Few people go through life without experiencing any financial challenges. In fact, many of us face similar money struggles as we work towards building financial security and navigate through major life events.
Whether your financial concerns are temporary or more long-term, the good news is that the situation is not likely to be permanent. Many financial challenges can be solved simply by making an honest assessment of the situation, learning some personal finance basics, and making gradual changes in your spending and saving habits. Small actions can not only help you feel better (and more in control) right away, but can also snowball into big changes over time.
Below are five financial challenges people commonly face, and some simple strategies that can help you overcome them.
1. Monthly Spending Exceeds Income
Many people struggle with the fact that their monthly outflow (or spending) outpaces their monthly inflow (or take-home income). The imbalance can cause you to rely on credit cards, and make it nearly impossible to save for the future, or even for a rainy day.
To help get your cash flow into balance, you may want to set up a basic budget. While a budget may sound restrictive, it can actually simplify your finances and make it easier to make everyday spending decisions.
A good way to start is to go through the last few months of financial statements and receipts, then tally up your average monthly income (after taxes) and average monthly spending. You may also want to break down expenses by categories, and then group categories into necessary and unnecessary spending.
It can also be helpful to actually track your spending for a month, taking note of every latte and lunch out (or by using an app that tracks expenses). Although you may think you know where your money is going, when people tally up all their purchases for a month, they are often surprised to notice that their spending doesn’t always match up with what they thought their priorities were.
Once you see where your money is really going each month, you can then look at your budget critically and search for areas where you can cut back. For example, you might decide you’ll eat out less often, pack your lunch a few days a week, get rid of a streaming service you rarely watch or find a cheaper cell phone provider.
You may also want to think about ways you may be able to grow your income, such as negotiating a higher salary, looking for a new (higher-paying) job, taking on a side gig, or freelancing.
Recommended: 25 Ways to Make Money Outside Your Day Job
2. Not Having a Financial Cushion
Life can be unpredictable, and unforeseen events, like a loss of income, car breakdown, or visit to the ER, can quickly put you into a hole if you don’t have any emergency savings at your disposal.
Ideally, an emergency fund will have enough cash to cover three- to six months’ worth of living expenses, but even a reserve of $1,000 can save you from having to rely on credit cards or take out a personal loan to handle an unexpected expense.
To start building a buffer, you may want to consider dedicating part of your monthly budget to emergency savings. It can be a good idea to keep this fund in an account that earns more interest than a standard savings account, but still allows you easy access to your money, such as a high-yield savings account, money market account, online savings account, or a checking and savings account.
Even contributions of $50 a month can add up quickly, creating a cushion that can come in handy when a rainy day hits.
Ready for a Better Banking Experience?
Open a SoFi Checking and Savings Account and start earning 1% APY on your cash!
3. Carrying a Credit Card Balance Every Month
Credit cards can be both a useful financial tool and an incredibly slippery slope. Americans currently carry an average credit card balance of $5,897, according to Experian . High-interest rates make the price of the charged items significantly more expensive. And, depending on credit makes it more likely that you’ll spend more than you earn.
As you re-evaluate your budget and work to reduce expenses, you may also want to find a way to pay more than the minimum on your credit card balances. If you have multiple cards, you might try the avalanche method of paying off debt. This involves paying the minimum on all your balances, but putting extra towards the balance with the highest interest rate. Once that’s paid off, you put your extra money towards the debt with the next highest balance, and so on.
Another approach is the snowball method. Here, you pay the minimum on all your debts, but put extra money towards the smallest balance. Once, that’s paid off, you put your extra money towards the next-highest balance, and so on.
Alternatively, you may want to consider consolidating your credit card debt by paying off all your balances with a personal loan. You would then only have one balance to keep up with, ideally with a lower interest rate.
4. Being Weighed Down by Student Loan Debt
Having a large amount of student debt can demand payments that limit your ability to buy a home or increase your savings. While it can be tempting to put off payment, that only results in paying more interest over time.
