Financial Thoughts

How to Solve the Most Common Financial Problems Families Face

Solve your financial problems

Financial problems hit everyone at some point, and families are in no way immune. Regardless of the size of your income and the size of the debt your family is carrying, finances are a common hot-button issue in most households.

A lot of things can happen, of course, like running out of money, losing a job and one person wanting to buy something that another head of household thinks the family can’t afford.

While certain types of financial problems are more common than others, there are almost always solutions available. Just remember; no one is perfect, and every issue can be dealt with in a way that satisfies everyone. This article will discuss some of the most common financial problems faced by families. However, our goal is to help solve financial problems, so we will also offer some ideas on solving these problems.

Too Little Income

Virtually every survey taken on family financial issues cites a lack of available income as the most challenging financial problem their family experiences. Overall, one-in-four families still rely on a single income for their financial fortunes, which can be devastating when that income-earner loses his job or otherwise sees his income interrupted. There are two possible solutions here:

  • You can teach your family members to live within their means, which means eliminating unnecessary expenses like eating out, gym memberships, cable TV and more. If you usually run out of money before you run out of the month, it’s time to take a good, long, honest look at where your money goes.
  • Another possible solution is for someone in the family to get a job, even part-time, to bump the household income up a bit. If both adults in the family are working full time, see if you can increase your income to pay all the bills every month and have a bit left over for a few luxuries.

Too Much Debt

This is one of the most common reasons for family financial strife because high debt is a major cause of stress and strain in a family relationship. Too often, different family members fail to agree on spending priorities, and that results in debt. Debt is one of the most-cited reasons for spousal separation and divorce.

Many get themselves out of trouble by simply focusing their financial energy on debt reduction. Stop using credit cards and if you can make some extra money, earmark all of it to pay off debt. It will take time, but the result will be great for the family for many years to come.

Possible Solutions on Debt Reduction

First, know that you are not alone. The average American household carries a mortgage debt of more than $150,000, student loan debt of more than $30,000 and total credit card debt of about $15,000. There are many proven ways to deal with a large amount of debt in a way that can protect family finances. Here are some of them:

  • Contact your creditors to negotiate terms and/or try to settle your debts.
  • Borrow from your retirement funds to pay off your debts. The interest rate is usually much lower, and all the money goes to you, anyway.
  • Increase your income by either taking a second job or participating in the “gig economy,” by driving for a ride-sharing service or doing deliveries, or any number of other “gigs”.
  • Learn to live on less, become frugal.
  • Pay more than the minimum payment on credit cards.
  • Cash in some stocks and bonds to pay off high-interest loans.
  • Use a second mortgage or a personal loan to consolidate all unsecured debt into one debt at a lower rate.
  • Declare bankruptcy – only as a last resort, when nothing else has worked.

High Healthcare Bills

Many studies show a primary reason for divorce is high healthcare bills. Healthcare expenses are also the most-cited debt that leads to bankruptcy. Even those with health insurance often see as much as one-third of their paycheck going to pay for insurance. The Affordable Care Act has helped with that problem, but family health insurance premiums can still run well over $1,000 per month, even with subsidies, if you qualify. Healthcare is a necessity, but it is also very expensive.

A possible solution here is to treat health insurance as every bit the necessity that the mortgage and utilities are. It’s not an “extra expense,” but a necessity for preserving your financial security. If you make health insurance a necessary expense, the cost will be less consequential. Sure, it could mean you may have to cut back on other things a bit.

Adjust Health Insurance Costs

You can also adjust your health insurance costs to a certain degree. If no one in your family ever gets sick or injured, or you have a large amount in savings to cover emergencies, perhaps a plan with a higher deductible or a higher annual out-of-pocket limit might be in order. Do your homework, research all aspects of your health insurance choices. Choose a plan that offers the right balance between the healthcare your family needs and the impact on the personal budget.

Impractical Spending Choices

If your credit card bills add up to 2-3 times the national household average of $15,000, it’s safe to assume you made some unwise purchases at some point. Just because you’re paying $100 per month for cable doesn’t mean you need a $3,000 80-inch TV to get the most out of it. You don’t need a $30,000 car if a $15,000 car works just as well. If you have a garage full of hundreds of items you no longer use, the reasons for your high level of debt may become obvious. Your family’s spending choices may not have always been the greatest.

Solution: to reduce your level of debt and improve your family budget, the first thing to do is to set clear priorities for the entire household. That means making difficult financial decisions and spending as little as possible. Then, make paying down unsecured, high-interest debt a priority. Set and implement achievable goals into a budget that reduces expenses and also starts retiring one debt after another.

The Loss of a Good Job

At any given moment, one-in-three Americans harbor some fear of losing their job. It’s no wonder, given that even those with seemingly secure jobs in growing industries have been laid off at inopportune times. With so many workers doing their jobs as part of an at-will agreement, which means they can be let go at any time for no reason, this fear seems well-placed. When people lose their jobs without warning, their families often find themselves without a breadwinner.

The key solution here is to plan ahead. The two heads of the household should freely discuss all possible options in case of a job loss long before it happens. The other spouse can pick up the slack should the other become unemployed. In the meantime, focus as much income as possible on reducing your debt and squirreling money away for that proverbial “rainy day”.

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