If you’re having money problems, chances are, your issues fall into one of four categories; Income Problem, Expense Problem, Knowledge Problem and Confidence Problem.
It’s important to properly identify which problem(s) you have so that you can apply the proper solution. While it’s possible to have more than one money problem, there is usually a dominant problem that you’ll need to work on first.
Without fully understanding what problem holds you back the most, you’ll spend a lot of wasted time and effort using ineffective methods to fix your money issues.
Here’s a breakdown of the four money problems and how you can solve them.
1. Income Problem
An Income problem means you don’t earn enough money to simultaneously:
- support your Mandatory Expenses and
- get ahead of your finances by paying off debt or saving towards goals
You have a true Income Problem when you still have a hard time making ends meet even though you’ve reduced your expenses to the best of your abilities. Unfortunately, this is the case for people who have limited employable job skills or for those who work for a minimum wage.
You can still have an Income Problem even if you earn a decent income if, despite your best efforts of cutting your expenses, you still can’t seem to get your finances in order.
Fixing an Income Problem- To make sure you truly have an Income problem, you first have to make the distinction between Mandatory/Need Expenses and Nice-To-Have/Want Expenses. Don’t fall into the trap of believing that you can’t afford to pay for everything in your budget and therefore have an Income problem. It could be that you really need to do a better job of controlling your expenses.
To fix an Income Problem, you’ll have to find ways to increase your income, there’s no way around it. It seems pretty obvious but it’s not simple as it seems. While you can do things to temporarily increase your income, like sell unused items or clothes for a quick boost in money, it’s not a steady stream of income- unless you make it an ongoing side hustle.
If you’re looking for consistent ways to boost your income, chances are you either need to find a better paying job/career or increase your skill set and knowledge, making yourself more employable and desirable in the job market.
Starting a low-cost side hustle like dog walking, babysitting, or selling goods and services is another way to increase your income.
2. Expense Problem
You may think you have an Income Problem when what you really have is an Expense Problem. Often times, the Expense Problem is overlooked and attributed to another problem because you’d rather not give up spending on the things you enjoy.
An Expense Problem means that your expenses are just too high. You’re spending on things you really can’t afford. Typically, this is due to not fully understanding the type of expenses you have and not following a budget.
Fixing an Expense Problem- All expenses are not created equal. There is a big difference between the Mandatory/Need Expenses and Nice-To-Have/Want Expenses. The Want Expenses are a luxury and should not be the standard.
The quicker you are able to understand and come to terms with how you categorize your expenses, the quicker you will be able to optimize your finances.
Create a list and organize all of your expenses by either Needs or Wants. Your ability to go through the list and eliminate or reduce the Wants in your life is a key factor in fixing your Expense Problem.
If you have an Expense Problem, it’s important to start tracking your expenses to find what you can eliminate or reduce. The best way to get ahead of your expenses is to create a budget and spending plan. That way you’ll understand where your money is going. (3 simple steps to start a budget).
If you’re looking for a way to save more money and jump start your fix to the Expense Problem, complete the 5-Day Money Savers Challenge to find ways to cut your monthly expenses by hundreds of dollars a month.
3. Knowledge Problem
A Knowledge problem means you don’t know what to do or how to proceed with fixing your financial issues. This particular problem usually keeps you stuck and afraid to make decisions.
Fixing a Knowledge Problem- Ask questions, seek answers and be willing to try new methods when it comes to your finances. Become the CFO of your money.
Actively work to educate yourself on financial topics by reading blogs, articles, books. Listen to podcasts to help you grasp financial concepts. Also be patient with yourself. You won’t be able to learn everything all at once.
4. Confidence Problem
The Confidence Problem is ever so elusive and hard to identify. It can be hard to determine if you have a Confidence Problem on the surface level.
This problem often manifests itself in your life through negative self-talk, thoughts, and self-sabotage. You may even find it more comfortable to hide behind the other 3 problems listed above rather than truly face your Confidence Problem head on.
Having a Confidence Problem is deeply related to your money mindset. Do you really believe in your ability to become debt free and stay debt free? Do you trust that you can learn what you need to know to take full control of your finances?
Fixing a Confidence Problem- Fixing your confidence problem involves doing some deep work and coming to terms with your relationship with money. If you can identify the source of your money habits and thoughts and then work to reprogram your brain through positive self-talk, belief, and knowledge, you can actively work to build your confidence.
Once you’ve identified what’s really holding you back from reaching your financial goals, you’ll be able to work on fixing the issue head on. If you find yourself identifying with more than one problem, you can actively work on fixing each one, which will inevitably snowball into helping you alleviate all the other issues.
So what’s your Money Problem and how do you intend to fix it?