Common Financial Weaknesses and How to Overcome Them
Everyone has different financial weaknesses, some more common than others. These can include overspending, living beyond your means, not having an emergency fund and not tracking your money. These weaknesses can lead to financial stress and can prevent you from reaching your financial goals.
Fortunately, there are steps you can take to overcome these common financial weaknesses and build a sound financial foundation. Through careful budgeting, setting achievable goals and being mindful of spending habits and decisions, you can gain control of your finances and put yourself on the path to financial success.
Financial Weakness: Overspending and Living Beyond Your Means.
Overspending is when you spend more money than you have. It can be a challenge for many people, especially if you have a lot of financial commitments. Overspending may stem from many places – boredom, psychological issues, poor understanding of your finances, or it could simply be habitual. You may also be easily influenced by what you see on social media, which isn’t always reality.
Similarly, living beyond your means is consistently spending more money than you make. It often happens when you take on unnecessary financial commitments such as credit card debt, car loans, student loan debt and mortgages. If you find yourself living beyond your means, it’s important to take action.
How to overcome: There are a few ways you can combat both overspending and living beyond your means. First, you need to get comfortable with your finances and track your spending. This will help you see where your money is going and where it may be overspent, and ultimately will help you determine if your issue is a spending issue or that you’re not making enough money to support your lifestyle.
You can also try creating a budget. A strict budget is one in which you don’t allow any overspending. Another option is to simplify your life to reduce financial commitments. This will free up more of your money so that you can stick to your budget.
You could also try to get a side hustle or additional source of income. This will help you offset any overspending you may have and give you more money to put toward your expenses, and this may also help if you’re living beyond your means.
If your overspending is due to boredom, try starting hobbies that don’t involve spending money – borrow library books or take up running or walking. If your overspending is influenced by social media, try limiting your social media usage or unfollowing the accounts that trigger your spending. Overspending that is psychological in nature may be helped by working with a therapist and a financial adviser in tandem.
If you find yourself overspending or living beyond your means, remember you’re not alone. Everyone overspends from time to time, but you can use this as a learning experience and get back on track.
Financial Weakness: Not Having an Emergency Fund.
An emergency fund is a savings account where you put money for unplanned events such as a car accident, sudden medical emergency, job loss, etc. Having an emergency fund is important for financial security. Unfortunately, many people don’t have an emergency fund. If you don’t have an emergency fund yet, try to prioritize building one.
How to overcome: If you’re not tracking your spending, start. This will help you see where your money is going. You can then use this information to determine where you can cut back and put that money toward your emergency fund. For example, are you spending money on subscriptions, such as streaming services, that you aren’t even using?
Getting a side hustle or additional source of income would help with this weakness, too. It would allow you to put more money toward your emergency fund and give you financial security.
If you have some wiggle room in your budget, setting up an automatic deposit of a portion of your paycheck into a savings account earmarked for emergencies is a simple way to build up that emergency fund without feeling it month to month.
Additional Strategies for Overcoming Financial Weaknesses
Once you’ve identified your financial weaknesses, you can begin to work toward overcoming them. There are a few general strategies you can employ to deal with these common financial weaknesses.
Creating a budget, or using a budgeting app, can help you identify any financial issues and take steps to resolve them. You’ll be able to see what you’re spending your money on, and you’ll be more aware of your spending habits in general – which can help you to identify where you may need to make adjustments in your financial life.
Setting financial goals and then getting a partner, friend or financial adviser involved to hold you accountable for those goals can help you stay in control of your finances.
When you’re making a financial goal, don’t shoot for the stars – start with an achievable goal that you can complete in a short time frame and break it down into manageable sections. If you have a long-term goal, such as paying off a big debt or saving for retirement, break that down into monthly goals that are easier to meet each month. Automate your savings so you can give yourself a better chance of reaching that goal.
If you’re prone to overspending, make it a little more difficult to spend your money. For example, if you love to use your credit cards, take out cash for the week instead and use that cash only instead of your cards. Or write a list when you go to the store and buy only what is on that list.
If you notice that you always overspend when you stop into certain stores or shop online, switch your routines to avoid those stores and set up screen-time limits on your phone to remind you to avoid the urge to online shop.
If you’re struggling with any aspect of your finances, talking with a Old National Banker may help. Find a location today.
This article was written by Andrew Rosen, Cfp® and Cep from Kiplinger and was legally licensed through the Industry Dive Content Marketplace. Please direct all licensing questions to firstname.lastname@example.org.