5 Horrific Things That Can Haunt Your Finances

By Andrew Beattie AAA

You know the guy. The guy who bought a house to rent out and then an inspector showed up after and told him he needed $30,000 in repairs before it was rentable. And then one of the tenants flooded the house and insurance didn't cover it. Plus the tenant slipped in the water and threw out his back and then sued for $2 million. And, when the guy started repairs, the construction crew found an ancient burial ground under the foundation, so the whole place was declared an archaeological dig. And then he declared bankruptcy, but he was haunted by poltergeist and debt collectors for the rest of his life. (For related reading, check out 4 Big Investor Errors.)
Horror stories in finance are nothing new. The ones that end in total financial ruin are always popular, especially if they involve some bizarre twists and, most importantly, are not happening to you. That said, there are many everyday events that can turn your life into a financial horror story. In this article, we'll look at some relatively common financial horrors that, like all good ghouls, may haunt you for a long time.

The Body Snatchers
Identity theft can be one of the worst things to happen to a person because it often goes undetected until the situation gets really bad. Information is everywhere now, so the opportunities for someone to steal your personal information are growing. With a Social Security number, a fraudster can do an unimaginable amount of damage to your finances - divert your mail, sign up for credit cards, take out loans in your name and against your assets, sign up for cell phones and much more. Some of this can even be done by simply piecing together information found on the statements and bills you throw in the garbage - address, account numbers and so on.

By contacting authorities, credit agencies and your bank, much of the damage can be reversed. However, this process is neither easy nor quick. It may involve giving multiple affidavits about the fraud and contacting a lot of different agencies and departments. Sometimes, people exhausted with the process of disputing their credit reports line by line get preyed on a second time by "credit repair" companies that do little to help but take a lot in fees. Furthermore, you will have to be vigilant to make sure the fraudster doesn't start masquerading as you again. (For more, check out Identity Theft: How To Avoid It.)

Vacation Massacre
One of the most avoidable horror stories is that one where someone goes abroad and has an accident - a slip on the pool deck, a tropical disease, a shark attack - without being insured. They may spend their entire trip nursing a broken wrist that shows up an angry red in all the photos and explains their perpetual grimace of pain, or end up paying loads of money to get treatment in the country. In a worst-case scenario, they may even get airlifted out to a country where they can be treated. Fortunately, this horror story can be headed off by the simple expedient of travel insurance. Heading out on your journey with adequate travel insurance will help to ensure that you'll come home with pleasant memories rather than a raging infection or an empty bank account. (For more, check out The Basics Of Travel Insurance.)

Domestic Disasters
Bad things can happen at home as easily as abroad. An unexpected and uninsured accident is just as financially devastating here as it is on a tropical beach. Many of the worst financial horror stories involve inadequate medical insurance or a complete lack of disability or life insurance. There are, of course, cases where insurance wouldn't have mattered or the person wouldn't have been insurable, but just as many cases of financial ruin occur daily because people misunderstand their coverage through work, underestimate their coverage needs or make other preventable mistakes. (For further reading, check out 5 Mistakes That Can Ruin You Life (Insurance).)

Scammers
If everyone's greatest fear truly was to be a victim of a financial scam, there would be far fewer victims out there for scammers to prey on. Whether it is real estate investments you must buy now (before you can do due diligence), or "innovative" stock investing techniques like Bernard Madoff specialized in, people are just too eager to believe that becoming rich can be quick and easy.

While it is true that double-digit returns are possible, the risk-return tradeoff suggests that they involve much greater risk-taking to achieve them. That is why "guaranteed" and "double digit returns" don't really belong in the same sentence. When you hear "guaranteed double digit returns" you should react in the same way as when someone says "I hear the wallpaper whispering to me at night" - by putting some distance between you and the speaker. (Check out our Investment Scams Tutorial for some tips.)

Night of the Living Debt
More and more people are living paycheck to paycheck and trying to keep ahead of a mountain of debt than at any other time in history. Large debt payments reduce your disposable income and leave you vulnerable to missing payments, forcing you to take on more debt to pay existing debts. When people reach that tipping point where their debts have simply grown too big and too numerous to handle, they may have to sacrifice their credit and declare bankruptcy to dig themselves out of the hole.

The most terrifying thing about drowning in debt is that you inflict it upon yourself, adding water with each purchase you charge. With an emergency fund, some sacrifices and financial education, however, most debts can be humbled without having to resort to extreme measures like bankruptcy. (For more, see Expert Tips For Cutting Credit Card Debt.)

The Bottom Line
These are only a few of the scariest financial disasters, and most of them are preventable and/or repairable. There are others, like divorce or a business dispute, that when handled badly can be as devastating as identity theft or breaking a hip abroad - sometimes much more. If you are in good financial shape and aware of your situation, then many of these events go from being terrors to simple bad luck or an inconvenience. If not, then hopefully these tales can help scare you into putting a little more time into organizing your finances. (For more, check out 4 Fatal Financial Fantasies.)

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