to find at least 5-10% of each pay to put aside, obviously the more the better! After one year working on your savings plan consistently, you will be surprised how much you have put aside. First and foremost, some of this should be dedicated to your emergency stash.

5. You’re Carrying a Balance Each Month on Credit Cards, Hire Purchase, or BNPL

Credit cards and other delayed payment and credit systems can be great for building a credit score, getting some rewards points, and can help you out in an emergency too.

However, often we use it to buy things that are beyond our means and impact our financial success. Now you end up carrying a debt balance month to month. The same goes for:

• Buy now, pay later (BNPL)
• Store cards
• Hire purchase

In any case, repeatedly carrying money you owe forwards signals that you’re certainly spending more than you can afford. This situation is commonly called "cash flow negative," which means you're routinely depleting your savings, relying on credit, or juggling bills because your outgoings exceed your incoming funds. If you’re in a cash flow negative position, you will eventually run out of money.

Start making extra payments of any size to get caught up and put your debts away until you get your spending under control.

If you are tempted to buy a higher priced item, ask yourself if you have the cash to pay it off right away. If you don’t, then walk away.

One common misconception is that having negative cash flow only happens to Kiwis on low incomes. However, this is not true. Many high earners also spend more than they make. If you earn $400,000 but you’re spending $450,000, you’re still in a cash flow negative position and at risk of financial danger. Regardless of your income, having expenses continually outstrip your earnings is a clear way to serious money problems.

Of course, life happens, and sometimes you have a month or two where your cash outlays exceed money but make a habit of avoiding it.

6. Your Income Is Unstable

It could be:

• Your primary income is in the form of irregular commissions.
• You work at a startup that could go bust.
• Your sector of employment is at risk of being rapidly disrupted by technology.
• You’re supporting a family on a single income.
• You’re in a sector or method of work that goes through regular booms and busts (think horticulture, gig work, or cyclical areas like property development).

Most people think their job is rock solid - until it’s not. One of the most significant financial risks you can face is relying on a single income source, especially if you meet any of the criteria above. An interruption in your main income could mean all sorts of issues for you.

Equally, it's much harder to take reasonable risks when you've only got a single income source. Whether that's borrowing to invest including in property, pushing for a promotion, changing career paths to a more lucrative career, you're generally much more constrained when you're on one income than two (meaning you end up taking fewer risks due to reduced bargaining power).

7. You Aren’t Saving for Retirement, or Anything Long-Term

Not everyone is able to save for retirement or other long-term goals throughout their lives. Many also struggle to provide for their families and keep food on the table.

So, the thought of putting money aside for some unknown future is understandably an afterthought.

But, for those taking expensive holidays, always getting the latest tech device, or upgrading to a luxury vehicle, but who have not saved for retirement — you are living beyond your means.

Here at Become Wealth we’re all for treating yourself and spending money, but only when you’ve got the peace of mind that comes when you know you’re on track to achieve other major goals, including funding retirement. Then by all means, upgrade to the latest vehicle, buy the latest tech device, and go on a holiday!

8. You Worry About Paying Bills Constantly

We’ve probably all worried about paying bills in our lives at some point. That’s completely normal.

However, the goal should be that you are not losing sleep or stressing constantly about them. If that’s happening, you’re probably in at least a degree of financial danger.

If you find yourself constantly stressed out about bills or how you are going to pay them, you might be living beyond your means. It could be time to work towards boosting your income or repaying a bunch of debt to save on interest.

9. Relationship Troubles

Money problems can harm even the strongest relationships. 

There are any number of scenarios where you could be in financial danger due to a relationship:

• Different spending habits between spouses put strain on the relationship.
• Where there is overdependence on one person’s income.
• A long-running relationship breaks-down, and when all assets are split both feel worse off financially.
• If one spouse has foregone a lucrative career to raise a family and now finds their earning power is limited when they re-enter the workforce or face a relationship split.
• Manipulation or other financial abuse.
• Complex blended family situations, creating a host of financial obligations. This might include financial support for children who aren’t biologically yours, in addition to your own biological kids!
• External obligations. A toxic partner, parents, or adult children demanding money.
• Or someone who’s single but spending more than they can afford to impress potential partners!

In our experience at Become Wealth, here’s the catch: money isn’t usually the core issue, something else is. If you tackle the root cause of your issues, or potential issues, you’ll soon see stress levels drop, and you might remove some of the real, or potential, financial danger you face.

Whatever the case, loving your spouse or family shouldn’t mean bankrupting yourself.

Learn more:

• ‍Relationship financial red flags
• Don’t let supporting adult children ruin your retirement

What To Do If You Are Living Beyond Your Means

If you are living beyond your means and know it, well done! Not everyone wants to admit any problem, let alone a financial one, or take initiative to improve it, so by acknowledging the issue, you’ve probably taken the first important step to fixing it. Many of us have been in the same situation, which is completely normal and understandable. Having the will to change your personal finances for the better is the next move.

If you do want to improve, below are a few simple steps you can take:

1. Dedicate time and effort to prioritise living within your means.
2. Create a plan to reduce your expenses (trawl through your bank statements and identify memberships that can be cancelled, ask for price reductions, use special offers, etc.). Be more frugal and cut back your lifestyle if you must.
3. Start to downsize and minimise. Save money by downsizing where you live, sell items you don’t need, buy fewer material items.
4. Start budgeting more thoroughly. Build a simple budget and to stick to it. Spreadsheets work great.
5. Start paying yourself first and automate it if needs be. Meaning, when you are paid, automatically send money to your savings first.

The results you receive from the tips above will depend on your mentality, commitment, and patience. Just remember, changes do not happen overnight, so stick with it.

The Bottom Line: Avoid the Warning Signs of Financial Danger

How many times have we heard the story of multi-millionaires going bankrupt? Or those who never made more than $50,000 a year still retiring comfortably? It doesn’t matter if you are middle class or even a high earner, you can still find yourself in financial danger due to any number of reasons.

Issues such as living beyond your means, job insecurity, or relationship trouble can grip any demographic and any level of income, it’s your mentality that will make all the difference.

If you find some or all the above warnings a constant in your life, then you probably need to make some lifestyle changes to get back on track.