solving financial problems

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Money Basics  - Financial Problem Solving Strategies

Money basics  -, financial problem solving strategies, money basics financial problem solving strategies.

Money Basics: Financial Problem Solving Strategies

Lesson 2: financial problem solving strategies.

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Financial problem-solving strategies

Have you ever experienced a financial problem? Do you feel like finances are holding you back from reaching your goals? This lesson will give a brief overview of the general problem-solving process and how to apply it to the most common financial problems.

The problem-solving process

First, let's take a look at a general problem-solving process that you can apply to any situation, not just a financial one.

• Identify the problem . The first step in solving a problem is to identify it. What exactly do you need to overcome?
• Make a plan. What are the steps you need to take in order to overcome the problem?
• Implement the plan . This step actually puts the plan you created in place. While it sounds fairly straightforward, this is usually the most difficult step.
• Evaluate the plan . Although this is listed last, this step might actually occur simultaneously with implementing the plan. Things happen and circumstances change, so you may need to re-evaluate your plan as it is happening.

Identifying the problem

The first step in the problem-solving process is to get to the root of the problem and understand what you need to overcome. Here is a list of the most common financial problems people may face:

• Lack of income/job loss
• Unexpected expenses
• Too much debt
• Need for financial independence
• Overspending or lack of budget
• Lack of savings

When thinking about these common problems, each one falls into one of three areas: You need more money, you need to reduce your debt, or you need to change how you spend.

Making a plan

After identifying the problem you need to overcome, it's time to make a plan. Not sure where to start? No worries! We have you covered with some tips and places to begin.

Problem 1: You need more money . Whether you've lost your job, met an unexpected expense, or are working on becoming more financially independent, a form of income is necessary.

If you are a looking for additional work or maybe just a better-paying job, take some time to update your resume and cover letter. Make sure they are neat, up to date with your most current information, and free of spelling and grammar errors.

Be wary of any advertisements or jobs that offer fast, easy money. A lot of quick-cash methods come with unintended consequences. More often than not, if something sounds too good to be true, it probably is.

Problem 2: You need to reduce your debt . With high interest rates or the need to live paycheck to paycheck, high debt can be debilitating. Sometimes it feels like climbing a neverending mountain with an invisible peak. However, by prioritizing and negotiating your debt, you can make it more manageable.

Try listing all of your debt and the interest rates associated with each. Focus on paying off the ones with the highest interest rates first. If you're having trouble making payments, call the loan company and see if it can offer any solutions for you. The company may be able to lower your interest rate or offer a temporary forbearance to help you get back on your feet. If you need more help tackling your debt, you may want to contact a professional debt counselor like Consolidated Credit.

Problem 3: You need to change how you spend . Going from financial problems to a healthy financial status often requires organization and a shift in thinking. Avoiding overspending, building your savings, and gaining financial independence can often be accomplished with good spending habits.

The first thing you may want to try is creating a budget. There are many templates and resources available to help you create one. Sticking to one can be challenging, but simply having a budget laid out can help you see where you need to start spending less.

In addition to your budget, create a savings plan. Start out small. Even stowing away an extra dollar or two here and there can make a big difference. Also, try placing your savings in a place you cannot easily access. For example, create a savings account at a bank you don't usually use. The more difficult it is to access your money, the less likely you are to spend it.

Implementing the plan

Although the explanation of this part is the simplest, this is often the most difficult part to actually execute. It requires self-discipline and perseverance. The most important part of this step is to know that if your plan doesn't work or if you have a difficult time sticking to it, all is not lost. If it happens, move on to the next step, evaluate your plan, then repeat the process.

Overcoming financial obstacles can require changing your lifestyle, and this does not happen overnight. However, just having a plan itself can help to give you confidence and reassurance that you can eventually overcome whatever is in your way.

