Avoiding 3 Common Financial Problems

by Andrea Norris-McKnight

Avoiding financial problems can be tricky if you do not know what to look out for. Here’s how to avoid three very common financial problems.

Some people spend a lifetime trying to solve their financial problems.

But what if there was a way to get a head start on avoiding financial issues?

We reached out to Cady North, a Certified Financial Planner® with North Financial Advisors LLC in Washington, DC to give us some tips on avoiding a lifetime of financial problems. Here’s what she had to say:

Q: What are the top three financial problem areas you recommend that people try to avoid?

Ms. North: Not saving enough, not making your money work for you, and being reactionary with your finances.

Q: What specific steps can people take to try and avoid these problem areas?

Ms. North:

Not saving enough – You need emergency savings but you also can’t borrow for retirement. You need to balance saving for retirement AND your other financial goals.

The best thing to do is write down and rank your financial goals, then come up with a plan and a budget to save for them. Focus on an emergency fund first, even before paying down debts.

Not making your money work for you – Even if you’re a good saver, make sure you’re deploying your wealth wisely. You must give every dollar a job, and for big goals with long time horizons, you should invest rather than keep too much money in cash reserves.

Being reactionary with your finances – Instead, dream big for yourself and your life and start planning how to get there.

I hear this a lot: “I know I should be saving for retirement, but things haven’t worked out like I planned. I’ll focus on it later.” This kind of thinking will ensure you’re always behind.

If you put goals on paper, behaviorally, you’re more likely to make choices that help you achieve those goals. And, even if your goals change slightly, you’ll be way ahead because the savings are already there to reallocate.

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Q: Do you find that the steps differ depending on the person’s age?

Ms. North: The steps don’t change, but as you age your goals and priorities may change. That’s ok, plan ahead!

You know that certain life events will happen to you, you just may not know exactly “when” they will happen. Get in touch with the things most important to you in life and recognize what will require time and money to achieve.

Q : Is there one issue you’d recommend that people tackle first because of its important ramifications?

Ms. North: You should definitely tackle the saving issue first. I see lots of clients who have high incomes but little to no net worth because they aren’t able to save money.

Get an emergency fund. Then, try to target saving about 15% for retirement and another 5-15% toward other financial goals, including paying down your debts.

Everyone has several financial goals, whether they’ve written them down or not. For young professionals this often includes travel, paying down student debts, buying your first house, saving for a family, etc.

It’s essential to review and rank these goals periodically and make sure you have a plan and a timeline to save for them. Seek out help if needed. Often, you need to save more than you think.

Don’t discount the concept of compound interest. In particular, when you save for retirement, you’re going to have 30+ years to allow those funds to compound. The earlier you save, the easier it is to reach your retirement goals.

If you wait to save for retirement until you’ve achieved your other financial goals, you’ll always be playing catch-up. Believe me, I see this all the time.

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Build an Emergency Fund

With these simple tips and tools, you can build an emergency fund, even while living paycheck to paycheck.

Q: What is one thing that people often forget when they start trying to straighten out their financial lives?

Ms. North: A lot of people don’t widen their options or get objective advice. Even when someone wants to straighten out their financial lives, they often fall into old habits that work against them. Most people will handle their finances by reacting to situations rather than planning ahead.

For instance, the condo board increases condo fees and you start putting a few dollars extra on your credit card each month to make the budget work. In reality, you should’ve had an emergency fund in place to draw on and should make adjustments elsewhere in your budget.

You buy a house but don’t think about how long it will take to have any kind of return on your investment by tying up your capital in a down payment, and you end up moving in a few years because your job moves or you need more space. You focus on paying for your kids’ education because that seems most pressing, but then you realize at 40, you’re woefully underfunded for retirement.

Instead of thinking about everyday life stuff as “unforeseen circumstances” and having to figure out how to deal with it, set aside enough savings and plan ahead.

Dream bigger for yourself! If you’re constantly worrying about reacting to the task at hand, you’ll never be able to save up to plan for the “one-day” wish you have for yourself or your family.

Reviewed November 2023

About the Expert

Cady North, CFP® is the founder of North Financial Advisors. Her mission is to provide effective and affordable financial planning tools to women who desire to be their best self – financially, professionally, and personally. She enjoys helping clients dream big and find their own financial freedom. Connect with her at northfinancialadvisors.com, or on Twitter or Facebook.