Each time you view your bank statement, your heart sinks a little. “Where does all my money go?!” It’s a valid question. You’re working hard, you’re trying your best to save money whenever you can; but still the same old financial crises can cropping up in your life. So why are you broke all the time?
Here are the major causes of financial crisis for the average adult:
Financial Enemy #1: Spending More Than You Earn
You might scoff at this one. It seems too simple. But spending outside of your means is one of the most common reasons why you’re broke all the time. How does this happen?
Obviously you know how much money you make. And you generally know how much money you spend. But more often than you probably realize, you’re spending almost as much as you earn, if not more than your earnings. It sneaks past you.
It can often start when you receive a bonus, an increase in commissions, a raise, or recently coming out of unemployment or getting a promotion at work… anything like that. You’re excited to finally spend a bit more money than you previously could afford. Then you adjust to that amount of spending, however small. You get accustomed to going out with friends each weekend, or buying that cup of coffee on your way to work each day as a little treat.
It’s always the small stuff that adds up to spending more money than you’re really bringing in. Then, that increased income may decrease again- they make cutbacks at work, you hit a slow season, or you have to pay off your car and it eats away at that increased wage.
Once you factor in necessary expenses like rent or mortgage payments, bills, taxes, gas, groceries, and so on, it’s not uncommon to find that you’ve spend almost the equivalent of what you earned.
Overspending is one of the major causes of financial crisis. Cutting spending is the best way to stop the cycle of perpetual broke-ness and frequent financial crises. The best way to combat accidental overspending and living outside your means is a budget.
Financial Enemy #2: Not Having And/Or Not Sticking to a Serious Budget
Oh, yes. But good budgeting skills are the first (and honestly the most critical) step for getting out of your financial crisis and back to saving and accumulating money. You’ll slowly work off debts and shake away those expensive interest rate fees that come with it, you’ll start to be able to put more money into your savings and retirement funds, and you’ll start to notice the massive decrease in your stress levels.
A personal budget requires time, effort, and a whole lot of willpower. But it’s worth it. You’ll start to see the effects within two weeks. At the end of six months of sticking stricting to a budget, financial possibilities that were never available to you before will begin to open up: maybe you could put a down payment on a home, begin to invest some money, start a college fund for your child, or finally afford to upgrade some things in your life.
Solid money management begins with a budget. You’ll find that spending within your means will make a major difference in your finances, and you can start to dodge these financial crises like a pro.
Financial Enemy #3: Your Money-Eating Vices
We’re not here to pass judgement. We’re just here to lay out the most common causes of being broke and in a financial crisis. And one of the quickest ways to get you to that scary financial state: your vices.
Nobody’s perfect. But the most common causes for major recurring expenses for Americans include:
- Dining out
- Gas for your car
- Entertainment expenses
- More expensive junk food
Divorce is a common occurrence. It happens. But it’s also insanely expensive. It’s often more expensive than the wedding! How’s that for irony? Marriage counseling is expensive, but cheaper in the long run. Or consider holding off on tying the knot, or considering a pre-nup arrangement. The cold fact is: love (and divorce) is expensive.
Your little vices like buying a Powerball ticket at the gas station once a week or going out for a round of drinks with co-workers might not even come close to being classified as a problematic habit or addiction. It doesn’t have reach unhealthy levels for it to cost you too much money. Alcohol and gambling are expensive, particularly with tax hikes- even if you only do it in moderation. Cutting back on your little personal vices will amount to hundreds of dollars saved by the end of the year.
Getting your latte fix, going out for lunch, and springing for another candy bar from the vending machine are fun ways to treat yourself when you’re having a rough day. But they could also be costing you a lot of money. Bringing your lunch to work, brewing your own coffee at home, and packing cheaper snacks might not be as fun. Because half of the fun of having vices is that they’re occasional indulgences that feel special.
The problem with your vices comes when you partake in them on a fairly consistent schedule. Make room for the unnecessary expenses in your life that make you happy. Of course you should treat your friend to dinner on her birthday. Just make sure you’re aware of every time you spend money on non-essentials, so you can keep on track with your budget.
Cutting down on your vices starts with that budget of yours. If you vow to only order takeout twice a month instead of three times a week, or only buy desert at the restaurant on special occasions, you’ll be rewarded when you stop being so broke. Whatever your personal vice is, corral it ruthlessly on that budget and you’ll notice how much more money you were spending on it than you realized.
Financial Enemy #4: Undervaluing Your Piggy Bank
Remember when you were a kid and you stashed your allowance or paper route money away somewhere in your room? In a jar, in a piggy bank, or under your bed. You lovingly put quarters into your “savings” and lorded over it like Scrooge McDuck. You were careful about what you spent it on, and loved watching that piggy bank get fatter.