Evaluating your plan

As you implement your plan, you'll need to continually evaluate it. Maybe something happens and your original plan needs to change. Perhaps you've learned more along the way and realize that your original plan was incomplete. Or maybe your first plan went as planned and was a success. No matter the circumstances, it is always a good idea to look back and re-evaluate. Try answering these questions:

• Was your problem solved? Did a new problem arise?
• What went right?
• What went wrong?
• What circumstances changed?
• Was there anything you didn't account for?
• What was easy about implementing your plan?
• What was difficult about implementing your plan?

Financial obstacles can often seem debilitating and impossible to overcome. They often create a significant source of financial anxiety . We hope this lesson will help give you the confidence to take on your problem one step at a time so you can conquer your anxiety and move forward.

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Understanding financial stress

Effects of financial stress on your health, tip 1: talk to someone, tip 2: take inventory of your finances, tip 3: make a plan—and stick to it, tip 4: create a monthly budget, tip 5: manage your overall stress, coping with financial stress.

Feeling overwhelmed by money worries? Whatever your circumstances, there are ways to get through these tough economic times, ease stress and anxiety, and regain control of your finances.

If you’re worried about money, you’re not alone. Many of us, from all over the world and from all walks of life, are having to deal with financial stress and uncertainty at this difficult time. Whether your problems stem from a loss of work, escalating debt, unexpected expenses, or a combination of factors, financial worry is one of the most common stressors in modern life. Even before the global coronavirus pandemic and resulting economic fallout, an American Psychological Association (APA) study found that 72% of Americans feel stressed about money at least some of the time. The recent economic difficulties mean that even more of us are now facing financial struggles and hardship.

Like any source of overwhelming stress, financial problems can take a huge toll on your mental and physical health, your relationships, and your overall quality of life. Feeling beaten down by money worries can adversely impact your sleep, self-esteem, and energy levels. It can leave you feeling angry, ashamed, or fearful, fuel tension and arguments with those closest to you, exacerbate pain and mood swings, and even increase your risk of depression and anxiety. You may resort to unhealthy coping mechanisms, such as drinking, abusing drugs, or gambling to try to escape your worries. In the worst circumstances, financial stress can even prompt suicidal thoughts or actions. But no matter how hopeless your situation seems, there is help available. By tackling your money problems head on, you can find a way through the financial quagmire, ease your stress levels, and regain control of your finances—and your life.

While we all know deep down there are many more important things in life than money, when you’re struggling financially fear and stress can take over your world. It can damage your self-esteem, make you feel flawed, and fill you with a sense of despair. When financial stress becomes overwhelming, your mind, body, and social life can pay a heavy price.

[Read: Stress Symptoms, Signs, and Causes]

Financial stress can lead to:

Insomnia or other sleep difficulties. Nothing will keep you tossing and turning at night more than worrying about unpaid bills or a loss of income.

Weight gain (or loss). Stress can disrupt your appetite, causing you to anxiously overeat or skip meals to save money.

Depression. Living under the cloud of money problems can leave anyone feeling down, hopeless, and struggling to concentrate or make decisions. According to a study at the University of Nottingham in the UK, people who struggle with debt are more than twice as likely to suffer from depression .

Anxiety. Money can be a safety net; without it, you may feel vulnerable and anxious. And all the worrying about unpaid bills or loss of income can trigger anxiety symptoms such as a pounding heartbeat, sweating, shaking, or even panic attacks.

Relationship difficulties. Money is often cited as the most common issue couples argue about. Left unchecked, financial stress can make you angry and irritable, cause a loss of interest in sex, and wear away at the foundations of even the strongest relationships .

Social withdrawal. Financial worries can clip your wings and cause you to withdraw from friends, curtail your social life, and retreat into your shell—which will only make your stress worse.

Physical ailments such as headaches, gastrointestinal problems, diabetes, high blood pressure , and heart disease. In countries without free healthcare, money worries may also cause you to delay or skip seeing a doctor for fear of incurring additional expenses.

