Only a tiny fraction of people waltz through life with little to no financial worries. For many of us, we know exactly how depressing a financial challenge can be – maybe it’s striving to make ends meet, or being trapped in the loop of monthly payments, or an unexpected health crisis that wipes out your savings.
According to Forbes, about 17% of Americans are struggling with almost all aspects of their financial life, while 54% are struggling with some aspects of their financial lives. So the next time you feel like giving up on ever attaining financial freedom, know that you’re not alone. However, there’s always hope.
In this post, we explore the most common money problems Americans face and how to deal with them.
- Monthly Expenses Exceeds Income
This is the number one reason most people are in the debt trap. Even before they receive this month’s wage, they need to borrow to cater to their current needs. Consequently, their future earning is never enough after they’ve made monthly payments – and the cycle continues.
That’s why creating a budget is extremely important. That way, you can make conscientious efforts to cut unnecessary spending and live within your means. In a situation where you make too little, then you should consider asking for a raise, working overtime, or getting a second job – anything that will make you earn more!
- No Emergency Fund
What will happen if you lose your job today? Do you have enough that will last you for the next three or six months? Unfortunately, most people don’t. That’s why a simple emergency can throw lots of people off balance, and they start taking out a personal loan or a new credit card.
Ensure that you open an emergency fund and save a little fraction of your monthly income consistently so you have some cash to fall back on should an emergency arise.
- Student Debt
Many people seek out a college degree to improve their future earning potential. However, over the past few decades, the cost of higher educated has skyrocketed and about 54% of college students need to take out a student loan to make their college education possible.
With the average monthly student loan payment of $393 and at a 6% interest rate, it takes the average student borrower 20 years to pay off their student loan. Over that period, the accrued interest is about $26,000.
That’s why it’s important to examine the field of study you’re taking out a student loan for. Fields like engineering and medicine drastically improve your earning potentials, making it easier to pay off your student loan. On the other hand, degrees with low earning potentials like Teacher Education and Visual and Performing Arts makes it more difficult for borrowers to pay off their debt.
- No Retirement Plan
According to a recent report from the U.S. Federal Reserve, about a quarter of all Americans have no retirement savings or pension at all.
Based on the breakdown of the data, 42% of people aged 18 – 29 had no retirement savings. Only 26% of those between 30 – 44 had no retirement savings, while it was 17% for those between 45 – 50. Most people become more aware of the need to have a retirement fund as they age. However, many people start saving when it’s too late. Consequently, they live their retirement lives without being able to explore the world as they had hoped for.
Experts recommend that you automate your retirement savings at a relatively young age. You can opt to have your employer contribute a percentage of your income to a retirement plan. Note that the amount you’ll be able to save is heavily dependent on your income and circumstances.
- Having a Kid
Starting a family and raising kids is one of the few joys that makes life worth living for lots of people. However, many people underestimate how expensive raising kids can be. According to a report from the US Department of Agriculture, raising a child can easily cost over $200,000.
Childbirth alone can cost you $20,000 if you do not have insurance. Then you have to feed it, clothe it, and do many other things for them till they become young adults.
Before you take on this serious level of commitment, ensure that you’re financially capable of handling it. At the very least, know exactly what you’re getting yourself into.
- Owning a Home
Owning a home is part of the American Dream for most people. To help them accomplish it, most people take out a mortgage. A mortgage is usually the greatest investment most people will make in their lives.
For the next 10, 20, or 30 years, depending on the duration of your mortgage, you’ll have to set aside a large chunk of your monthly budget for the mortgage payment. This can significantly reduce the quality of your life at the present.
That’s why you shouldn’t purchase a home that’s way beyond your means. Furthermore, try to make extra mortgage payments so you can clear off your mortgage earlier. Nothing good comes easy, so is owning a home.
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