Unfortunately, many people today are in an unhealthy financial situation. The article below will give you 9 reasons why this is the case and how you can improve your own financial situation.
1. High Debt Level
Your debt level should not be higher than 30% of your income (all debts included). If it is, then this means that you either spend too much money on useless things or that interest rates for your loans are way too high, which would mean that you never get out of debt again. You could also have taken out loans to start up a business which did not work out at all, resulting in never ending loan repayments with huge interests to pay back - if this is the case, take immediate action! Get rid of all unnecessary things in your life and reduce spending to a minimum. If you still have not been able to get out of debt, consult an accountant who will advise you on how to do so.
2. Low Discretionary Income Level
You should be able to save at least 10% of your income (20% would actually be much better) in order to feel mentally safe and secure - if this is not the case, then you can easily become frustrated with life which lowers your self confidence considerably over time; the more you save, the safer you will feel and the higher your level of security. On top of that, saving money also improves your financial situation! Best advice: increase savings rate until reaching at least 10%.
3. No Savings
Having no savings is one of the worst things you can do because in case of an emergency, you will be forced to borrow money at very high interest rates or even take out a loan which you will have to pay back with interest. On top of that, having cash available also makes it possible for you to invest in promising business opportunities! The downside? You might not get into this situation anymore if you already have some savings.
4. Bad Credit Score
There are many reasons why your credit score might be bad - too much debt, too little disposable income, lack of savings... If it's the last one, then there's nothing really wrong with that but if it's about too much debt or too low disposable income, then you actually stand the risk of losing your home (if you already own one) or even getting your salary garnished by creditors if nothing is done about it.
5. Too Little Savings for Retirement
Retirement is an essential part of life because it means that you will be able to live comfortably without having to work anymore but how can you do that if there's no money saved up? People often spend all their savings before they actually retire, which forces them to either rely on state pension or take out a loan at very high interest rates - neither of these two possibilities is ideal. The solution? Save up for retirement! And make sure you save enough to live comfortably when retired, not just barely survive.
6. Poor Financial Knowledge
If you don't understand finance at all (like most people), then it becomes very difficult to react appropriately in the future. For example, you might have heard that interest rates are getting higher and higher these days - if this happens, you will not have any idea what to do with your money which means that all your savings could start shrinking instead of growing over time. The best approach here is probably to educate yourself on finance through some form of study or public lectures - make sure you never stop learning about financial topics!
7. Bad Spending Habits
A problem many people face is spending too much money at once without thinking twice about it. Homeowners who spend their whole savings for a new car or Christmas presents fall into this category because they end up indebted afterwards - people usually don't realize that these things were not worth it and they can actually live without them. The solution? Think twice before making a purchase - if you will regret buying something, then don't do it!
8. No Emergency Fund
Having an emergency fund is essential in case of unexpected expenses such as car repairs or medical bills. It's even more important to have one when you're single because in this situation, there is no other way out than taking out a loan which comes with very high rates and fees compared to bank loans. Having an emergency fund prevents you from getting trapped into this kind of debt so build your own savings account and contribute 10% of your income/monthly salary automatically!
9. Non-Existent Savings for Major Life Events
It's important to think about future life events such as buying a home, paying for education or starting a family in advance - if you don't save enough money in the right moment, then it could end up being an expensive problem (e.g. having to borrow money at high interest rates). The solution? Try to save up at least 6 months worth of net income for these kinds of situations because when they happen, you will be under much higher stress/pressure which makes it harder to make rational decisions; therefore it might appear like there are no other alternatives than taking out large loans!
Conclusion: Improve your financial situation by saving more money, spending less and educating yourself on finance! If you have any questions about managing your finances properly, feel free to comment below!