Financial problems can arise from having too much or too little money. Budgeting can be tricky, and financial crises can occur. Issues can develop very quickly. However, by understanding the root causes of financial problems, you can take steps to prevent them.

Financial literacy is also important because money impacts many aspects of life beyond just finances, such as relationships and stress levels. Here are some common financial problems and solutions!

Let’s first clarify what financial problems are.

What are Financial Problems?

A problem, big or small, is simply an issue that needs to be addressed or resolved. Ideally, you should find solutions to your problems, as ignoring them will only make them worse and negatively impact your life. When these issues are directly related to money, they’re known as financial problems.

There’s a difference between a financial problem and a minor financial annoyance. A financial problem, like an unexpected bill, requires you to make decisions and take action. An annoyance, on the other hand, might simply irritate you – for instance, if your partner goes £10 over budget on a non-essential purchase. 

These annoyances can sometimes snowball into bigger problems if they’re part of a larger pattern, but sometimes things just happen. Don’t worry about a one-off expense if it’s not indicative of a deeper issue. However, persistent financial annoyances can become problems if left unchecked.

What Causes Financial Problems?

Every problem has a root cause, and financial problems are no exception. Addressing these root causes is essential to prevent them from recurring. Here are some common causes of money problems:

1. Lack of Planning

Unorganised finances and a lack of planning will inevitably lead to problems. Without financial goals, you might struggle to cover everyday expenses and be unprepared for unexpected costs. Not having a budget or keeping your finances in order exposes you to financial problems.

2. Unexpected Events

Life throws curveballs sometimes. Unexpected financial problems or medical bills can arise, even with good planning. These events can deplete your emergency savings and set you back financially. Unforeseen circumstances can still derail your goals, even with a sound financial plan.

3. Insufficient Income

Without enough money coming in, everything feels like a struggle. This could be due to a low salary or a large expense that eats up a significant portion of your income. Regardless of the reason, a lack of sufficient income will undoubtedly strain your budget.  

4. Lack of Financial Literacy

Even with a decent income and some savings, mistakes can happen if you don’t have financial knowledge. In short, a lack of financial literacy means not understanding money management basics. 

Without this knowledge, you might fall victim to get-rich-quick schemes or make poor investments, ultimately harming your budget.

5. Family Financial Strain

Family dynamics can significantly impact your finances. Reaching your financial goals can be challenging if you and your partner disagree on money management, or if you have relatives who frequently ask you for loans.

Disagreements about money within the family can be stressful and hinder your ability to budget or save effectively. 

Types of Financial Problems

Financial problems can be categorised into a few main areas. These are the key types of financial problems you might encounter:

Relationship-based Problems

Money-related arguments or tension within your relationships can be a significant source of stress. For example, a family member might constantly pressure you to invest in their business ventures, or you might struggle to afford your children’s university fees.

Disagreements about money can quickly strain relationships. Jimenez Law Firm highlights that different approaches to money management are a major cause of conflict in marriages and can even impact divorce rates. 

Therefore, it’s crucial for couples to openly discuss their financial goals and develop a strategy that works for both of them. 

Knowledge-based Financial Problems 

A lack of financial literacy can easily lead to poor financial decisions. This is a major cause of financial problems, as it can result in missed opportunities, wasted money, or poorly chosen investments.

The good news is that this can be remedied by gaining a basic understanding of money management and doing your research before moving money into savings or investment accounts. 

Financial Problems Due to Poor Self-control

Even with a healthy income, you could still end up broke if you spend it all. Poor self-control, manifested through problems sticking to a budget or overspending, can wreak havoc on your finances.

If you struggle to resist impulse purchases, achieving your financial goals will be difficult. Developing the discipline to make pre-determined decisions about spending and saving, and avoiding impulsive choices, is key to financial success. 

Reasons for Financial Problems Based on Income

One form of financial problem that won’t go away is not making enough money at your job. And having insufficient funds can definitely derail your financial plans.

Financial problems based on income are easy to identify, but solving them can be tough. It could call for better money management, a side business, or a new employment.

Examples of Common Financial Problems

Now you understand the different types of financial problems and the reasons behind them. Perhaps some of them resonated with you. Here are a few examples of common financial problems to help you determine the next steps for your specific situation.

No Budget, Leading to Missed Bills

This is a common and stressful financial problem. It happens when you spend your money before you have a chance to pay your bills. This could be due to a lack of self-control or not having a budget in place.

The best thing to do in this situation, although it might feel overwhelming, is to take a deep breath and assess your bank account. Then, create a budget so you can allocate any remaining funds towards your most important expenses first. 

Then, if absolutely necessary, consider other options like using a credit card or selling some belongings. Remember, using a credit card should only be a last resort, not a regular solution. The best approach is to prioritise paying off all your bills, including any credit card debt, when you next receive payment. Additionally, create a budget and stick to it to avoid similar situations in the future.

When Your Car Breaks Down and You Don’t Have The Money to Fix It

Suddenly, your car breaks down! You also don’t have the funds to get it repaired.  There are likely more options available than you might think in this situation.

Your immediate concern is probably how you’ll get to work during the week. A temporary solution could be asking a friend or family member for a ride, or seeing if they have a car you can borrow. Public transport like buses or even cycling might also be viable options in the short term. 

