As you take on a more hands-on approach to money management, you will certainly come across some of the most common financial problems that plague your finances. There might even be times when you find it hard to pinpoint exactly where the problem is. You know that you are coming up short on payments every month or that your debt account seems to get bigger every time but you cannot find the culprit.
There are a number of challenges which you will face when you manage your finances. This is to be expected in all areas of your life. Whether you are starting out with a new relationship, having a baby for the first time, or even buying a home you can call your own for your family, there will always be struggles.
The idea in all these is to find the root cause of the problem and address it at its core. If you choose to ignore it, the more complicated it can get in the future. The same with your money and dealing with common financial problems, you have to look at where the struggles are and find a way to make the necessary correction.
If you are having a difficult time looking for the areas in your finances where most of the problems happen, here are a few of them worth looking into. Take note that this is just a list of the most common money challenges and you still need to look at your current situation. There is a good chance that you could have different challenges you have to face.
Weak emergency fund
The NYTimes shares that the most ideal emergency fund savings consumers have is six-weeks worth of take-home pay. The problem is that the same survey revealed that two-thirds do not have this kind of financial buffer. This could prove to be a big problem because the six-week buffer might not be enough to cover for big emergencies.
You have to understand that the main reason why you are setting money aside for your emergency fund is to help you address sudden changes in your finances. This can be anything from sudden repairs you need at home, getting sick, or even losing your job. Emergencies not only come when you least expect it but the situations can be anything from mild to severe situations.
This is the reason why you need to make sure that you always set aside an amount to help you increase and strengthen your emergency fund over the year. It is challenging to get it to the amount you need in just a month or two because you might overlook other important funds as well. Work on it slowly as it will also help you manage your financial stress knowing you can address emergencies that come your way.
Huge household debt
When you start talking about common financial problems, one thing that will pop-up often will be debt obligations and how massive it has grown over the years. CNN shares that US household debt is at $14 trillion at present. This includes mortgage loans, student loans, credit card debt, and other forms of consumer debt.
There are a number of reasons why consumer debt has increased year on year including low borrowing costs, high employment rate, both of which result in strong consumer confidence. These factors can make you borrow money knowing you can easily pay it back. As a result, your debt obligations increase over time.
One of the ways to keep this area under control is to stick to the things you need and not to be too quick in adding new ones. Stick to the ones you have now especially big-ticket items such as your mortgage loan or car loan. Make sure you do not get behind your payments and if you are having problems with some debt obligations, there are debt repayment programs you can look into. One of them is debt consolidation which can help you combine payments under one account and even help you pay a lower amount every month.
Short term over the long term goals
You may not notice it but one of the common financial problems people have is overlooking the importance of planning for the future and putting too much premium for the present. Forbes shares that humans are wired to focus more on what is in front of them than looking to the future. This means that there are people who would focus more on paying down their debts and making it every day rather than saving for the future.
There is nothing wrong with paying down debt and in fact, this is an area you need to focus on as well for the year. The problem starts when you begin to put more focus on your short term goals and forget the big picture. This can railroad you and keep you further away from your goals in life. Once this happens, it will be a lot more challenging to get back on track.
If you focused solely on your credit card payments and did not save anything for emergencies, the time might come where you would have to borrow again because of an unforeseen incident. It is also possible that you choose to use all your extra money for vacations. Though it is a good investment especially for families, do not forget that you also need to save for your retirement in the future.
Lackadaisical retirement savings
People have a lot of problems on their hands when they start looking at their finances and one of them is retirement planning. This is one of the common financial problems for a lot of people especially the ones who are nearing their retirement age. If you were not serious with retirement planning, the time will come when you will start to stress about it.
To make matters worse, Bloomberg shares that almost half of Americans nearing retirement do not have any 401k savings to speak of. This is quite alarming since your 401k and other investment accounts play a big role in helping you enjoy your golden years. The money you put in these accounts will be your main source of funds in retirement
The earlier you save for your retirement, the higher the chances you can retire when you want to. You also get the ability to take advantage of compound interest over the years. The interest earnings on your money will keep growing and increasing over time. The longer the time it has to grow, the bigger your money becomes in the future.
As you get more involved with your finances, the more you will come across common financial problems a lot of people go through. Though they may be the most common ones, you still need to make sure that you address them early on before they cause too many problems for you.