Reasons for Financial Worries
Introduction
You might have observed, as I often do, that despite earning a fairly good amount of money regularly, some people continue to struggle financially. If someone is earning less, it is understandable why he is worried about money. However, if somebody is getting a decent salary or earning well from his business regularly, the financial worries can be attributed only to lack of proper management of money. This is as important or even, sometimes, more important than earning.
In this article, I will briefly highlight some of the reasons why people remain worried about their finances.
Entire Focus on Earning More
There is nothing wrong with continuously trying to earn more. It is rather desirable and everyone should strive towards it. However, there is a lot more to financial well-being than just trying to earn more. The other aspect, which is often neglected but is more important, is managing your money smartly. In fact, no amount of money is enough to compensate for mismanagement.
Not Tracking Your Income and Expenses
Tracking what comes in and goes out is very important. It is said that what gets measured, gets managed. Especially, if you don’t track your expenses, it will become very difficult to get the best value for money and also save some portion of your income.
Expenses Continue to Grow with Earnings
According to Parkinson’s Law, “Work expands to fill the time available for its completion.” The expenses also, more or less, have the same relationship with the income.
Expenses grow because of inflation and the growing needs of the family. This is a legitimate concern that must be addressed as the first priority. Expenses also increase as we want to improve the quality of our life. That is also fair enough. However, if our earnings are increasing significantly, a conscious effort should be made to ensure that our expenses do not increase at the same rate.
Not Saving Enough
The habit of saving is crucial to financial well-being. Saving implies that your present working self is paying some proportion of your regular income to your future retired self. If you spend as you earn, chances are that you will live from paycheque to paycheque and will not be able to overcome financial worries.
In fact, your savings rate, and not your income level, is the predictor of your future wealth with only one caveat that you invest it well. Saving should be reckoned as a prelude to investing.
Not Understanding Debt Properly
Debt can be very harmful if not handled carefully. The best thing is to avoid it. If due to any reason, it becomes necessary, you should plan it well and pay it back as early as possible. However, consumer loans and credit card debt are the most expensive and one mustn’t indulge in them.
Vague Financial Goals
Unclear financial goals or not setting any at all can be a reason for financial difficulties. One should set specific, realistic, and achievable goals and then make a viable plan to achieve those.
Not Setting Financial Freedom as Your Main Financial Goal
Unless you set financial freedom as the most important long-term goal, chances are that you will have to work till quite late in life. Making retirement and financial freedom a priority goal will help you save and invest regularly and smartly.
Buying Unsuitable Financial Products
When you start saving or, by any chance, have some surplus case, you think of buying some insurance policy, shares, bonds, etc. This is where some people commit the mistake of buying something they don’t need or is not suitable for them. Prior knowledge of your financial needs and goals is a must for correct decision-making. The best strategy is not to buy something in a hurry. Be reluctant and have a bias against making quick decisions in the financial domain.
Investment Mistakes
In money management, correcting mistakes is extremely difficult and time-consuming. It is, therefore, important to avoid committing any. Choose the right options which are aligned with your financial goals and then stick with those.
Not Differentiating Between Needs and Wants
Money is always limited in comparison to your needs and wants. Hence, correct prioritization is an essential part of financial planning. If your needs and wants are muddled and you don’t allocate capital with clarity, this can be a source of worry.
Not Paying Enough Attention to Wealth Creation
There is no other way of becoming financially independent except wealth creation. Living on active income is not a permanent solution. The purpose is to create a big enough corpus that generates enough passive income to fulfill your recurring financial needs. This will require thorough planning and sustained implementation for a significant length of time.
Taking a Short Term View
Nothing meaningful and worthwhile happens in the short term. Therefore, taking a short-term view can harm you financially. From the investment point of view, it is a serious mistake. I will disregard anything that promises quick returns is a useful financial principle to have.
Comparison with Others
Comparison of your lifestyle with others can force you to commit blunders. Your financial journey is different from anyone else’s. You have to fulfill your own needs regardless of what others are doing or what is trending. Doing things to show others and failing to fulfill your essential financial goals will generate a lot of stress.
Being Asset Rich, Cash Poor
Must maintain a balance between your cash requirements and assets. Sometimes you run out of cash, despite being fairly rich asset-wise. Resultantly, you have to borrow money from someone or from the bank which can be avoided with a bit of prior planning. Plan your cash flow first, have some emergency reserves and deploy the remaining resources for wealth creation.
Conclusion
Financial worries can be avoided with prior planning, correct prioritization, and paying attention to all the points mentioned above. While one should work hard to increase income, smart money management and avoiding financial mistakes is equally or even more important. You can significantly optimize your output and rid yourself of worries by not committing these mistakes.
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