Most people incorrectly assume that the cause of financial problems is living an overly lavish lifestyle, but this is simply not the truth. Oftentimes, people find themselves deep in debt or on the brink of bankruptcy because of a significant life change.
The truth is debt can happen to anyone. Nobody plans to have money troubles and not pay their bills, but life happens!
There are a number of life-changing circumstances that are beyond our control that almost anyone can end up in. Here are the most common situations and leading causes of financial problems:
1. A decrease in income
One day you have a great paying job, and the next thing you know, your company has downsized and you’re out of work. In today’s economy, jobs can be difficult to find, so you may find yourself being forced to take a lower paying position in order to make ends meet.
If you’ve been able to stash away the recommended 3 to 6 months’ worth of savings as an emergency fund, then a decrease in income may not hit you as hard. Unfortunately, many people live paycheck to paycheck and are unable to save enough for emergencies. This is when debt payments and bills can start to fall behind, and you may find yourself being bombarded with credit collectors and the possibility of losing your house.
2. Marital and family issues
Couples don’t say “I do” with the intention of getting divorced, but statistics show that four in 10 marriages in Canada will end in divorce and one of the primary reasons is financial issues. Ironically, those that end up divorcing or separating because of financial problems usually find themselves facing even more financial hardship because they are now living on one income.
Communication in marriage is key, especially around money. When you plan to get married, it’s not just your life plan you need to talk about, but your financial plan is important too. Develop a realistic budget together and talk about money often to ensure you’re working toward the same financial goals.
3. Health and Medical expense
What would happen if you were in an accident and were out of work for an extended period of time? Your income could drop by approximately 40 per cent, or maybe even lower. In addition to a reduction in income, you may end up incurring additional medical expenses such as medication, physiotherapy, and more.
It’s scary to think about major illnesses or even the death of a spouse, but these things can happen. That’s why it’s best to prepare yourselves with life insurance, disability insurance, and a will, so that you’re well prepared if things do go wrong.
4. Education expenses
It’s a bit of a double-edged sword, but in most industries, in order to get a good-paying job you need to get an education, which costs money. A lot of money in fact.
The average student takes between nine and 15 years to fully pay off their loan, with the average debt post-graduation being $16,727 for university grads, $10,172 for college grads and $29,000 for doctoral grads.
If you’re not yet in school, the good news is you have time to save. Use a student budget calculator so you’ll know exactly what you need to put away for your education.
Once you’ve graduated, it’s important to budget wisely and ensure you make regular debt repayments when you start working in order to pay it off as soon as possible. If you can’t pay your student loan, you should understand your options.
5. Lack of budgeting and money management skills
The leading cause of financial problems is simply that people don’t have the skills to manage their money. Let’s face it, if no one taught you the basics of money management and budgeting, how would you learn? Even worse, you may have picked up some bad habits from your parents who probably never had any lessons on money management themselves.
It’s a vicious cycle, but there is a way out. Spending your hard-earned money without a financial plan is like driving into unfamiliar territory without a GPS. With the proper tools, you can learn how to budget your money and get on the right track.
If any of these financial problems sound familiar to you, you may benefit from credit counselling. Credit counselling is a process whereby certified counsellors help debtors with debt repayment through tools like financial education, budgeting and guidance in order to reduce and eliminate debt. A certified counsellor can help point you in the right direction and find the solution that works best for your situation.
Contact our accredited counsellors today for a free consultation. We can help you get back on track!