Carry that instinct for saving money into your adulthood. It’s hard when you feel like you’re living paycheck to paycheck, but saving money needs to be a priority.
You’ll have less money in your checking account, which can feel scary. But carefully putting small amounts of money into at least one savings account at regular intervals will prevent major financial crises later down the line. Most people don’t have money sitting around in case of emergencies. But what happens if you get into a car accident, and your only means of transportation gets totaled? Or you’re rushed to the hospital and your insurance doesn’t cover the expenses?
And let’s face it- you should already be saving for retirement unless you want to still be working the grind when you’re 70. Saving money seems hard right now. But make it as regular of a habit as paying your phone bill, and it’ll soon become a healthy part of your financial life.
Take a small percentage of each paycheck and deposit it into a savings account. Now don’t touch it- as tempting as it may be. Stick with a percentage instead of a weekly or monthly dollar amount. That way, if you have to take a paycut or have a sudden decrease in income, you won’t be struggling to continue to save money.
Whatever your reason for saving, remind yourself why it’s important:
- “I’m saving for my kids to go to college free from crippling student debt.”
- “I’m saving to become a home owner.”
- “I’m saving so I can take care of my parents when they’re old and will need me to help.”
- “I’m saving so I can free myself from debt.”
- “I’m saving so I can afford to buy X, Y, or Z.”
- “I’m saving so I can retire by the time I’m 50 and go pursue my dream.”
Make saving important to you. Suddenly, putting away that small chunk of your paycheck doesn’t seem so painful. You have a goal, and you’re going to stick to it.
Most of us aren’t taught good saving and money managing habits. It’s not like that’s covered in your required courses in high school- nobody teaches you how to be a financially stable adult… it’s something that you have to get good at on the fly. But luckily, there are tons of free online resources that can help you track your spending, map out a budget, automatically withdraw from your checking account into your savings account, and help you stay financially focused.
Saving money will prevent future financial crises, and you’ll never have to worry about being constantly broke again. As long as you have the budgeting/spending within your means down pat, saving money is an easy next step to take.
Financial Enemy #5: The Stuff You Can’t Fight
It happens. Everyone has some debt; big or small. Everyone struggles to manage their credit card carefully. Everyone has scary, unexpected stuff pop up that can’t be predicted or avoided… no matter how skilled with money you are.
- Illness or injury
- The death of a loved one
- Damage to property
- Getting laid off at work
- Having a child
- Financing a wedding
- Necessary expenses to juggle
- Alimony or child support
Whatever is going on in your life, it probably costs money. And it often costs the most money when you’re the most emotionally vulnerable. It’s awful and unfair, but you have to deal with it.
Unexpected expenses happen to everyone. But it can either continue to make your broke and drag you into another state of financial crisis, or you can learn to prepare for these costly inevitabilities.
It’s frustrating and sad, but your employer isn’t going to give you a temporary raise to pay off your medical bills. Your insurance company isn’t going to pay for the storm damage to your roof without your rates going up. Your kid isn’t going to stop growing out of winter coats just because money is tight right now. Your mother warned you that money doesn’t grow on trees and that the world is a tough place. But what can you do about it?
Unavoidable, tough expenses like these are one of the major causes of individual financial crisis and money problems. It’s hard to rebound from these rough patches. So your best defense is a good offense, right? We’ll say it again: budget your money, spend within your means before financial crises like these come up, and have a strong savings account ready for emergencies like these.
It takes time to be financially equipped to handle difficult situations, which you won’t always have. But you’ll work and save hard in order to get your finances back on track in the aftermath, and then you’ll continue to save and budget until you have some emergency reserves built back up. Then you’ll be ready to handle the next financial crisis (hopefully in the very distant future) and you’ll be able to do so without coming up completely broke afterwards.
Again; it’s a process, but it’s a necessary one for you to break the financial crises cycle. You should have a general savings account, but you should also have a retirement fund and an emergency fund. The general savings account can help you save up for whatever. But a retirement fund is 100% necessary for obvious reasons: you aren’t getting any younger. And an emergency fund will be there to handle the (you guessed it) emergencies.
Now, instead of completely derailing all your hard work, you’ll have a stash of money devoted entirely to tackling the unexpected things that life throws at us. You won’t have to tank your savings account or your chance at retiring early.
Building up three separate stores of savings will take much more time. You might feel frustrated at the lack of visible progress when you check your account balances for growth. But it’s vastly better than wondering how you’re going to afford to replace the blue-screened laptop you need for work, and finding yourself in another financial crisis hole.
You can’t prevent unexpected expenses. They happen to everyone. That’s why they’re such a common cause of financial crisis and difficulty. Don’t beat yourself up about it: stuff happens, and next time you’ll be more financially prepared.