Unhealthy coping methods , such as drinking too much , abusing prescription or illegal drugs, gambling, or overeating. Money worries can even lead to self-harm or thoughts of suicide.

If you are feeling suicidal…

Your money problems may seem overwhelming and permanent right now. But with time, things will get better and your outlook will change, especially if you get help. There are many people who want to support you during this difficult time, so please reach out!

Read Are You Feeling Suicidal? , call 1-800-273-TALK in the U.S., or find a helpline in your country at IASP or Suicide.org .

The vicious cycle of poor financial health and poor mental health

A number of studies have demonstrated a cyclical link between financial worries and mental health problems such as depression, anxiety, and substance abuse.

Financial problems adversely impact your mental health. The stress of debt or other financial issues leaves you feeling depressed or anxious.

The decline in your mental health makes it harder to manage money. You may find it harder to concentrate or lack the energy to tackle a mounting pile of bills. Or you may lose income by taking time off work due to anxiety or depression.

These difficulties managing money lead to more financial problems and worsening mental health problems, and so on. You become trapped in a downward spiral of increasing money problems and declining mental health.

No matter how bleak your situation may seem at the moment, there is a way out. These strategies can help you to break the cycle, ease the stress of money problems, and find stability again.

When you’re facing money problems, there’s often a strong temptation to bottle everything up and try to go it alone. Many of us even consider money a taboo subject, one not to be discussed with others. You may feel awkward about disclosing the amount you earn or spend, feel shame about any financial mistakes you’ve made, or embarrassed about not being able to provide for your family. But bottling things up will only make your financial stress worse. In the current economy, where many people are struggling through no fault of their own, you’ll likely find others are far more understanding of your problems.

[Read: Social Support for Stress Relief]

Not only is talking face-to-face with a trusted friend or loved one a proven means of stress relief, but speaking openly about your financial problems can also help you put things in perspective. Keeping money worries to yourself only amplifies them until they seem insurmountable. The simple act of expressing your problems to someone you trust can make them seem far less intimidating.

• The person you talk to doesn’t have to be able to fix your problems or offer financial help.
• To ease your burden, they just need to be willing to talk things out without judging or criticizing.
• Be honest about what you’re going through and the emotions you’re experiencing.
• Talking over your worries can help you make sense of what you’re facing and your friend or loved one may even be able to come up with solutions that you hadn’t thought of alone.

Getting professional advice

Depending on where you live, there are a number of organizations that offer free counseling on dealing with financial problems, whether it’s managing debt, creating and sticking to a budget, finding work, communicating with creditors, or claiming benefits or financial assistance. (See the “Get more help” section below for links).

Whether or not you have a friend or loved one to talk to for emotional support, getting practical advice from an expert is always a good idea. Reaching out is not a sign of weakness and it doesn’t mean that you’ve somehow failed as a provider, parent, or spouse. It just means that you’re wise enough to recognize your financial situation is causing you stress and needs addressing.

Speak to a Licensed Therapist

BetterHelp is an online therapy service that matches you to licensed, accredited therapists who can help with depression, anxiety, relationships, and more. Take the assessment and get matched with a therapist in as little as 48 hours.

Opening up to your family

Financial problems tend to impact the whole family and enlisting your loved ones’ support can be crucial in turning things around. Even if you take pride in being self-sufficient, keep your family up to date on your financial situation and how they can help you save money.

Let them express their concerns. Your loved ones are probably worried—about both you and the financial stability of your family unit. Listen to their concerns and allow them to offer suggestions on how to resolve the financial problems you’re facing.

Make time for (inexpensive) family fun. Set aside regular time where you can enjoy each other’s company, let off steam, and forget about your financial worries. Walking in the park, playing games, or exercising together doesn’t have to cost money but it can help ease stress and keep the whole family positive.

