It’s more common than you may think in America to have financial problems. According to a 2019 U.S. Financial Health Pulse report, fewer than one-third of Americans (29 percent) fall into the category of financially healthy — which basically means they’re planning, saving and spending in a way that’s getting them closer to their future goals. Just over half of Americans are “coping,” which means they’re struggling with at least some aspects of money management. Finally, 17 percent of people are considered vulnerable, or struggling with most or all facets of their financial health.
This data was collected and analyzed before the 2020 COVID-19 pandemic, which further complicated many Americans’ financial lives by spiking unemployment levels, spurring business closures, mandating quarantine for affected individuals and disrupting global production norms. If the survey was administered in a post-COVID world, we’d likely see even higher numbers of Americans struggling with their finances.
What are some of the other reasons so many Americans face money problems?
Let’s take a closer look.
Common Causes of Financial Problems
The possible sources of money problems are as vast and varied as the people who have them. But we’ve outlined a few common reasons many Americans have a hard time getting a handle on their financial lives.
Spending Without a Budget
More than half of millennials (51 percent) do not use a budget. The same Bankrate survey also found 42 percent of Gen X, 35 percent of Baby Boomers and 48 percent of the silent generation do not track their household’s monthly spending in terms of a budget.
While it’s entirely possible to stay afloat without a budget, it’s difficult — if not impossible — to understand your financial big picture without one. There’s a good chance you’re missing out on opportunities to optimize where your money is going, which can lead to financial mistakes over time.
The good news is the days of sitting down with a pen and paper are gone. Budgeting today can be nearly automatic, with a proliferation of expense tracker apps and software programs to help.
Carrying Credit Card Balances
The longer you carry a credit card balance, the more interest you’ll pay over time — and the longer it will take you to get out of debt. Americans had four credit cards on average, with an average balance of about $6,200 as of 2019.
Credit card debt is infamous for having some the highest interest rates, often hovering around 15 percent or more. This makes carrying a balance eat up funds that could otherwise go toward saving or meeting other goals.
If you’re one of the many Americans struggling with this type of debt, there are a few credit card consolidation strategies to consider — like transferring your balances to a new card with zero percent APR, or taking out a personal loan to squash the rest of your debts.
Lacking a Sufficient Emergency Fund
Many financial woes begin when an unexpected expense crops up — whether it’s a sudden medical bill, a car accident, a natural disaster or anything else that costs a sum of money beyond the usual limitations of your budget. Without an emergency fund, a single catastrophe can derail years of financial progress — and may even require you to quickly take on debt in the aftermath.
Experts recommend working toward having six months’ worth of your household expenses stashed away, although fewer than three out of 10 Americans have hit that target. About one-in-four Americans lack emergency savings altogether.
Instead of viewing saving for emergencies as an all-or-nothing proposition, make a small but consistent deposit each time you get paid. Even small contributions add up over time, and can help you avoid going financially topsy-turvy after an emergency.
Identifying the root cause of your money problems can help you work toward changing your habits and getting closer to your financial goals.