People tend to assume that financial problems are only caused by living an overly luxurious lifestyle, but this is incorrect. Often, people find themselves buried in debt or on the verge of bankruptcy due to significant changes in their life. The truth is, bankruptcy or debt could be anyone’s reality.
Nobody plans to have financial problems and fail to pay bills on time; but, life happens. There are some life-altering experiences you can’t control. When financial hardships strike, identifying the underlying cause of the problem should be a priority.
The following are seven common causes of poor money management:
Cause #1: Insufficient Financial Knowledge
A leading cause of poor money management is due to the lack of financial knowledge. For some strange reason, schools don’t teach financial literacy skills. Yet, these are critical for proper financial planning. It’s, therefore, critical that you make efforts to read up on financial issues.
There are tons of places on the internet where you can learn about good financial management. For instance, you need to learn about the difference between good and bad debt; and why it’s crucial to track your expenses and stick to a budget.
Cause #2: Failure to Plan
That cliché about planning to fail by failing to plan is spot on. Failure to plan is perhaps the leading cause of poor money management. There’s no way you can prosper financially without a plan. Here’s a shocking statistic: only five percent of people set financial goals, and just 2% of these have their goals written down.
Those who set goals and stick to them are purposeful. They are always on the move, focusing on one goal after another. Those without a plan wake up to yet another day of drifting. They live from day to day, hand to mouth and are constantly in financial distress.
Cause #3: Poor Work Ethics
The most successful people in the world are highly disciplined. They fight off distractions and can be found hard at work early in the morning. They have a sense of purpose, which is reflected in the way they attack and complete tasks. To them, every task must be completed on schedule and on budget.
They don’t have room for excuses, neither do they shift blame for their failure to complete tasks on time. They are great financial managers. Those who do poorly in managing their finances sometimes don’t enjoy working hard. They look for just about any excuse to avoid challenging tasks. They procrastinate on anything and waste time on non-core tasks.
Cause #4: Poor Time Management
The greatest thief of financial success is poor time management. Successful people understand that “time is money” is not just a great saying. It’s actually true. One can do two things with time: invest or waste it. You can invest your time in personal development, and this is what 5% of the most successful people do.
For the rest, time is always in abundance until there’s no time left. They waste it on non-essential engagements and tasks. They don’t plan their day or set goals for how they intend to use their time. Poor time management translates into poor money management.
Cause #5: Poor Debt Management
Debt is not a bad thing per se. However, there’s good and bad debt, and knowing the difference is critical. Borrowing to invest is a good thing. Similarly, borrowing payday loans in emergency situations can be a great way to make ends meet urgently.
However, borrowing to spend on stuff is not always a smart move. To be a good financial manager, avoid senseless debts that only leave big holes in your finances.
If you find yourself in a debt ditch, the first thing you need to do is to stop digging! Review your spending habits and resolve to only use debt where a return on investment is assured. Don’t borrow to spend on items that depreciate in value. Doing this will soon land you in financial trouble.
Cause #6: Defaulting on Loan Payments
Whether you’ve taken a loan or any other facility, failure to repay on time or defaulting could lead to serious financial trouble. As mentioned earlier, debt is not a bad thing. However, defaulting on payments could soon put your finances into disarray. If you have credit card debts, don’t skip the monthly payments.
The problem with skipping or defaulting on loan payments is that it negatively affects your credit rating. This means you will find it extremely difficult to access financing when you need it.
Cause #7: Lack of Financial Discipline
The wise guy from the Bible called Solomon once said that a “fool and his money are soon parted.” This was as true then as it is today. Lack of financial discipline is a sure recipe for poor financial management. Before you spend your money, ask yourself whether you have to. If you have to, make sure you invest or spend it on core items and services.
Avoid the temptation to spend your hard-earned cash on non-budgeted items. Also, don’t just splash your money around for no reason. There is a reason most people go broke after winning the lottery. It’s called lack of financial discipline.
How you manage your money determines your overall financial health. Investment and money management issues may seem overwhelming at first, but you’ll get the hang of it in no time.