Here’s how to solve the 7 most common financial challenges in just five steps
Life is hard! No doubt about it, really hard.
Life is hard for all of us. We all think that we have big problems, and indeed we do. I don’t want to take away from the seriousness and severity of the challenges and difficulties you face.
Yet, sometimes it’s helpful to know that we all have these problems. Yes, our situations are different, and the extent to which these problems impact us is different.
Yet, it’s helpful, comforting even, to know that we are not alone. For years, people have been brought together under hard times. We have banded together for support, brainstormed solutions, shared resources, and leaned on stronger shoulders.
Let’s go through the top 7 financial challenges that most of us have faced or will face in the future. Know you’re not alone, and hopefully, we can create a plan to help you rise above and see the light at the end of the tunnel.
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What exactly is a financial challenge?
Here’s the funny thing, they are different for each of us. What one person views as a financial problem, another may consider just a speed bump, easily passed over.
But, generally speaking, a financial challenge is a problem that you face, which can be solved by having more money or a better understanding of how to manage your money.
What not to do when you are facing a financial problem
Everyone handles stress differently, and when it’s financial stress, it all seems doubly important. Yet, there is one thing that you shouldn’t ever do. It’s a simple thing, yet so many people often do this. They ignore the problem. Hands down the #1 mistake you can make, yet it’s the easiest option. Your financial situation will only get worse, it will grow and grow until you do something about it. It will not magically go away.
The reason why so many ignore the issue is that they don’t feel equipped to handle it. They don’t even know what they don’t know. This is okay, no one is born knowing how to handle money, everyone has learned this skill. Financial literacy is available to anyone, you just have to go out and find the info yourself.
Go to the library, join some Facebook groups whose focus is personal finance. Or if you want one on one help then seek a financial professional, either a financial advisor or a nonprofit that can help with the financial education piece. They may also offer counseling to help you through your unique financial challenges.
The only way to overcome your problem, and achieve financial wellness will be to come up with a good plan and work the plan. Many
What to do when you’re facing a financial challenge
You may need to first get some mental space from the problem. That doesn’t mean you ignore it; it means that you get to a calm place where you can think logically about where you’re at. Getting your head on straight is probably the most important thing you can do to start solving your financial challenge. Then, it’s time to act.
1. Identify what is the immediate need
For some, this may be a dire need; for others, you can take some time to research, plan and implement. If it’s an immediate need, then it’s probably cash for a debt payment that you have to pay. So you need to find the money or get more time.
I absolutely realize that’s an “easy say, hard do” response. But the other option is to default paying, which could create significant long-term financial problems for you, so it should be avoided if possible.
2. Figure out a band-aid for the immediate need
Firstly, know that for whatever issue you are facing, you are not the first person to be going through this. You are probably the 30,000 person facing this, which is a great spot to be in! That means there are lots of others before you that can help you by telling you what to do, and more importantly, what not to do!
Google it, join FB groups, reach out to county services for information on local nonprofit groups that can help (there are usually lots!) A word of caution with FB groups, you will get a lot of ideas/options thrown at you. But that doesn’t mean they are good ideas! Be selective (aka smart) in the advice you take. Make lists, and then do your research on these options.
3. Figure out the underlying problem
Now, this step might take you 10 seconds, as the problem is obvious (aka you need a job). Or it might take you a while to dig deep and problem solve what the issue may be. You may need to spend considerable time thinking about how the situation came to be and why.
For example, if you are deep in credit card debt, all that shopping doesn’t happen overnight. What is it you were trying to get with those purchases?
- approval from family
- to appear successful to your friends
- an escape from your daily life
- fill a void of lacking something more meaningful
- prove something to yourself
These answers aren’t easy to come to, and they can’t be digested in one day. You may need to seek help to uncover the root issue. BUT, you must uncover the root issue, work to fix it, or you will find yourself back in this same place in a few years.
4. List out all your options to fix the underlying problem
Now you may not like all the options open to you. But it’s worthwhile to list out every possibility and spend some time brainstorming around those options. You never know at first glance what may be the right path to take. Just sit down at a table and make yourself either come up with 10 options or write for 30 minutes. That should be enough to get your brain going.
5. Pick your top option (and the backup plan) & create an action plan
You have all your options; now it’s time to pick the best option. Your “best” option may not be the easiest nor the fastest. It should be the option that serves you best in the long run.
