Money Troubles: The Top 5 Major Causes of Financial Problems
Financial troubles are, unfortunately, not uncommon in today’s world. Many people have some form of debt they’re working to pay off,
while many others are struggling to make ends meet each month with their low wages and high bills. This article looks at the five major causes of financial problems in hopes of finding ways to avoid them in the future.
Some of these causes are unavoidable, but most can be avoided with proper planning and budgeting skills, as well as with good financial habits like saving money regularly and avoiding unnecessary purchases.
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1) Overspending
The first major cause of financial problems is overspending. Overspending can lead to a cycle, where you have to keep working more and more hours just to keep up with your bills.
Eventually, the strain will start to show in your personal life and on your work performance. It’s best not to spend more than you bring in, as this will only lead to more financial problems down the line.
If you find that your income cannot cover your living expenses and the lifestyle you want to live, then it might be time for some serious budgeting.
Start by making a list of all your fixed costs like rent, car payments or mortgage payments. Then add up all your monthly debt obligations like credit cards or student loans.
You should also include things like child care and food into the monthly cost analysis. From there, calculate what percentage of your monthly income goes to these fixed costs
– this number should ideally be less than 30%. Finally, divide what percentage of your monthly income goes to these fixed costs by what percentage goes toward other needs (like groceries).
For example, if 20% goes towards fixed costs and 80% goes towards other needs, then 20/80 = 25%. Your goal would be to reduce the amount
going towards these fixed costs while simultaneously increasing how much you’re spending on other things (groceries) each month.
2) Taking on too much debt
One major cause of financial problems is taking on too much debt. There are many different ways this can
happen, but one common example is when people use their credit cards for everything, and then can’t afford to
pay off the balance. If you’re using your credit card too much and spending more than you make every month, it’s time to get help.
Consider talking to a budgeting expert or financial counselor who can help you get back on track with your finances.
Don’t let debt take over your life! For some people, paying off debts feels like an impossible task.
But if you know how to stop a cycle of getting into debt in the first place and then working your way out by following these simple tips:
-Only charge what you can afford.
-Pay as much as possible toward your balances each month.
-Find creative ways to bring in extra money such as picking up an extra shift at work or opening up another bank account where you put all extra income that doesn’t need immediate attention.
-Create realistic budgets that allow room for fun purchases (within reason).
-Track your expenses so you know where you stand financially.
-Learn the difference between needs vs wants and figure out which ones are important
enough to invest in now.
-Learn from mistakes so they don’t keep happening again and again
3) Struggling with medical bills
Medical bills can cause a lot of financial problems, and this is especially true if you don’t have insurance. With the cost of healthcare skyrocketing,
it is becoming more and more difficult to keep up with your medical expenses. Medical debt is one of the leading causes for people filing bankruptcy in America.
This can be due to an illness that was not covered by insurance or because someone did not have health insurance at all and had to pay for their own medical treatment out-of-pocket.
Before Obamacare passed, many people would get insurance from work only to find out later they were no longer eligible and then become uninsured.
Today, before most procedures are done doctors require proof of insurance before beginning any treatments which can leave you stranded without coverage until your plan starts again.
A recent study found that between 10% and 20% of Americans are carrying some form of unpaid medical debt
which means these individuals are struggling financially as they
continue to owe money on past bills while trying
to manage monthly payments. Struggling with student loans:
Nearly every college graduate has student loan debt
upon graduating college but the issue continues after graduation
when students are unable to find jobs in their
field and continue paying off loans even when they do not earn
enough money. Those who are lucky enough to
find jobs often end up working low-paying positions making it
difficult to afford living expenses, let alone make
payments on their loans. On top of that, there is also now a
$1.3 trillion dollar deficit in the federal student loan
program which does not seem like it will go down anytime soon.
Families who depend on welfare assistance: As
much as 70% of households using food stamps include
someone with wages too low to meet their basic needs.
About 30 million children live in families where neither parent works
full time year round, and about 60% of those
households live below poverty level according to government data from 2010.
4) Investing in the wrong things
Investing in the wrong things can be a major cause of financial problems.
Many people invest in things that are not as high-risk, but instead have a higher
reward and can end up making more money than if they invested in something with a lower risk.
In most cases, this is a good investment because it has a higher chance
of success and even if there is an
eventual downfall, you would still get some form of return on your investment.
However, investing in the wrong
thing could lead to catastrophic consequences. For example,
many investors put their money into real estate
which was seen as an always-profitable investment when the
housing market was booming; however, when it
crashed during 2007–2008, many investors lost all or nearly all their
funds from this risky decision. It can be
difficult for someone to recognize these mistakes because hindsight
is 20/20, so do not rely on yourself to know
what investments are worth taking risks with.
There are professionals out there who specialize in assessing risks
and what investments will be beneficial for your portfolio.
I don’t think I ever really understood just how much planning goes
into being financially stable until I started living
off my own wages and had bills coming at me left and right.
Between saving for retirement, college expenses, car
payments, insurance premiums, property taxes –
I felt like my head was spinning! Not only do I need a plan for my
future savings needs now but also one for retirement down the line when I’m no longer working full time.
5) Spending too much on your home
If you’re spending more on your home than you can afford, you may be considering refinancing or
looking for a new job. If that’s not an option, here are some tips to help rein in the cost of
your mortgage. • Look into renting out a room. • Lower your interest rate by paying off
your loan faster with biweekly payments instead of monthly payments. •
Consider lowering the amount you put down when buying your house so that you’ll have less equity and less risk if it comes time to refinance or sell (you won’t owe as much money)
. You can also set up auto-debit for your bank account each month to
take care of this ahead of time. You might also want to think about selling some possessions on eBay or at garage sales.
What was written before is what was left unfinished from the first
paragraph in the blog post: Bills are taking over life: If bills are taking over your life,
talk to a financial advisor about increasing income, changing spending habits, and cutting back.