Instead, you may want to consider paying more each month in order to get out from under student debt faster. Whether it’s paying $20 or $100 more each month, every bit over the minimum payment helps to make a dent in your debt.
You may also want to put any lump sum of cash you receive, such as a tax refund or bonus, towards your student loan debt. When you make extra payments, however, it’s a good idea to make sure that you select the option for the funds to be applied toward your loan principal (otherwise it may go towards interest).
Another option you may want to consider is refinancing your student loans. This means trading in your current loan(s) for one brand new loan through a private lender. The goal with refinancing is to get a lower interest rate while also having the ability to change your loan term (such as cutting the timeline in half). This can be a good option if you have good credit and are currently paying a high interest rate on your student loans.
Recommended: 6 Strategies to Pay off Student Loans Quickly
5. Not Saving Enough for Retirement
Retirement saving can be critical if you want to have financial freedom in your future. And even if retirement seems like a long way off, it can be much easier to amass a comfortable nest egg when you start saving and investing early.
Thanks to the magic of compounding interest (when the interest you earn also earns interest), even putting a little bit of money into a retirement fund each month can help you build wealth over time.
If you aren’t maximizing contributions to a 401k, you may want to consider putting as much tax-deferred money as possible into these accounts. If your employer offers matching funds, it can be a good idea to take full advantage of this perk (which is essentially free money).
If you don’t have access to a 401k, or you are able to put any additional money aside to secure your retirement, you may want to consider opening an IRA (keeping in mind that there are annual limits to retirement contributions).
Taking advantage of these savings vehicles can lower your tax burden this year and earn interest for your golden years.
Dealing with financial challenges is never fun. But many of us have to do it at one time or another during our lives.
Whether you’re living paycheck to paycheck and can’t ever seem to save, or you’re trying to bounce back after a financial mistake, there is typically a way to resolve the problem.
It may be as simple as tracking your expenses for a month and setting up a monthly budget. Or, you may need to set up a manageable debt repayment plan to regain control of your finances. And, it’s perfectly fine if your first steps are small.
One small, simple step that may help you keep better track of your finances is to sign up for a checking and savings account with SoFi Checking and Savings®.
With SoFi Checking and Savings, you can earn competitive interest, spend, and save–all in one place. And, you can easily track your weekly spending right in the dashboard of the SoFi app.
3 Great Benefits of Direct Deposit
1. It’s Faster
As opposed to a physical check that can take time to clear, you don’t have to wait days to access a direct deposit. Usually, you can use the money the day it is sent. What’s more, you don’t have to remember to go to the bank or use your app to deposit your check.
2. It’s Like Clockwork
Whether your check comes the first Wednesday of the month or every other Friday, if you sign up for direct deposit, you know when the money will hit your account. This is especially helpful for scheduling the payment of regular bills. No more guessing when you’ll have sufficient funds.
3. It’s Secure
While checks can get lost in the mail – or even stolen, there is no chance of that happening with a direct deposit. Also, if it’s your paycheck, you won’t have to worry about your or your employer’s info ending up in the wrong hands.
Photo credit: iStock/iamnoonmai
SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2022 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
SoFi Money® is a cash management account, which is a brokerage product, offered by SoFi Securities LLC, member
FINRA / SIPC . SoFi Securities LLC is an affiliate of SoFi Bank, N.A. SoFi Money Debit Card issued by The Bancorp Bank.
SoFi has partnered with Allpoint to provide consumers with ATM access at any of the 55,000+ ATMs within the Allpoint network. Consumers will not be charged a fee when using an in-network ATM, however, third party fees incurred when using out-of-network ATMs are not subject to reimbursement. SoFi’s ATM policies are subject to change at our discretion at any time.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
SoFi members with direct deposit can earn up to 2.50% annual percentage yield (APY) on all account balances in their Checking and Savings accounts (including Vaults). There is no minimum direct deposit amount required to qualify for 2.50% APY. Members without direct deposit will earn 1.20% APY on all account balances in Checking and Savings (including Vaults). Interest rates are variable and subject to change at any time. Rate of 2.50% APY is current as of 09/30/2022. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet