Many individuals face financial obstacles at different stages of their lives. From unexpected expenses to retirement planning, navigating through financial challenges can be overwhelming. However, positive financial habits can effectively manage these obstacles, leading to financial success. This blog will explore five common financial obstacles and their corresponding financial solutions.
Obstacle: Unexpected Expenses
Solution: Emergency Fund
Life is unpredictable, and unexpected expenses such as medical emergencies, car repairs, or home repairs can often arise. These expenses can quickly derail your plans if you do not have an emergency fund.
Building an emergency fund is crucial to overcome unexpected expenses. Start by setting aside a portion of your income into a separate savings account designated solely for emergencies. Aim to save at least three to six months of living expenses. This fund will serve as a financial buffer and provide peace of mind during unexpected situations.
How to get an emergency fund started?
Get started! If you are starting from $0, calculate your emergency fund goal, and set money aside weekly or monthly to begin meeting that emergency fund goal. If your emergency fund goal is $10,000 and you want to have that amount within one year, you must save $1,000 a month or $192 a week.
Obstacle: Financial Stress
Solution: Financial Education
Financial stress is a common obstacle many individuals face, and it can stem from a lack of financial literacy and knowledge about managing personal finances. Without proper financial education, making financial mistakes can easily lead to stress and financial instability.
Invest in financial education to improve your financial literacy. Educate yourself about personal finance topics, such as budgeting, saving, investing, and managing debt. By gaining financial knowledge, you can make informed decisions, reduce financial stress, and take control of your financial future.
There are several places you can get started in your financial education. What interests you? Real estate, the stock market, or entrepreneurship. Another place to get started that is a great stress reliever is educating yourself on what you have exposure to. Do you work for a company with benefits? It may be time to take a deeper dive into understanding your healthcare or retirement plan and ensuring you are taking advantage of all it offers.
Obstacle: Where is all of my money?
Solution: A Financial Snapshot
Common questions that we hear from people when discussing their personal finances are. Where is all of our money at? Money can be in checking, retirement, brokerage, and even health savings accounts. Who do we owe money to? Money you owe includes debts, like a mortgage, car note, credit card debt, or student loans. Completing a financial snapshot can help you answer these questions and get peace of mind in knowing where all of your assets and liabilities are.
Create a financial snapshot by tracking your assets, liabilities, and income sources. Use My Financial Snapshot’s Snapshot Tool to calculate your net worth and see itemized details of everything you own. Update your financial snapshot at least once a year. Understanding your financial snapshot will help you make informed financial choices and take steps toward achieving your major financial goals.
Obstacle: What are my expenses?
Create a budget to gain control over your expenses and savings. Start by listing all your sources of income, your investments and savings, and all your expenses, including fixed expenses (rent, mortgage, utilities) and variable expenses (groceries, dining out, entertainment). Categorize your expenses and set spending limits for each category. Regularly track your spending and compare it with your budget to adjust as needed. Budgeting will help you manage your money effectively, prioritize your expenses, and save for your financial goals.
Budgeting answers questions.
The process of completing a budget pays dividends. It builds your understanding of your finances, and it helps to refine financial goals. Not only that, but My Financial Snapshot makes budgeting easy—no need to hassle with complicated apps or create your own Excel spreadsheet. Anyone can budget using our Budgeting Tool.
Obstacle: When can I retire?
Solution: Retirement Planning
Retirement planning is crucial to ensure financial security during your retirement years. However, many people need more time to complete retirement planning, which can result in financial challenges during retirement.
Start retirement planning early to take advantage of the power of compounding. Estimate your retirement expenses and set a target retirement age. Determine your retirement savings goals and develop a retirement plan with the help of a financial advisor if needed. Maximize your retirement savings by contributing to retirement accounts such as 401(k), IRA, or other retirement plans. Review and update your retirement plan regularly to stay on track and make adjustments as necessary.
Avoid analysis paralysis.
Analysis paralysis is an inability to make a decision due to over-thinking a problem. The result is endless wrangling over the upsides and downsides of each option, and an inability to pick one. This impacts retirement planning because no matter what age you are, you are investing money for a sometimes undefined future. Focus on what you can focus on that is best for you. Consistent contributions, a planned age of retirement, and what you will need to succeed in retirement.