For example, filing for bankruptcy is an option, but it’s not the best option in the long run. Creating a debt payoff plan and executing it consistently every month is your best option for your long-term financial health.
This is a great place to seek outside opinions and guidance, especially from professionals.
When you make your plan, you should try and be as detailed and specific as possible. Identify the who, what, when, where, why, and how for each thing that needs to be done. Write it down, talk with everyone who has a role (even a supporting role), and make sure they’re ready to do their part.
6. Execute the plan to the letter, review & adjust if needed
Now that you have your plan, you need to stay on track. Depending on your financial challenge and your plan, this could take a few years. Be sure that you are staying on track with what needs to be done, reviewing your progress, and adjusting if you need to course correct.
Remember, even the best laid out plans need to be adjusted; nothing is ever 100% good from start to finish. You might need to change things a few times or a lot of times. Adjusting doesn’t mean that you failed; it means that you’re doing a good job of keeping the plan relevant and doable.
7. Acknowledge your hard work and celebrate your progress
The most important part of the plan is celebrating your successes; no matter how small or insignificant they seem, each step forward brings you closer to your goal!
If you don’t celebrate and appreciate your hard work, what was all that hard work even for? Yes, you had a goal to fix something, but what is the point if you’re still miserable, frazzled, anxious, or scared. Relax a little, be proud of yourself, find the motivation to keep on going!
Top 7 Most Common Financial Challenges
1. Not knowing anything about money.
I can say with 100% certainty that we have all faced this problem in handling our money. No one is born knowing how to balance a checkbook or what a mutual fund is. Everyone starts at ground zero and works their way up to financial literacy.
Yes, some people have the advantages of having parents as great teachers, a fancy education, and the support system and time to learn. Yet, anyone can learn these things. It just may take you longer, be more complicated, and be fraught with setbacks.
Google what you want to know about, and then choose reputable resources to learn from. Choose the experts, not some quack that talks loudly with confidence. Be selective. If you’re unsure who the experts are, then join FB groups and ask them who they think good experts are.
A great place to start is…
- Dave Ramsey – getting out of debt
- Jean Chatzky & Suze Orman – women’s money management
- David Bach – general personal finance
- Vicki Robin – lifestyle adjustment
2. Not doing anything with your money
Now you may not have a financial challenge right this minute. But if you continue to do nothing with your money, you will surely have problems down the road. You don’t need to do official financial planning with an advisor, you just need to have a plan that helps your money grow.
At the very least, you should be…
- budgeting – spend less than you earn every month, you need to maintain positive cash flow
- saving – have an emergency fund savings account
Doing these three things will set you on the path for long-term financial stability and to build wealth. These two bullet points are the minimum, and if you only do the minimum, you will get minimal results. But, these results will keep you afloat until you get ready to do more. And our #3 is your next step
3. Being too scared to invest
I can confidently say that 99% of Americans should invest!
According to USAToday, “Nationwide, it takes an annual income of $538,926 to be among the top 1%. Among the approximately 1.4 million taxpayers who meet this threshold, the average annual income is about $1.7 million – about 20 times the average income of $82,535 among all taxpayers.”
So if you’re in the 1%, you don’t need to invest, but you can be sure they are already doing it!
I understand being scared of investing. It sounds like such an important thing, and no one wants to screw up with something this important. But the worst mistake you can make with investing is not doing it.
Start with the easy win, contribute to your workplace retirement plan. Contribute just enough to get the full match (if your employer does a match), this is free money, and you shouldn’t ever pass up free money.
Experts agree that you should be investing 10% – 15% of your gross income. For many of us, there’s no way we can afford to let go of that much of our paycheck. It’s okay; start slow.
For starters, contribute up to the whole match. “According to the Bureau of Labor Statistics, the typical or average 401K match nets out to 3.5%. Their National Compensation Survey found that of the 56% of employers who offer a 401K plan,” which isn’t great.
Start with 3.5% for a few months, then up it to 5% for six months, then keep slowly increasing until you get to the 15% mark. Any easy time to up your contributions is right after your annual pay raise; you won’t notice it as much then.
As you’re a newbie investor, it’s time to learn. One of the most straightforward, common sense investing style is that of JL Collins, his book The Simple Path to Wealth has a cult following. It’s a great place to start and stay there long term to build retirement income.
