Are you in the midst of financial problems? There are many issues that may be fueling your financial crisis and you need to identify what they are if you really want to improve your situation.
The true reason for our financial difficulties is not in the money that we are taking home. It does not matter if we are getting a 6 figure income or not. What matters is how we choose to spend it. We still have a lot to learn and change in your financial habits. We need to seriously consider how our financial habits are affecting how we are building our personal net worth.
If you look at our debt situation and the net worth of the average American household, you would think that we still have a long way to go. According to the data from the FederalReserve.gov, the annual rate of the household debt went up by 2% in the first quarter of 2014. This increase excludes the home mortgage charge offs. This is affecting the growth of the net worth of households. The same report mentioned how consumer credit continues to grow in the pace as the past two years.
In general, the net worth of both households and nonprofits is increasing. It is now at $81.8 trillion at the end of March 2014. It is $1.5 trillion more than its level by the end of 2013. But although the net worth is increasing, the presence of debt will always put us to a disadvantage. We will always be sharing our income with the interest payments that is only benefitting our lenders and creditors. Instead of putting that amount to good use, we are continually wasting our money on things that are not good for us.
Financial difficulties stem from our personal issues
But what can we do to help eliminate or at least minimize the financial problems that we are encountering? After the Great Recession, a lot of us went into a financial reassessment to look at the possible causes of our downfall.
An article from Fortune.com published an interesting article that mentioned how our financial crisis is a personal thing. Sure we can blame the economy for causing it but if you think about it, we are all to blame as well. Americans are known to be spenders and lovers off everything that is big. We all love to buy the big and the expensive items – thinking that it is the best way that we can display our success in life.
Apparently, that is not true. The Fortune article said that Americans lack the will to control their financial destinies. This keeps them from making wise financial decisions when it comes to spending and debt. That eventually leads to unexpected expenses that can quickly lead to our financial demise.
The article is pointing out that we got into a debt cycle because we were not taught how to avoid them. Well the good news is, it is possible for you to avoid financial problems and that it is not only reliant on how much you are earning. You can be a financial success even if you are not earning a 6 figure income. That is possible if only you remove certain consumer habits that are to blame for your financial troubles.
5 consumer characteristics that leads to financial failure
There are 5 different characteristics of a consumer that will lead them to a financial crisis.
First of all is ignorance. This can be manifested in two ways. Some consumers choose to ignore their financial situations because they are too scared to face the truth. When it comes to financial difficulties, your ignorance of the problem will not make it go away. The longer you keep yourself from solving it, the bigger the problem will get.
On the other side, there are people who know the problem and the habits that need to be corrected but they still choose to ignore it. These people are usually in denial and holding on to a false sense of hope. They continue with their wrong habits only to end up aggravating the financial problems.
When you know that there is something wrong with your finances, you need to stop what you are doing and try to identify what that is and how you can solve it. Do not delay because doing so will only make it worse.
The next quality of a consumer that is on his/her way to a financial crisis is the lack of discipline. This is only of the important qualities of a financially successful individual. You need to discipline yourself to say no even if you know that you can afford to buy something. You need to have the discipline to pay your credit dues every month. You need the discipline to keep your finances organized. You also have to discipline yourself to budget your money each month and to revise it when necessary.
If you want to avoid financial problems, you need to discipline yourself to follow the rules that will keep you from making mistakes when it comes to your money.
Unrealistic views about money
Some people have the knowledge of financial management but they still land into problems because they have unrealistic views of their finances. You may be following a budget but if you are making unrealistic cuts even on the expenses that you really need, then you are sure to fail in following your budget. When you get used to not using your budget or following it strictly, you will fail in fully controlling your finances.
You need to analyze your financial situation and your needs to balance what you can or cannot spend on. That is how you can be wise with your money. While cutting back drastically can help, it will make your life miserable. You do not want that because you will end up snapping and going on a shopping spree to ease your pain. Be reasonable by balancing your needs with your financial capabilities. If you really need something that seems like a luxury, then make sure that you cut back on something else that you can live without.
A direct reason that leads to your financial problem involves your debts. When you are a debt addict, it means you are constantly putting yourself in a certain amount of credit. Even if you have the money to buy something in cash, you choose to pay through your credit card and refuse to settle the amount in full at the end of the month. That can lead to problems for you.
USAToday.com reported that one of the ways that Americans waste their money is on credit card interest. With the average credit card debt per American household at $15,270, our total debt on this purchasing tool is at $856.9 billion as of the first month of 2014. Of those who carry credit card debt, 39% of them usually end up in a financial crisis when unemployment and out of pocket medical expenses. These are the people who are one emergency away from a financial crisis. Do not put this additional burden on your finances if you do not have to. If you cannot pay your purchases in cash, then do not use your credit card. We are not saying that you should avoid credit cards completely. You just have to be responsible in paying it off in time so you can avoid the unnecessary interest charges.
The last quality of a consumer that is on the way to a financial crisis is when they are materially competitive. If you have the urge to buy something just because your neighbour owns one, then you have this quality. You should only buy something if you need it. Regardless if everyone is buying a particular product or appliance, unless it will benefit your life, do not use it. If you can live without it, then do not buy it.
Material possessions should never be an indication of your financial wealth. Some of the self made millionaires are actually those that live in modest homes and live simple lives. They are not quick to upgrade their lifestyle just because they have more money than yesterday. Adapt this way of thinking so you can avoid financial regrets that might contribute to your financial problems in the future.