What Are the Most Common Issues with Personal Finance?

Jennifer Wills
3 days ago
6 min read

Many people struggle with personal finance. Because not enough schools teach personal finance, most of us learn by trial and error.

Understanding the most common personal finance issues and how to fix them can help improve your financial standing. Taking action now impacts your financial position in later years.

The following are common personal finance issues and how to resolve them.

Lack of a Spending Plan

A spending plan is a guide for where you want your money to go. Budgeting your income helps attain goals such as purchasing a home, paying down debt, and retiring.

If you don’t create a spending plan or track your income and expenses, you likely won’t reach your goals. Therefore, you must set aside time for these activities.

One method to establish a spending plan is the 50-30-20 Rule:

50% for needs such as housing, transportation, and health care
30% for wants such as dining out and entertainment
20% for savings, debt repayment, and investments

Since these percentages are flexible, you can modify them to fit your needs. Be sure to include holiday giving and other easily overlooked expenses to keep your spending on track.

No Emergency Fund

An emergency fund covers unexpected expenses such as car repairs, hospital bills, or job loss. These savings prevent you from using credit cards and adding to your debt load.

You should aim to have 3-6 months of expenses in your emergency fund. Consider having a portion of each paycheck directly deposited into a designated savings or money market account to use for true emergencies.

Lack of Life Insurance

Term life insurance helps cover funeral costs and last-minute expenses, and replaces income for your dependents if you pass away early. Leaving behind money helps ease the transition after an unexpected loss.

Most people need life insurance during the years when they are working and/or have dependents. They should not need life insurance when they’re debt-free, financially independent, and in retirement. Therefore, term life insurance is typically recommended over other types of life insurance.

Missing Out on Company Benefits

Take advantage of matching funds for your employer’s 401(k), 403(b), or other retirement plan, the opportunity to purchase stock at a discount, and other benefits. These opportunities are part of your compensation. Not using them means you are losing part of your income.

Paying for Unused Subscriptions

Many people spend hundreds or thousands of dollars annually on television, music, food delivery, and other unused subscriptions. Regularly review your bank account and credit card statements to find any unused subscriptions or gym memberships and cancel them. You can use the freed-up money for savings or repaying debt.

Overusing Credit Cards

Charging more than you can pay back by the due date leads to debt. Paying the minimum means interest charges that compound daily, increasing the cost of the products or services purchased and the amount you owe.

Monitor your credit card expenses to avoid overcharging. Pay off the monthly balance on time to avoid late fees and interest charges.

Falling Behind on Bills

Late payments on your mortgage or rent, utility bills, or credit card balances contribute to bigger problems:

You typically incur late fees, interest, and other charges, increasing the amount owed.
Your interest rates can increase, elevating your debt.
Creditors report late payments to the credit bureaus, which can impact your credit reports.
Late payments can remain on your credit reports for 7 years, impacting your ability to secure loans.

If you’re behind on your bills, catch up as soon as possible. Then, address the issue that caused you to be late:

If you forget due dates, consider setting up calendar reminders.
If your payments are mailed late, consider enrolling in automatic bill payment.
If you’re short on funds, develop a spending plan and track your expenses.

Not Shopping Around for Large Purchases

Always shop around for mortgages, car insurance, appliances, electronics, travel deals, and other major purchases. Regularly comparing prices helps you find the best value.

Ignoring Credit Reports

Your Experian, Trans Union, and Equifax credit reports impact essential areas of your life:

Lenders use the information on your credit reports to determine whether to lend you money and on what terms.
Landlords can check your credit reports to evaluate your financial standing and decide whether to rent to you.
Employers can use your credit reports to determine your reliability and decide whether to hire you.

Inaccurate information in any of your credit reports can result in higher interest rates or denials for mortgages or other loans. You could lose out on an apartment or a job based on negative information in your credit report.

You can visit annualcreditreport.com for a free copy of your three credit reports annually. Contact the credit bureau to correct any inaccurate information you uncover.

Helping Avoid Identity Theft

Had I not regularly checked my credit reports in 2015, I would not have discovered a credit card in my name that someone in a different state had opened. This discovery helped explain the calls I started receiving months later from collection agencies stating I was behind on payments for lines of credit opened in my name through a popular company that handles online payments and a major bank in a foreign country. I believe this identity theft occurred due to a data breach with a major retailer I regularly shopped at.

Minimizing the damage from my identity theft experience was time-consuming:

I spent hours on the phone convincing the collection agencies that I did not open these lines of credit.
I spent hours filing reports with the police and faxing affidavits to the credit card company, the online payment company, and the bank, stating that the accounts were opened fraudulently.
I contacted Experian, TransUnion, Equifax, the Federal Trade Commission (FTC), the IRS, the Social Security Administration, and other agencies, alerting them that my identity had been stolen.
I froze my credit at all three credit bureaus to prevent additional lines of credit from being opened.

Fortunately, I did not end up owing any money from the fraudulent accounts. However, the nightmare of phone calls, trips to the police station, report filing, sleepless nights, and stress has remained with me.

Purchasing a New Car

Most cars lose value as they age. Because depreciation typically slows down after 2 years, a used car is a better value than a new one.

Many dealerships offer certified pre-owned vehicles that are typically 2-3 years old and have low mileage. These programs often include a complete vehicle overhaul and a manufacturer’s warranty, providing a much better value.

Not Managing Debt

Accruing debt can lead to negative consequences:

Making minimum payments on credit cards increases the total amount paid for the products and services purchased.
Maxing out your credit cards raises your credit card utilization rate.
An unhealthy credit profile limits your ability to secure a mortgage or other loan.

Consider paying off your debt using the debt snowball method:

1. List your debts from smallest to largest.

2. Make minimum payments on all your debts except the smallest.

3. Put as much additional money as possible toward your smallest debt until it’s paid off.

4. Take what you were paying on your smallest debt and add it to the payment on your next smallest debt until it’s gone.

5. Repeat the process until each debt is eliminated and you are debt-free.

Another option is the debt avalanche method:

1. List your debts from the highest interest rate to the lowest.

2. Make minimum payments on all your debts except the one with the highest interest rate.

3. Put as much additional money as possible toward your debt with the highest interest rate until it’s paid off.

4. Take what you were paying on your debt with the highest interest rate and add it to the payment on your debt with the next highest interest rate until it’s gone.