Top 3 Reasons People Struggle Financially
According to a recent study, 78% of Americans live paycheck to paycheck. Just to be clear, living paycheck to paycheck is when all of a person’s income is used to cover their expenses with no money left over. The next payday, this process repeats itself all over again. Anyone stuck in the paycheck to paycheck cycle, is lucky to save anything and they are certainly not in position to pursue any forward-looking financial objectives.
So why are so many people stuck in the paycheck to paycheck cycle?
The average person in this situation will likely say it’s because they don’t make enough. Low pay is a problem for many Americans. However, the percentage of Americans working in these kinds of careers is only 44%. Therefore, we know that the paycheck to paycheck lifestyle extends beyond just low wage workers. Additionally, automatically blaming lack of income for a paycheck to paycheck living lifestyle doesn’t get down to the root of the real issues. I would be willing to bet that 90% of the people currently living paycheck to paycheck would still do so even with a significant pay increase.
Top Three Reasons
Over the years, while helping people overcome their financial challenges, I have come across some pretty complicated issues. Ironically, when I delve deeper into these things, the same root causes show up again and again. I’m not able to include every example in this article but I will highlight the three of the most common.
#1. Not Establishing a Financial Blueprint
When I use the phrase financial blueprint, I am referring to things like written financial goals, monthly spending plans, savings targets, debt payoff strategies, etc. Financial freedom is not one of those things that just happen after you have worked for a long time. Simply winging it with your money doesn’t produce lasting results. You need a plan. If there is no plan, there is no standard to hold yourself to. This opens the door to making disjointed decisions with no consideration of how they will impact your overall financial situation. There’s also no consistency in your financial situation. At times everything seems to be going fine. You’re paying bills on time, even putting a little money in the bank. Other times money is very tight and you’re barely getting by.
Everyone needs to have a financial blueprint. People not making much money need a blueprint. People making lots of money need a blueprint. Improving your financial situation starts with creating a thoughtful and sustainable financial blueprint to guide you.
Following the Crowd
Most people are unaware of the influence consumer culture has on their financial decisions. There are some decisions we never really seem to question primarily because we see others doing the same thing. This is called bandwagon effect. For example, the way we have come to accept saddling ourselves with over six figures of student loan debt in the name of “education” or purchase as much home as the bank say they will qualify us for. I’m not suggesting that people shouldn’t go to college or buy homes. These are simply examples of decisions many people make based on “cultural norms” opposed to what makes the most sense financially. Going to college doesn’t mean that you have to take on six figures of debt. Buying a home doesn’t mean that you have to borrow as much as you possibly can then live on a shoestring to keep everything afloat.
When it comes to money, you’re probably better off doing the opposite of what most people do. The crowd is usually spending when they should be putting money away. The crowd is usually scared to purchased or selling investments when they should be buying. The crowd is probably not reading material about how to manage their money better. The biggest risk with following the crowd is you might end up just like the crowd. It’s important to know what you value most and be sure that your financial decisions are based on those things opposed to what everyone else is doing.
Unwillingness to Change
The habits and choices that created financial struggles must be replaced with habits and choices that help you to turn things around. Most people want change, but they don’t want to change. If you are used to impulse shopping, spontaneous travel and not following a spending plan, you have to be willing to change those habits. If you eat most of your meals outside of your home, you have to be willing to change that habit. If you’re working in a field that doesn’t pay much money, you have to be willing to pursue a career change.
An unwillingness to change only blocks the progress we desire to see. Before I enter into an agreement with a new client, I insist on completing a free consultation. One of the reasons I do this is so that I can determine whether the person is at the point where they’re willing to change. The best financial advice in the world means nothing to the person who’s not willing to change. If you want to see an improvement in your financial situation you have to be willing to do the things that will foster that improvement.