Top 5 Financial Challenges People Face and Their Solutions

Everyone experiences financial difficulties and hurdles at some point in their lives, sometimes more than a financial speed bump.

When this happens, it may come with heightened stress levels that may be overwhelming. But knowing that there is a way out, usually, can enable one to worry less and focus on improving their situation.

Depending on what is at hand, you may find a way out on your own, or require the assistance of someone to help you get a solution.

In this article, we look at how we can overcome some of the most common financial challenges. It is important to note that there is no one size-fits-all solution.

So, what are the top 5 financial challenges people face?

1. Not Making Enough Money

It's perfectly normal to want more money especially when we’re in a bad financial situation, but the reality is that having more money won't make things better until we fix what got us in the situation in the first place.

Unless you change the way you manage your money, even receiving a substantial amount of money may not help and you could still find yourself in a financial mess. It is not how much money you have, but what you do with it once you do have it. Even more important, is finding a sustainable way of increasing your income earning potential. 

Tip: In addition to strategising on increasing your income, consider a personal improvement plan. Check to see if there is harmful spending, poor planning, borrowing, and poor saving habits to help you change your habits.

Accept responsibility for your past financial missteps and make amends for them. Make the decision to forgive yourself and others who have harmed your financial well-being as you look forward to a better financial outlook.

Read Also: 8 Ideas to Create Multiple Sources of Income

2. Overspending

Striking a healthy balance between money in and money out can be an ongoing challenge for many people. Overspending can occur across all the income brackets as opposed to the notion that those with lots of money are the only ones who can overspend. 

It is also true that overspending will have similar psychological effects on both the high income earner as the lower income earner, with the latter experiencing more intense day-to-day repercussions. 

There is always an emotional element to overspending besides the inherent lack of financial discipline. 

This could be a reward to yourself for your hard work-  which is ok until it gets out of hand. It could also be a comfort or stress alleviation route where one's emotional situation could lead to them making impulse purchases etc. 

It is important to be aware that the tiny unplanned expenditures might add up to significant sums of money if you regularly buy goods on the spur of the moment.

Tip: Consider using a little of the money you currently spend impulsively on small delights and save up for larger purchases that will have a much greater impact on your life. You could also spend some time thinking about what you want to buy and why. Make a list of the things you want to accomplish after you have saved enough money, and then remind yourself of those goals and desires to keep you from squandering your money on things you don't really need.

Read Also: Bad Spending Habits That Are Making You Poor: How to Break the Cycle

3. High Cost of Living

The covid-19 pandemic has done a number on most of us and the most noticeable is how the cost of living is going up every other day. This is not forgetting the Russia-Ukraine crisis which was right on time to make sure that getting back up after the pandemic was not a walk in the park.

With the cost of living rising faster than the rate of increase in personal income, it is important to focus on what we can cut out to reduce our spending or to stretch our finances to go much further.

Tip: Consider having a spending plan. It is time to have a new budget that puts into account the new set of circumstances. You have to weigh the decisions you make in your spending against their implications on your longer-term financial goals - is reducing monthly retirement savings a better idea than downgrading your lifestyle just a little bit? It is always a struggle to convince our brains to get used to making do with less than before - and there is the urge to maintain the status quo even when everything tells us to adapt. Succumbing to the need to keep enjoying the lifestyle one was comfortable with when the cost of living has significantly changed is to descend into financial denial. 

Read Also: How to Behave Rationally With Money - Money Psychology

4. Not Having Enough Saved for Retirement

The Psychology of Money by Morgan Housel which looks at wealth, greed and happiness says there is no amount of studying or open-mindedness that can genuinely recreate the power of fear and uncertainty. 

Just like we saw in Why Is it So Hard to Save Money, there is a direct connection between saving and addressing our financial challenges especially when it comes to the future.

One is that, psychologically we can't experience the feelings of our future selves as we would with our present selves. In fact, according to Emily Pronn, a psychologist at Princeton University, we are somewhat detached and dismiss our future selves as being nothing like us at all.

Housel alludes to this in his book saying that we can read about what it was like to lose everything, for instance during the Great Depression, but have no emotional scars like those who actually experienced it.

For someone who lived through it, they can’t fathom why someone could come across as complacent about things like owning stocks. “We see the world through a different lens.”

When it comes to retirement savings, the earlier you start will always be better. The good thing, however, is that you can not be too late, either. The worst case scenario is failing to plan for retirement at all. 

Tip: Make sure you identify the biggest impediment to your saving for retirement. Is it that you are not earning enough? Do you not understand the mechanics of retirement savings? Or are you just poor at financial planning and managing the money you have? Know what is keeping you from saving for retirement and start to deal with it today. But first, you have to be 100% convinced intrinsically that saving for retirement is absolutely important, otherwise, you will not stand a chance at succeeding. 

Read Also: Planning for Retirement: Key Factors to Consider 

5. A Self-Defeating  Mindset

Claude M. Bristol, the author of The Magic of Believing, said that “Thought is the original source of all wealth, all success, all material gain, all great discoveries and inventions, and of all achievement.”

The author of How Rich People Think, Steve Siebold, notes that the lack of belief in one’s abilities has held many back from getting wealthy.

Siebold compares habits and thoughts of the middle class to the wealthiest individuals having studied millionaires for over 25 years. 

The good Book notes in Proverbs 23:7 that as a man "thinketh in his heart, so is he." Likewise, Roman emperor Marcus Aurelius (121-180 AD) concluded that "We become what we think about”. If this is so, then what do we have to do?

Tip: Start building an abundance outlook on life. Having a scarcity mindset causes us to treat our money with trepidation, caution and ineffectiveness. As a result, you may end up clinging to every dollar as if it were your last which stifles progress. Limited revenues and even squandered opportunities could all be a result of your tightly holding on to your money.

Rather than "burying" or "locking" your money away, thinking abundantly allows you to use it in a variety of ways which could also increase your revenue streams.

Read Also: Money Mindset Shifts That Pay Off - Money Psychology

WRAPPING UP

Everything in your financial life rises or falls depending on how well you have mastered money management. The reality is that it can be difficult to break bad habits such as spending too much and saving too little. However, there is hope if you work hard to get better.

Looking beyond your actions to the attitudes that underpin them will help you overcome your money troubles.

Read Also: 7 Money Secrets You Need to Know