Common Financial Problems:
How Financially Healthy Are You? Financial problems, like many medical problems are best detected early. Here is the list of some widespread and most common personal financial problems:
Not Planning. Human beings were born to put off things. And that is why we have deadlines – and deadline extensions. Unfortunately, you may have no precise deadline with your overall finances. You can allow your credit card debt to accumulate, or you can leave your savings sitting in lousy investments for years. You can pay high taxes, leave gaps in your retirement and insurance coverage, and overpay for financial products. Certainly, planning your finances is not as much fun as planning a vacation, but doing the former can help you take more of the latter.
Overspending. The average Canadian saves less than 5 percent of his or her after-tax income. Simple arithmetic helps you determine that savings is the difference between what you earn and what you spend. To increase your saving, you either should spend less, work more, or know some wealthy people who want to leave everything to you (the last alternative is the least realistic).
Buying with consumer credit. Even with the benefit of today’s lower interest rates, carrying a balance month–to-month on your credit card or buying a car on credit means that even more of your future earnings are going to be earmarked for debt repayment. Buying on credit encourages you to spend more than you can really afford.
Delaying saving for retirement. Most people say that they want to retire by the mid-60s or sooner. But in order to accomplish this goal, most people need to save a reasonable chunk (roughly 10 percent) of their income, starting sooner rather than later. The longer you wait to start saving for retirement, the harder it will be to reach your goal. And you will pay much more in taxes to boot if you don’t take advantage of the tax benefits of investing through particular retirement plans.
Falling prey to financial sales pitches. Great deals that can’t wait for a little reflection or a second opinion are often disasters waiting to happen. A sucker may be born every minute, but a slick salesperson is born every second! Steer clear of those who pressure you to make decisions, promise you high investment returns, and lack of proper training and experience to help you.
Making decisions based on emotions. You are most vulnerable to making the wrong financial moves after a major life change such as: a family loss, divorce, or when you feel under pressure. Maybe a recent divorce has you fearing that you won’t be able to afford to retire when you planned, so you pour thousands of dollars in some newfangled financial product. Take your time and put your emotions aside.
Exposing yourself to catastrophic risk. You’re vulnerable if you and your family don’t have insurance to pay for financially devastating losses. People without a savings reserve and support network can end up homeless. Many people lack sufficient insurance coverage to replace their income. Don’t wait for a tragedy to strike to find out whether you have the right insurance coverage.
Focusing too much on money. Placing too much emphasis on making and saving money can warp your perspective on what’s important in life. Money is not the first or even the second priority in happy people’s lives. Your health, relationships with family and friends, career satisfaction and fulfilling interests should be more important.
Most financial problems can be fixed over time with changes in your behavior.
Robert W. May