If you’re struggling to make ends meet, you may think you can ease your stress by leaving bills unopened, avoiding phone calls from creditors, or ignoring bank and credit card statements. But denying the reality of your situation will only make things worse in the long run. The first step to devising a plan to solve your money problems is to detail your income, debt, and spending over the course of at least one month.

A number of websites and smartphone apps can help you keep track of your finances moving forward or you can work backwards by gathering receipts and examining bank and credit card statements. Obviously, some money difficulties are easier to solve than others, but by taking inventory of your finances you’ll have a much clearer idea of where you stand. And as daunting or painful as the process may seem, tracking your finances in detail can also help you start to regain a much-needed sense of control over your situation.

Include every source of income. In addition to any salary, include bonuses, benefits, alimony, child support, or any interest you receive.

Keep track of ALL your spending. When you’re faced with a pile of past-due bills and mounting debt, buying a coffee on the way to work may seem like an irrelevant expense. But seemingly small expenses can mount up over time, so keep track of everything. Understanding exactly how you spend your money is key to budgeting and devising a plan to address your financial problems.

List your debts. Include past-due bills, late fees, and list minimum payments due as well as any money you owe to family or friends.

Identify spending patterns and triggers. Does boredom or a stressful day at work cause you to head to the mall or start online shopping? When the kids are acting out, do you keep them quiet with expensive restaurant or takeout meals, rather than cooking at home ? Once you’re aware of your triggers you can find healthier ways of coping with them than resorting to “retail therapy”.

Look to make small changes. Spending money on things like a morning newspaper, lunchtime sandwich, or break-time cigarettes can add up to a significant monthly outlay. While it may be unreasonable to deny yourself every small pleasure, cutting down on nonessential spending and finding small ways to reduce your daily expenditure can really help to free up extra cash to pay off bills.

Eliminate impulse spending. Ever seen something online or in a shop window that you just had to buy? Impulsive buying can wreck your budget and max out your credit cards. To break the habit, try making a rule that you’ll wait a week before making any new purchase.

Go easy on yourself. As you review your debt and spending habits, remember that anyone can get into financial difficulties, especially at times like this . Don’t use this as an excuse to punish yourself for any perceived financial mistakes. Give yourself a break and focus on the aspects you can control as you look to move forward.

When your financial problems go beyond money

Sometimes, the causes for your financial difficulties may lie elsewhere. For example, money troubles can stem from problem gambling , fraud abuse , or a mental health issue, such as overspending during a bipolar manic episode .

To prevent the same financial problems recurring, it’s imperative you address both the underlying issue and the money troubles it’s created in your life.

Just as financial stress can be caused by a wide range of different money problems, so there are an equally wide range of possible solutions. The plan to address your specific problem could be to live within a tighter budget, lower the interest rate on your credit card debt, curb your online spending, seek government benefits, declare bankruptcy, or to find a new job or additional source of income.

If you’ve taken inventory of your financial situation, eliminated discretionary and impulse spending, and your outgoings still exceed your income, there are essentially three choices open to you: increase your income, lower your spending, or both. How you go about achieving any of those goals will require making a plan and following through on it.

• Identify your financial problem. Having taken inventory, you should be able to clearly identify the financial problem you’re facing. It may be that you have too much credit card debt, not enough income, or you overspend on unnecessary purchases when you feel stressed or anxious. Or perhaps, it’s a combination of problems. Make a separate plan for each one.
• Devise a solution. Brainstorm ideas with your family or a trusted friend, or consult a free financial counseling service. You may decide that talking to credit card companies and requesting a lower interest rate would help solve your problem. Or maybe you need to restructure your debt, eliminate your car payment, downsize your home, or talk to your boss about working overtime.
• Put your plan into action. Be specific about how you can follow through on the solutions you’ve devised. Perhaps that means cutting up credit cards, networking for a new job , registering at a local food bank, or selling things on eBay to pay off bills, for example.
• Monitor your progress. As we’ve all experienced recently, events that impact your financial health can happen quickly, so it’s important to regularly review your plan. Are some aspects working better than others? Do changes in interest rates, your monthly expenses, or your hourly wage, for example, mean you should revise your plan?
• Don’t get derailed by setbacks. We’re all human and no matter how tight your plan, you may stray from your goal or something unexpected could happen to derail you. Don’t beat yourself up, but get back on track as soon as possible.