As many agree, your investments should be boring, while your socks can be flashy. Boring is good.
4. Not bringing in any income (aka a job loss)
Now, this is a tough one, as job losses are all too common these days. Of course, the obvious answer is to get a new job, but that can take time. While you are job hunting…
- Cut any unnecessary expenses; your four walls are your priority, not your gym membership or your fancy car with a hefty monthly payment.
- Sell what you can – car, collections, misc “stuff,” just downsize
- Start a side hustle – earning even $20 on an Etsy shop can help your cash flow; besides, it keeps you busy when you’re not job hunting.
- Stay positive – I know this tidbit isn’t tactically helpful, but it’s essential!
5. You can’t afford to save anything
Many people have this feeling, and sad to say for some, it’s true. Yet, for others, we’re just so used to living our lives a certain way and don’t consider doing things that others would believe to be no-brainer cuts. You should be saving money to fill your emergency fund, funding your retirement savings, and any other savings goal that you may have.
The best place to start is to look at your budgeting method. There are many different ways to budget, and trying a new method could help you see previously hidden opportunities. Try out a few other methods and see what happens. If you’re unsure where to start, I suggest grabbing the Sampler Budget Pack, which has printable budget templates for five of the most popular budgeting methods.
You will most likely need to cut your expenses, as saving money should be one of your top financial goals. Yes, saving money is a priority, not an afterthought behind your monthly spending. Saving brings financial security, and that’s a hard feeling to top!
Now, for some, it can be that you can’t cut anywhere, you have a bare-bones budget, and your money is stretched to the max. Firstly, I’m sorry that you’re facing such hard times and a scary unknown future. It’s time to get help.
Call your county agencies, get lists of nonprofits that can assist you, get on government programs, and start to funnel the savings from those programs into making room for you to save. Even if you set aside $5 a week, that’s fine. It’s a great starting point! Do that, and keep doing it. Look for ways to turn that $5 savings into $10. Keep at it; slowly but surely, you will see progress.
6. Not being on the same page as your spouse regarding money
It’s infrequent that we find our soul mate is also our financial doppelganger. So most couples have this as an area they’d like to work on.
As reported by Ramsey Solutions, “Money fights are the second leading cause of divorce, behind infidelity. Results show that both high levels of debt and a lack of communication are major causes for the stress and anxiety surrounding household finances.”
Yikes! That’s some strong motivation to start the process. Yes, I know it’s hard, it’s uncomfortable, and you may not know where to start. But you have to.
Start by going through the monthly budget together, then go through the credit card statements. While doing this, the most important thing is not to blame, remain calm, and be a good listener. If you’ve done all these things, then it’s time to call in the pros with couples therapy. Many therapists focus on couples & money, as it’s a huge hurdle for many.
It’s important to get this out in the open, and you guys working together, as the problems don’t ever go away. They usually grow if left unchecked, and there are the divorce stats to prove it.
7. Being overwhelmed by debt
This is the big one (no surprise), as almost all of us have been in debt at some point in our lives. At one point, my husband and I found ourselves over $10K in debt and living in his mom’s basement – glamorous, I know.
According to Debt.org, “American household debt hit a record $14.6 trillion in the spring of 2021, according to the Federal Reserve… that debt is shared by about 340 million people.” Including all types of debt – credit card, student loans, car & homes-comes to about $90,460 for the average American.
That’s a lot of weight on your shoulders (especially when it’s student loan debt and you’re just starting out). Luckily there’s a way out that doesn’t involve filing bankruptcy. But it consists of a lot of hard work, which can be intimidating. Working a debt payoff strategy is your best bet in dumping the debt. Yes, you need a process, as people get lost when they don’t work a proven plan.
By far, the most popular way in America is the Dave Ramsey Baby Step Program. Yes, it’s hard, but it works, and when it comes to paying off debt, you want something with a proven record.
At the end of the day
Life is undoubtedly hard, but you don’t have to go it alone. Financial challenges happen to all of us, so that’s the good news, there are lots of people who can help you! Just know that you can turn things around; it just may take longer than you want or be more complicated than you thought.
Get a plan and work the plan, and soon you will be on the other side, helping others get through the exact same thing you faced.
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- The #1 Thing you Need to do to Dump Your Financial Stress
- Debt Payoff – THIS is How You do it!
- What to do NOW to Prepare for a Recession