However, this won’t last in the long run. Start setting aside any additional cash you can, and think about starting a side business to help pay for the repairs. Work hard to accumulate money for future auto maintenance once the car is operating normally again.

Due to Ignorance, You Lose Money on a Poor Investment

A concept can occasionally appear fantastic until it totally backfires and flops miserably. Financial problems might arise when you invest your money in a terrible company because you did not do your homework or have a solid understanding of finance. In such cases, you may not know what to do next.

Depending on the circumstances, you might be eligible to get your money back. Try contacting the provider first. However, if you haven’t done your due diligence, you might lose the investment.  This is why it’s crucial to always research thoroughly before investing and never put money into a scheme you don’t fully understand.

Surprise Spending By Your Partner

Imagine checking your bank account and discovering a large, unexpected expense! This can be frustrating and make you feel like your financial goals aren’t being considered. 

The first step is to talk to your partner and understand their reasoning behind the purchase. Listen to their perspective and express your feelings calmly.  From there, it’s essential to develop a plan for discussing and agreeing on future significant financial decisions.

If your partner is unwilling to discuss a purchase or doesn’t want to work together on finances, consider couples counselling to see if you can find common ground.

Saving Splurges

Anyone can fall victim to a spending spree after getting bored with saving. Even if you’ve been diligent with your finances or saved for a long time, a single day of overspending can throw your budget off track and make it difficult to pay your bills.

Here’s what to do if you’ve overspent:

Assess the damage: First, figure out how much damage has been done.

Return what you can: See if you can return any purchases you made. Do this as soon as possible.

Sell unwanted items: If you find there’s still a gap in your budget after returns, consider selling some of the items you bought online.

Budgeting for treats: To avoid feeling overly restricted in the future, factor in some discretionary spending into your budget. However, always prioritise covering your essential bills first.

How to Tackle Life’s Financial Problems 

We’ve explored various financial problems through real-life examples. But how do you actually fix them for good? After all, a healthy relationship with money can significantly improve your life. It can positively impact your mental wellbeing, relationships, retirement planning, and more. Here are some steps to take control of your finances:

1. Identify The Root Cause

The first step is to understand the true cause behind your financial problems. Remember, the symptom is different from the root cause. For example, overspending might be a symptom, but the real issue could be a lack of financial self-control.

Address the underlying reasons behind your financial problems. Depending on the problem, you can approach this by:

Keeping a financial journal to track your spending habits.

Discussing your concerns with a trusted friend or partner.

Setting clear financial goals and a plan to achieve them. 

By tackling the root cause, you’ll be better equipped to find lasting solutions.   

2. Improve Your Financial Literacy

Boosting your financial knowledge is always a smart move. Consider it an investment in yourself! Here are some ways to learn more:

Take advantage of free financial courses: Look for online resources or workshops offered by banks, credit unions, or other organisations.

Talk to financially savvy people: Seek advice from friends, family members, or colleagues who manage their money well.

Read books and listen to podcasts: There’s a wealth of information available on personal finance. Find resources that fit your learning style.

By gaining a solid understanding of financial terms, investing basics, retirement planning, and saving strategies, you’ll feel much more confident managing your money. 

3. Have Those Awkward Conversations

Let’s face it, these conversations aren’t always pleasant, but sometimes they’re necessary. If others are involved in your financial situation, it might be time for some tough discussions. This could be with your partner, a family member, or a friend.

Setting boundaries and expressing your concerns can be difficult, but it’s essential. Avoiding these conversations could leave you struggling financially or unable to reach your financial goals.   

4. Develop Self-control and Be Prepared to Delay Gratification

Let’s be honest, it’s not always easy. But is it worth it? Absolutely! Mastering self-discipline and delaying gratification is a valuable skill, and it’s crucial for your financial progress.

Think about the aspects of money you find most tempting and most important. Set spending limits and savings goals based on these priorities. By treating yourself occasionally while staying committed to your long-term goals, you’ll quickly learn the value of delayed gratification.

5. Boost Your Income

Another approach to tackling debt or saving for a major goal is to increase your income. Whether you’re struggling to pay bills or looking to save for a big purchase, having more money coming in can certainly help.

This could involve requesting a raise at your current job, or it might mean exploring a new job or even a career change. While it might be demanding in the short term, ultimately it will help you achieve your financial goals. 

6. Track Your Progress

Money management isn’t a one-time fix. It’s an ongoing process that needs monitoring.  Developing a system to track your progress will be helpful as financial situations frequently evolve.

Here are some ways to achieve this:

Budgeting: Create and stick to a budget to ensure your spending aligns with your income.

Monitoring savings goals: Track your progress towards your savings targets, whether for a holiday, retirement, or a house deposit.

Annual financial review: Conduct an annual review of your finances to assess your progress in building wealth. This helps identify areas for improvement and celebrate your achievements.

Use these tips to tackle your financial problems!

Common financial problems can feel overwhelming, but with some preparation, learning, and self-control, you can overcome them. Remember, to see tangible results and achieve lasting financial stability, identify the root cause of your problems and track your progress over time.