Financial Red Flags: Signs You’re Headed for a Money Crisis and How to Act

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Your financial health is just as important as your physical health or even your mental health, and it’s a fact that all three are related. Ignoring the signs of an impending financial problem can lead to a full-scale crisis if not addressed. The key is to recognize financial red flags and adjust your course to be able to get your finances back on track. In this guide, we will go through several red flags, why they are problems, and possible solutions to get you back on track.

Identifying Financial Red Flags and Responding to a Money Crisis

Red Flag 1: Living Paycheck to Paycheck

This is a red flag that many of us live with. Clearly, your expenses are too high in relation to your income. This situation will leave you vulnerable to even a small unexpected expense or other disruption. If you lose your job or have some other emergency arise, you could easily fall deeper into debt or homelessness.

Why it’s an issue: Living paycheck to paycheck prevents you from saving or investing and leaves you with no financial security. It causes you to stress and worry about money, which itself is unhealthy.


  • Track your spending
  • Make a budget
  • Find ways to increase your income with either a raise, promotion, new job, or side hustle
  • Cut your expenses
  • Build your emergency fund, even a small emergency fund is an emergency fund

Red Flag 2: Relying on Credit Cards

Using credit cards to pay for your normal living expenses instead of the occasional convenience is a red flag. It is unsustainable and causes you to live beyond your means. The high interest rates make it difficult, if not downright impossible to pay off. Using too much of your credit limit can harm your credit score as well.

Why it’s an issue: Credit card debt is horrible because of the high interest rates. It is far too easy to end up owing twice the original balance or more.


  • Stop using the cards for non-essential purchases
  • Pay off your cards, starting with the one with the lowest balance
  • Use a balance transfer or ask your card issuer to lower your interest rate
  • Use reward points to pay down balances

Red Flag 3: Neglecting Retirement Savings

Not building retirement savings is a massive red flag. Not creating this foundation when you are younger makes it hard to catch up later.

Why it’s an issue: Not retiring with adequate savings means you must make dramatic cuts to your lifestyle. Social Security alone will not allow you to live comfortably in retirement.


  • If your employer offers a retirement plan, enroll in it and contribute enough to take advantage of any matching funds they may offer
  • Increase your contributions whenever you get a raise
  • Contribute to other retirement plans, such as a Roth IRA
  • Speak to a financial advisor for advice

Red Flag 4: Not Having Health Insurance

Living without health insurance is an extreme risk. A single accident or illness could result in massive medical debt. Even if you have coverage, out-of-pocket costs and co-pays, and prescription drug costs can also strain finances.

Why it’s an issue: Medical bills are the leading cause of bankruptcy in the United States. Insufficient medical insurance discourages people from seeking preventative care, so serious health problems go undetected until it’s too late.


  • If your employer has a health insurance plan, take advantage of it during open enrollment
  • Look at health plans in the Health Insurance Marketplace (ACA Marketplace)
  • Consider an insurance program with a Health Savings Account to build savings tax-free
  • Utilize free or low-cost clinics for basic care to save on costs

Red Flag 5: No Emergency Fund

Think of an emergency fund as a cushion you can use to soften a fall. It prevents you from racking up more credit card debt or draining retirement accounts when emergencies come around. If you do not have a safety net, you need to build one.

Why it’s an issue: If you do not have an emergency fund, even the smallest issue could turn into a major issue. Car trouble, urgent trips, illness, and more, can all derail your life without this cushion to protect you.


  • Start small, even saving $25 per paycheck helps
  • Make your savings automatic through direct deposit
  • Funnel your raises, tax refunds, and other windfalls into the emergency fund
  • Do not invest these funds, keep them accessible in a savings account

Once you take stock of your finances and address the red flags, it doesn’t stop there. Address the issues early to make them able to be managed. Stay focused on them. Adjust your goals as needed and with time, money issues will no longer be a source of stress.