The more detailed you can make your plan, the less powerless you’ll feel over your financial situation.

Whatever your plan to relieve your financial problems, setting and following a monthly budget can help keep you on track and regain your sense of control.

• Include everyday expenses in your budget, such as groceries and the cost of traveling to work, as well as monthly rent, mortgage, and utility bills.
• For items that you pay annually, such as car insurance or property tax, divide them by 12 so you can set aside money each month.
• If possible, try to factor in unexpected expenses, such as a medical co-pay or prescription charge if you fall sick, or the cost of home or car repairs.
• Set up automatic payments wherever possible to help ensure bills are paid on time and you avoid late payments and interest rate hikes.
• Prioritize your spending. If you’re having trouble covering your expenses each month, it can help to prioritize where your money goes first. For example, feeding and housing yourself and your family and keeping the power on are necessities. Paying your credit card isn’t—even if you’re behind on your payments and have debt collection companies harassing you.
• Keep looking for ways to save money. Most of us can find something in our budget that we can eliminate to help make ends meet. Regularly review your budget and look for ways to trim expenses.
• Enlist support from your spouse, partner, or kids. Make sure everyone in your household is pulling in the same direction and understands the financial goals you’re working towards.

Resolving financial problems tends to involve small steps that reap rewards over time. In the current economic climate, it’s unlikely your financial difficulties will disappear overnight. But that doesn’t mean you can’t take steps right away to ease your stress levels and find the energy and peace of mind to better deal with challenges in the long-term.

[Read: Stress Management]

Get moving. Even a little regular exercise can help ease stress, boost your mood and energy, and improve your self-esteem. Aim for 30 minutes on most days, broken up into short 10-minute bursts if that’s easier.

Practice a relaxation technique. Take time to relax each day and give your mind a break from the constant worrying. Meditating , breathing exercises, or other relaxation techniques are excellent ways to relieve stress and restore some balance to your life.

Don’t skimp on sleep. Feeling tired will only increase your stress and negative thought patterns. Finding ways to improve your sleep during this difficult time will help both your mind and body.

Boost your self-esteem. Rightly or wrongly, experiencing financial problems can cause you to feel like a failure and impact your self-esteem. But there are plenty of other, more rewarding ways to improve your sense of self-worth. Even when you’re struggling yourself, helping others by volunteering can increase your confidence and ease stress, anger, and anxiety—not to mention aid a worthy cause. Or you could spend time in nature, learn a new skill, or enjoy the company of people who appreciate you for who you are, rather than for your bank balance.

Eat healthy food. A healthy diet rich in fruit, vegetables, and omega-3s can help support your mood and improve your energy and outlook. And you don’t have to spend a fortune; there are ways to eat well on a budget .

Be grateful for the good things in your life. When you’re plagued by money worries and financial uncertainty , it’s easy to focus all your attention on the negatives. While you don’t have to ignore reality and pretend everything’s fine, you can take a moment to appreciate a close relationship, the beauty of a sunset, or the love of a pet, for example. It can give your mind a break from the constant worrying, help boost your mood, and ease your stress.

Find financial resources

Find  U.S. Government Services and Information  including  How to Get Out of Debt ,  Unemployment Help , and  Getting Help with Living Expenses . Or call 1-844-872-4681. (USA gov)

Get help with debt and housing problems from  Citizens Advice , contact a free debt service at  National Debtline  or  Stepchange , or seek free financial advice from the government’s  Money Advice Service .

Find  Government Services , get free  Financial Counselling  or call the  National Debt Helpline  at 1800 007 007.

