Financial troubles can plague anyone’s life, regardless of age, background or income level. Common problems include not having enough money to pay bills on time, being unable to save for the future or dealing with debt. While there isn’t a one-size-fits-all answer to solving everyone’s financial troubles, there are steps that can be taken in order to make long-term financial stability a reality. This article will break down the top 13 reasons why people are broke, and provide actionable advice to help them break free of their financial woes. It’s important to remember that financial stability isn’t a destination, but rather an ongoing process. It will take effort, diligence, and organization on the part of the individual, but following the steps outlined in this article can result in financial peace-of-mind and a brighter future.
1. Unclear Financial Goals
The first step to getting out of debt is having a well-defined goal. Without clear goals, it is impossible to create a plan of action for achieving financial success. Creating specific, measurable goals is essential for staying focused on paying off debt and cultivating financial freedom. For example, if the goal is to become debt-free by the end of the year, then create a plan of action to pay off whatever debts the individual may have. Even without large amounts of money, if the goal is broken down into smaller goals and steps are taken to reach those goals, financial freedom is attainable.
2. Spending Money on Unnecessary Items
One of the most common mistakes people make when it comes to their finances is spending money on things that are not essential for their long-term financial health. While it can be easy to get caught up in buying trendy items that may not be necessary, focusing on spending money on items that will help create a positive financial future is the key to success. If a large purchase is needed, focusing on items that will be used over a longer span of time will offer better value and create a more secure financial foundation.
3. Living Beyond Means
When an individual earns more money than they can actually afford, they may be prone to live beyond their means. This can lead to unnecessary spending and financial hardship. A good way to avoid this is to create a budget to understand how much money is coming in and how it is being used. Additionally, committing to spending only what is necessary and saving the rest for the future can help to keep expenditures in check and create sound financial habits.
4. Inconsistent Savings Habits
Saving money is essential for creating a secure financial future, as it helps to buffer against unexpected expenses. Yet, many people find themselves not consistently putting away money for the future. To create a successful savings habit, it can be helpful to set up automated transfers from checking to savings or put money into an IRA or 401(k). Automation can prevent people from missing out on adding to their savings, even when they feel they cannot afford it.
5. Planning Without Proper Research
When it comes to researching the best financial decisions, many people forget to do their due diligence. Shopping around for the best interest rates and researching options for financial products can be a great way to save money and create a sound financial plan. Additionally, when it comes to investments, it is essential to do the proper research before committing to any risks.
6. Too Many Unsecured Debt
While credit cards can be useful for emergencies, running up too much debt without the means to pay it back can easily cause financial troubles. Before signing up for a credit card, it is important to do a thorough check of the terms and conditions and understand what the rates are. Additionally, creating a budget and being consistent with payments can help in staying on top of debt.
7. Not Taking Advantage of Financial Opportunities
Whether it’s the chance to get an employer’s match on contributions in a 401(k) or the option of refinancing existing loans, many people find themselves missing out on financial opportunities that could help create a strong financial foundation. Researching different options and taking advantage of financial opportunities when they arise can help maximize opportunities to save.
8. Short Term Priorities Over Long Term Investment
Many people fail to realize that in order to get ahead and create long-term financial stability, it is important to invest for the future. While it can be tempting to take out loans or use credit cards for short-term gain, doing so can have long-term consequences. Instead, focus on investments like retirement accounts, real estate or annuities that can help create a secure financial future.
9. Not Building An Emergency Fund
Having an emergency fund is essential for navigating financial hardship. Even if it takes months or years to build, creating a financial cushion to fall back on in the event of an emergency can help people avoid taking out costly loans or racking up credit card debt. Aim to save up a minimum of around three months’ worth of expenses as a starting point.
10. Overspending on Entertainment
Though it can be tempting to blow money on entertainment, such as dining out, going to the movies, or splurging on a new purchase, doing so will often cause more harm than good. Consider whether people need extra items or can reallocate funds to be used more productively.
11. Not Having an Investment Plan
Having an investment plan can be a great way to grow long-term wealth. A financial advisor can help guide investments, as well as create a plan to reduce taxes. Additionally, an advisor can help create customized investments to suit any specific goals an individual may have.
12. Relying Too Much on Credit
Using credit cards to purchase large items can be tempting, and while the convenience of having items immediately at hand can be quite attractive, the cost of doing so can eventually add up. Moreover, taking out large loans and having numerous types of debt can lead to a situation where paying back the debt can be harder than paying out of pocket.
13. No Financial Support System
Having a financial support system can be a huge help in achieving financial success. This support system can include family and friends who are knowledgeable about finances and can provide basic financial advice. It can also include professionals such as an accountant or financial advisor. These professionals can provide guidance to create a budget and finances that are tailored to each individual’s specific needs.
Overall, understanding and addressing the reasons why one may be struggling financially is essential to getting back on the right track. Focusing on clear, achievable goals and taking the necessary steps to reach those goals is paramount to financial success. Additionally, taking advantage of financial opportunities, researching investments, and having a reliable support system are all steps that can help create a better financial future. While getting back on track may not be easy, it is possible, and following the aforementioned steps can help pave the way to recovery.