You can encounter financial challenges at any point in life. The stress of it can affect in many ways, prompting you to take a few drastic decisions that would be detrimental in the long-run. So how should you approach a financial problem? Firstly, acknowledge that a problem exists, and look at it from different perspective.
Once you have determined the cause of the problem, take steps to rectify and address the issue with a practical solution – maybe take help of existing resources such as an emergency fund, after all such a fund is useful to meet unexpected costs, or a health insurance to pay the medical bills caused to an accident, etc.
There are several ways you can take care of a financial emergency, and below we have discussed how to identity and overcome monetary challenges.
Identify the Financial Problems
The first step to overcome financial difficulties is to identify the issue causing the problem. Here are some common sources and reasons to financial problems and their solutions.
- Lower Than Usual Income: The reason to such an issue could be living off credit or not putting enough efforts to earn to your full capacity. A solution is to re-evaluate your lifestyle and follow a strict budget. Also, try to arrange other sources of income to earn more money.
- Increase in House Rent: Do you live individually in a house at a posh locality? Try shifting to an affordable locality as a paying guest, so that you can reduce the rental expense.
- Unforeseen Events: Unexpected costs can result from a medical emergency, accident, an important repair, etc. You can take help of credit providers for small cash loan so that the burden of debt is not much, and you can easily pay off the debt from your monthly income, or liquidate a short-term investment.
- Maintenance of Assets: People get emotionally attached to things they own. However, after a point, these things either lose value or are under-used or not used at all. So what do you do? Keep incurring maintenance cost for the assets? That will simply increase your spending and serve no productive value. Rather you can sell off the assets and use its proceeds to save for a crucial expense like – paying bills, add to the emergency fund, etc.
The financial problems you face could be more complex than what are stated above. But, the underlying concept remains the same- identity a specific problem, realize how important it is, find what is causing the issue, and lastly, get a realistic solution for it.
5 Smart Tips to Tackle Financial Challenges
Below-given are some of the tried and tested methods of coping with financial problems.
- Create a Monthly Budget
A monthly budget is basically a monthly spending plan. If you create a monthly budget and stick to it, then you can prevent financial problems before they happen. A disciplined budget can guide your spending decisions so that you spend on things that are really important to you.
- Track Your Expenses
Now to create a realistic budget, you need to track your expenses over a month to objectively know how much you are spending and where you are spending. Tally up all the purchases for a month and strike out purchases that you can avoid. Once you are confident about the numbers in your budget, search for areas where you can save maximum money.
You may want to ask yourself things like: Do I have to spend on hobbies and entertainment every week? Do I really have to buy new clothing every month? Can I carry home-cooked food for lunch than buying meals from outside?
Limiting expenditure does not mean you are downgrading your lifestyle, but accomplishing bigger things and keeping sufficient funds for all necessary activities.
- Set Financial Priorities
Once you determine your financial priorities, you can keep a check on any monetary problem that could arise. Set clear priorities, such as: paying off that credit card debt, save for house repairs, keep aside a portion from your income to purchase an important gadget, etc. You must understand which spending is important to you and how to tackle it first.
Shape your monthly budget in a way that it addresses the financial priorities. Prioritize both short-term and long-term goals, such as: reduce expenses by paying the minimum balance on your credit card (short-term goal), keep aside the monthly premium towards your life insurance policy (long-term goal), etc.
- Take a Step at a Time to Achieve Goals
To solve monetary woes, all you need to do is reduce expense and increase income. It is not an easy task, but there is always a beginning. Take small steps to make changes to lifestyle and cut down on some expenses. For instance, have you been avoiding a dental treatment because you are unable to save money for it? But, now the dental condition is so bad that you have no choice but get it treated immediately.
So, you take a soft loan from a friend to fulfil this medical emergency. But you could have avoided the debt by saving some amount every month for the dental treatment. You could have avoided that night out last month for once and saved for a more important expense- the dental treatment. Most of us are not prepared to make drastic changes in lifestyle. But, you can start with several small changes to ease up financial stress.
- The Snowball Effect to Clear Debts
You can follow the ‘snowball effect’ to maintain minimum payments on all debts and put extra money for one debt and pay that off faster. When one of the debts is completely paid off, you can keep aside extra funds to eliminate the next debt, while making the minimum payment for other debts, thereof reducing the monthly burden of all debts. This is a powerful method and great for beginners to pay debts off faster.
Financial emergencies are disruptive in nature and can drain out savings quickly. The spiral of crisis just intensifies once you lack funds and depend on debts alone. To sum it up, you can keep financial issues at bay by:
- Preparing a proper financial plan and reducing the fiscal burden at the right time.
- Following a strict budget that addresses important expenses the first to setting your finances back on track.
- Making small changes in lifestyle for surplus fund and directing those to manage crucial expenses.
- Tracking expenses every week, so that you know where you spend the money and if certain expenses are avoidable.
- Paying off ongoing debts gradually to eliminate financial stress.
By following the above-mentioned tips, you can thus, easily reduce and overcome financial issues.