Financial problems can quickly turn into a financial crisis. This is why you need to deal with them quickly. Sometimes, these problems are brought about by mistakes that we have made. Sometimes is it just a case of bad luck. Regardless of the cause of your problem, you need to know that there are certain consequences if you choose to ignore it.
Life, as pessimistic as it may seem, will always give you problems. Considering how prominent money is in our society, you can be sure that your finances will be a common issue in your life. That is a fact in our consumerist society. Most of the time, the problem will involve having enough money to meet our needs. When our expenses are beyond our income, that is when we feel stressed about our money.
The thing is, all problems can be solved – but only if you act on it immediately. Although financial problems may be daunting, you have to avoid postponing the solution. You do not have to come up with a quick-fix, but it is very important that you acknowledge the problem so you can go to the next step – solving it.
4 financial issues you should never delay working on
Among all the financial issues that you will encounter in life, there are 4 important financial problems that you should never deal with at the last minute. Some of the issues can be postponed or skipped. For instance, marriage is something that you can postpone for a few years if your finances cannot afford it. Or if your child’s birthday is coming up, you can choose to skip this expense if you cannot afford it.
These are important expenses but you can decide to skip them if it will become a problem for your finances. However, these 4 financial problems should not be postponed. Once you discover these problems, it is important for you to work on solving it as soon as you can.
Low retirement fund
Retirement may seem like a far-off financial issue – especially when you just graduated from college. However, there is wisdom in starting early. If you plan to save up $1 million for your retirement, starting when you are in your 20s will give you 45 years to save up for it. That means you get to contribute smaller amounts. For instance, let us assume that the compound interest is 6%. If you start when you are 25, you need to contribute $6,461.47 each year to reach your goal. If you start when you are 35, you need to make an annual contribution of $12,648.84. When you reach the age 45, the annual contribution will now be $27,184.47. This is the reason why you should not postpone this financial problem. The longer you delay it, the higher amount you have to contribute. That can be stressful. If you do not make contributions, you will miss out on the chance of living a good retirement life. Having no retirement money is not a problem that you want to have.
High student loans
The second of the financial problems that you need to work on immediately. Do not delay it because student loans, especially the one from the federal government, have aggressive collection methods. The government can garnish your wages, benefits, and even your tax refund if you cannot meet your student loan payments. If you have a lot of student loans, it is important for you to determine how you will pay it back. Do not delay this planning until the end of your grace period. It might be tough to enter the repayment plan if you have no idea where you will get the financial resources to pay it off. Not only that, you may be eligible to receive benefits, financial aid or forgiveness. This could lower your monthly payments. This is why you have to make sure that you will think about your payment strategy before your grace period expires. You want to take the fastest route towards paying off your debts so you can free your finances to invest in something else. According to the data from FederalReserve.gov, they found that the higher the student loan debt, the lower the chances of homeownership. This is why you need to think about this problem as soon as possible.
Maxed out credit card
The third of the financial problems that you need to think about involves your maxed out credit cards. The main reason why you should not delay this is because it will worsen if you ignore it. If you fail to pay it off, you might find it hard to catch up. Credit cards are notorious for their high-interest rates. The faster you pay off your balance, the better it will be for you. The less money you have to waste on paying the interest on your debt. A maxed out credit card should also be solved immediately because it can ruin your credit score. A bad credit score is something that you should try to avoid as much as possible.
Bad credit score
Speaking of credit scores, this is the last financial problem that you should not delay. The main reason is that correcting a bad credit score cannot be done overnight. If you find yourself in need of a loan, a bad credit history might keep you from getting a good rate. To correct your score, you need to understand what is at stake first. According to a study done by CreditKarma.com, 69% of people do not understand what a credit score is – at least when they got their first credit card. This is probably why a lot of them were reckless with their spending. In fact, the same data revealed that 73% of their respondents said their knowledge of credit scores could probably help them avoid committing the mistakes that destroyed their credit history. If it is too late and you already have a bad score, you need to work on this immediately. Otherwise, it could delay the financial investments that could have improved your financial position like buying a house. A bad score may not keep you from getting a loan approval but it can increase the interest rate that will be imposed on the loan – increasing the cost of buying a house.
If you deal with these financial problems immediately, you do not have to worry about them. But if you postpone the solution, that can cost you more money. The longer you wait, the riskier it could be.
Two plans that will keep financial troubles away
While nobody is immune to financial difficulties, there are ways for you to keep it from happening. Or at least, you can lower the chances of having problems. The answer lies in two important plans: a budget plan and a financial plan.
Most people are not sure about the difference between the two but an article published on Wells Fargo provided a great definition for the two. Here are three differences that will help you understand the importance of a budget and a financial plan.
- Financial position. A budget plan is something that describes your current financial situation. On the other hand, a financial plan will indicate your intentions for your financial future. The latter will help you set your goals and reach it. Your budget will indicate your capabilities in reaching them
- Financial strategy. The budgeting requires money management while financial planning is all about long-term strategies. When it comes to your strategy, you usually have to consult your budget first before you can finalize your financial plans.
- Financial timeline. Finally, a budget is all about the short-term while financial plans deal with the long-term. Budgeting tracks your daily expenses while financial planning takes care of the progress of your goals.
Both of these plans are necessary if you really want to avoid financial problems. It can be minimized if you know your current financial position – which is what budgeting will help you do. When it comes to financial planning, it becomes necessary because it allows you to prepare for the future. That way, you can try to prepare for any unexpected events that could compromise your future.