Financial Literacy Is a Start, but These 6 Other Money Problems Hold People Back
We need to talk about how to fend against inflation.
Because our society does not explicitly value financial literacy, there’s pressure on Americans to take a DIY approach, if you will. To get a grasp of personal finance and leverage some control, we read books, listen to podcasts, consult with advisors and so on. This is all important work that can really help, but alas, financial literacy in itself isn’t necessarily the ticket to financial solvency and peace of mind.
There are other serious money problems holding us back that need to be tackled head-on. We talked with finance experts to understand some of the most substantial hurdles Americans face related to their fiscal lives and got some answers as to how to overcome them.
Blaming Your Problems on Your Mindset Without Addressing Trauma
“One of the biggest problems I see holding people back in their personal finances is thinking that their money problems are the result of their money mindset,” said business coach Ryan Drake. “It’s often popular to teach that to overcome financial problems is through affirmations, visualizations and ‘law of attraction’ positive-thinking platitudes; however, a lack of money is not due to one’s mindset. You can’t out-think poverty. It’s a lived experience that is ingrained in someone’s body and is something someone has gone through and experienced. Simply suggesting that one doesn’t have a ‘good money mindset’ is ill-informed.”
If we really want to heal past trauma with money in order to make good decisions going forward, we need to acknowledge that trauma rather than deny and override it. And we need to name the source.
“Once we’ve identified the trauma and its impact on our financial wellbeing, which created a negative or poor relationship with money, we can then work on healing that and ensuring our nervous system becomes more regulated over time,” Drake said. “When our nervous system is calm and we have processed our trauma, our whole relationship with money has the power to be radically transformed from an empowered – not scarce – place of decision-making.”
Not Budgeting Properly
“One of the biggest contributors to money issues is not budgeting properly,” said Becky Neubauer, a millennial money expert. “When you do not have a plan in place, it is very easy to overspend and create financial stress. The issue here is that there is a stigma that budgeting limits your lifestyle or that it is difficult to do, but that is not the case.
“Creating a budget can actually help you live a more fulfilling life because you will have more money to spend on the things that matter to you,” Neubauer explained. “The first thing to realize is that you’re not alone in this, and because of that fact, there are plenty of resources that exist to help you get started.”
Neubauer recommends using budgeting tools such as Mint or Personal Capital.
“These tools allow you to connect all of your financial accounts and provide you with a detailed overview of where your money is going,” Neubauer said. “This can be an eye-opening experience, and it will help you to start making changes in your spending habits. Spending thoughtfully is the key to budgeting successfully.”
Underestimating the Erosive Effect of Inflation
“Underestimating the erosive effect of inflation is another major money problem,” said Caitlyn McGonigal, an outreach coordinator for Annuity.org. “While a moderate and consistent level of inflation is generally considered a sign of economic health, rapid price increases can have a destabilizing effect on an economy and jeopardize hard-earned savings.”
Fortunately, there are ways to personally mitigate the powers of inflation, as McGonigal outlined:
Maintain a flexible budget. “Temporarily adjusting living expenses downward during challenging times can be highly beneficial,” McGonigal said. “The ability to modify your lifestyle can preserve your savings and provide some degree of solace.”
Invest a portion of your savings in assets designed to hedge against inflation. “At the top of the list are Treasury Inflation-Protected Securities (TIPS), which are high-quality U.S. government bonds indexed to inflation,” McGonigal said. “Two other time-tested inflation hedges are gold and real estate. Another asset class that definitely warrants a spot in your portfolio is large cap growth-oriented stocks. The relatively high return potential and pricing power of these types of companies can reinforce the real value of your portfolio over the long run.”
Living Paycheck to Paycheck
“The number one money problem holding people back is living paycheck to paycheck,” said Clayton Wood, CFP, managing partner at C. B. Wood Financial LLC. “Most aspire to travel more, pay for education, buy a bigger house or nicer car and can’t because it doesn’t fit their current budget.”
As Wood sees it there are two solutions to manage this problem: Either find ways to earn more income — or better prioritize your values.
“Due to the current job market, people have a great opportunity to search for a new position that provides a higher income than their current occupation,” Wood said. “Because of this, employers know how difficult it is to retain an employee. Now more than ever, the employee has leverage to ask for a raise from their employer.”
Full-time employees should also consider taking on a side hustle if that is manageable for them and they feel that the extra time spent is worth the extra money earned.
“If earning extra income isn’t possible for your situation, we advise you to prioritize your interests,” Wood said. “Rank your wants and needs to analyze what’s most important in your life. If having a big house is on the bottom of your list, maybe it’s time to downsize, so you can afford more of what is on the top of your list.”
Paying for Old Subscriptions You No Longer Use
“We’ve all signed up for long forgotten subscriptions or those which have increased in price without you realizing it,” said Danielle Holden, family office advisor at Breakaway Bookkeeping + Advising. “It’s important to audit your subscriptions and make sure you’re actually using them and not just throwing away money. Review your last 12 months of credit card statements and really scrutinize your recurring subscriptions.”
Ignoring the IRS
We saved this one for last because it’s a doozy!
“I see clients who owe the IRS money,” said CPA and author Wendy Barlin. “They either don’t open the letters from the IRS, hoping the problem will go away or they open the letters and then put them in a pile never to be addressed.”
This potential nightmare can all be avoided with a simple phone call to the IRS.
“The IRS will offer payment plans with much more reasonable interest rates than a credit card,” Barlin said. “Just make the call, deal with the issue and then you can move on with your life.”
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