If you haven’t encountered financial difficulties up to this point, chances are you will later on in life. It’s a common symptom in life when money seems to be allergic to you or vice versa. The situation can get frustrating to the point of depression. For financial problems, well, they are more symptoms of a bigger problem. However, you can solve any financial problem that comes your way. All you have to do is find where your financial woes stem from. The process is easy to follow through.
However, the situation doesn’t have to be like this. There’s always a solution to every problem— all you have to do is look hard enough. If you aren’t good at problem-solving, here are helpful tips to help you overcome these difficulties.
1. Identify the Main Causes of Difficulties
For any problem, let alone financial ones, it’s important to identify and understand the underlying issue or issues, source or sources causing the strain. This way, you’ll have an easy time crafting a solution, but otherwise, you’ll be stuck in a rat race.
For example, it could be low income or unemployment, retirement, an unexpected expense, or a divorce. After identifying the problem, the next step is to find the reasons behind the situation.
For the problems listed above, the reasons could be over-dependence on credit; low on cash but high in assets, resulting in an inability to fund your lifestyle; a sudden illness that requires a huge amount of money;, and finally, the divorce decree stated that you can’t have the house but still need to keep up payments. There are as many causes as there are reasons for them.
The final step, however, is crafting a solution. Again, using the listed problems, here are some solutions you can consider. Create and follow a budget; start a second job or work overtime at the current one; sell some of your assets and move into a smaller affordable home; set up an emergency fund for an unexpected expense; negotiate another settlement with the ex-spouse.
2. Create a Budget
You may have heard of this many times, but you don’t just seem to internalize the need for creating a budget. According to financial experts, you can’t afford to miss a budget in your financial toolbox. A budget is simply a spending plan to help you allocate your money. Often, it’s for a month, but can be useful in the long term also.
Look at a budget like a map that shows you directions when travelling to a new location. There’s no need to travel blind and have to make U-turns every few kilometres because you took the wrong road. A budget works in the same way; it gives you directions on how you should spend your money – on the most important things.
When crafting a budget, you have to look at the financial issues in your life. This way, you’ll be able to overcome them as you forge ahead.
3. Track Your Spending
One of the categories you’ll include in your budget is expenses. Keep in mind, there three types of expenses: fixed, variable, and periodic. Fixed expenses are those you have little to no control over and are obliged by law to pay like mortgage or rent. These ones are easy to predict and shouldn’t be problematic when creating a budget.
The second type is variable expenses, also referred to as discretionary expenses, those you have complete control over. They are the money you spend on eating out, entertainment, and clothing, etc. In short, a simple behaviour change can either increase or reduce spending in this category.
While these expenses are completely under your control, they are also the most difficult to track. Chances are you have no idea how much you spent on your most recent dinner out or groceries or gas. However, you can refer to your credit card if you use it for all your payments.
The third type of expense is known as a periodic expense. As the name suggests, these expenses come after a while such as half-yearly or quarterly. A simple way to put it is an expected surprise. Sounds ironic, huh?
A good example is a company that picks up your trash. Well, they do so every other Friday but it’s only until after the next 3 months that you receive a bill in your mail that you remember you need to pay for the service. Often, many people forget to include such expenses. Make sure you don’t.
Understanding these types of expenses will help you create a solid budget. Afterwards, take a critical look at the figures and ask yourself some hard questions.
4. Prioritize Your Spending Options
Prioritizing your spending options involves identifying your wants and needs. By separating the two, you’ll be one step closer to solving your financial problems. There are outright priorities, as stated above, but don’t forget others, such as paying off outstanding card balances.
It’s important to set clear priorities so you can have an easy time when trying to make a difficult financial decision. A budget will come in handy here because these priorities will be in the form of goals, and you can categorize them as short, medium, and long-term goals. It will also help you to focus on a specific problem at a time.
5. Craft a Solid Plan to Keep Financial Problems Away Forever
This includes developing some strategies for solving your financial problems. Once you’ve done this, come up with a solid plan that will help you achieve your financial goals. Keep in mind that these goals will have different timelines, and as you write them down, also note the estimated time to fulfilment on the side.
As you do this, also make sure to establish your current position relative to the set goals. For example, if you intend on paying off a debt or loan, note the current balance and how to pay it off. It’s important to understand that this process can be overwhelming and stressful. If you encounter a complete blockage at any stage, consider seeking a financial counsellor to help you out in your journey.
5. Track Your Progress
You’ve identified the financial problems giving you sleepless nights. You have a budget in place and you also have a plan to ensure you never get into a financial problem in the future. What next?
Like every other serious achiever, the next step is to track your progress. How well are you sticking to your budget? Is it working for you emotionally? Also, is the plan showing any signs of paying off? If the answer is yes for all these questions, then, by all means, continue.
If it’s no, then it’s time to go back to the drawing board to make simple adjustments and make sure they work. Remember, nothing will change if nothing changes.
Predicting the future is impossible, however, it’s possible to prepare for it, especially when it comes to finances. Overcoming financial difficulties can be easy once you become flexible, set clear goals, and stick to your budget.