Find government services and information for  Managing Debt  and  Benefits .

More Information

• Managing Job Loss and Financial Stress - Helping yourself and your family cope with stress and financial worries following job loss. (University of Hawaii)
• Managing Debt - Steps you can take to deal with debt. (Federal Trade Commission)
• Managing money and budgeting - Tips for creating a family budget. (raisingchildren.net.au)
• Make a Budget - Simple worksheet to help you create a budget. (Federal Trade Commission)
• Money Stress Weighing on Americans’ Health - Details of the 2015 Stress in America: Paying with Our Health survey from the American Psychological Association. (APA)
• Trauma- and Stressor-Related Disorders. (2013). In Diagnostic and Statistical Manual of Mental Disorders . American Psychiatric Association. Link
• Inc, Gallup. “The U.S. Healthcare Cost Crisis.” Gallup.com. Accessed November 16, 2021. Link
• Anderson, Norman B, Cynthia D Belar, Steven J Breckler, Katherine C Nordal, David W Ballard, Lynn F Bufka, Luana Bossolo, Sophie Bethune, Angel Brownawell, and Katelynn Wiggins. Stress in America: Paying with our Health. “AMERICAN PSYCHOLOGICAL ASSOCIATION,” n.d., 23. Link
• Ramsey Solutions. “Money, Marriage, and Communication.” Accessed November 16, 2021. Link
• “At What Costs? Student Loan Debt, Debt Stress, and Racially/Ethnically Diverse College Students’ Perceived Health. – PsycNET.” Accessed November 16, 2021. Link
• Richardson, Thomas, Peter Elliott, and Ronald Roberts. “The Relationship between Personal Unsecured Debt and Mental and Physical Health: A Systematic Review and Meta-Analysis.” Clinical Psychology Review 33, no. 8 (December 1, 2013): 1148–62. Link
• Warth, Jacqueline, Marie-Therese Puth, Judith Tillmann, Johannes Porz, Ulrike Zier, Klaus Weckbecker, and Eva Münster. “Over-Indebtedness and Its Association with Sleep and Sleep Medication Use.” BMC Public Health 19, no. 1 (July 17, 2019): 957. Link
• Saleh, Dalia, Nathalie Camart, Fouad Sbeira, and Lucia Romo. “Can We Learn to Manage Stress? A Randomized Controlled Trial Carried out on University Students.” PLOS ONE 13, no. 9 (September 5, 2018): e0200997. Link
• “Stress, Social Support, and the Buffering Hypothesis. – PsycNET.” Accessed November 15, 2021. Link
• Salmon, P. “Effects of Physical Exercise on Anxiety, Depression, and Sensitivity to Stress: A Unifying Theory.” Clinical Psychology Review 21, no. 1 (February 2001): 33–61. Link
• Toussaint, Loren, Quang Anh Nguyen, Claire Roettger, Kiara Dixon, Martin Offenbächer, Niko Kohls, Jameson Hirsch, and Fuschia Sirois. “Effectiveness of Progressive Muscle Relaxation, Deep Breathing, and Guided Imagery in Promoting Psychological and Physiological States of Relaxation.” Evidence-Based Complementary and Alternative Medicine 2021 (July 3, 2021): e5924040. Link

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Fix Your Financial Problems and Get Back on the Right Track

A monthly budget and a plan can be mighty tools

Budgeting Problems

Create a budget.

• Track Your Spending

Budget Meetings

• Spending Issues

If You Have Debt Problems

Debts in collections, find extra money.

• Don't Add On
• An Emergency Fund

Credit Problems

People face a wide variety of financial problems. The trouble might begin because you have a hard time or a distaste for budgeting, then it blooms from there into additional issues that can have serious implications.

The key might be as simple as taking the time to identify the source of the problem. You can begin to fix it from there and take control of your finances.

You might be having budgeting problems if you're consistently running out of money before you run out of month, and you find yourself relying on credit cards to make ends meet. You look at what you earn and wonder why it doesn't seem to be enough to cover all your bills even though you earn a good salary.

You might even have a written budget that you try to follow each month, but it never seems to work. This is a prime indicator that you have a budgeting problem. 

Start by creating a budget if you don't yet have one. The easiest way to do this is to look at what you spent in each category last month and adjust from there. Common budget categories include:

• Housing (rent or mortgage)
• Savings (emergency fund, sinking fund, and retirement)
• Insurance (auto, health, and life)
• Medical care
• Transportation (car payment and/or commuting expenses)
• Debt service (credit cards, personal loans, home equity loans, and other credit accounts - see our payment calculator below if you're considering one)
• Health care
• Discretionary spending (entertainment, dining out, and "extras")

You might have others that don't appear here, such as child care. Add them in.

Some of these expenses are fixed. They remain the same month after month. Others might fluctuate beyond your control — utility costs can vary by season, or maybe your child-care provider has upped its rates.

Still others, like discretionary spending and groceries, are within your control. You can spend less on these things if you have to.

Track Your Spending and Adjust as Necessary

Add up all the categories you've determined in your budget. You have some tweaking to do if the total is more than your monthly take-home pay. You'll have to cut somewhere, typically from those expenses that you have control over. You do not want to put less toward your savings or debt service if at all possible.

The key to making your budget work is realizing that it's flexible. You can take money from one category and use it in another category if you overspend. For example, you might splurge on concert tickets, but then you'll have to adjust your grocery budget to cover the extra you spent in your discretionary/entertainment category.

Budget meetings are essential if you're married and want to succeed financially. You and your spouse should communicate on a regular basis about the budget, and who's spending what and where.

Again, budgeting software can come in handy here because you can update it when you're shopping and it can prevent you from overspending when you're on separate errands.

Spending Issues: Stick to a List & Play the Waiting Game

Most people have an area in which they consistently overspend. You can address these "leaks" in your budget in a few ways.

• Limit when you go "pleasure" shopping and don't take a credit card with you.
• Create a menu plan , a grocery list and make meals ahead if you tend to spend too much money eating out. Stick to your list no matter what's on sale. If you didn't need steak or five bottles of cola when you were making your list, odds are that it hasn't become a must-buy just a few hours later.
• Time is your friend when it comes to not spending needlessly. You might really, really want that classic bottle of bourbon today. Wait a month to buy it. You're not denying yourself. You're procrastinating. That little gift to yourself can be something like a reward if you find that you've really stuck to your budget at month's end.

You might also switch to the envelope budgeting system. This is basically a cash-only budget — or part of your budget — where you pay cash for your "controllable" categories like groceries and discretionary spending. Put the money you budgeted into an envelope for each category at the beginning of the month and stop spending in that category when the envelope is empty. You might realize that you think twice about dipping into an envelope if you consider that doing so now might empty it out before the month is up.

Too much debt can be crippling. Address this issue as quickly as possible because you won't be able to get ahead financially if you're carrying a large amount of debt.

Consider creating a debt payment plan. List your debts in order of the smallest balance to the largest, or the highest interest rate to the lowest interest rate. This is the order in which you're going to pay them off.

Take the money you were paying toward the first and add it to the payments you're making on the second debt after you've paid the first one off. Continue rolling the money over until you've paid off everything.

But avoid closing credit cards as you pay them off because this can lower your credit score. Part of your score depends on how long you've been borrowing, so closing a card that you've hard for a while can cost you some points. You should always leave at least your oldest card open, ideally with a very minimal or zero balance.

You can often settle debts that have gone to collections by paying less than you actually owe. The creditor will "forgive" or write off the balance.

It's all about negotiation. Call the creditor, start with a low amount and offer a one-time payment. Maybe you owe $3,000. Offer to remit $1,500 right now if possible, if the creditor will "erase" that remaining $1,500 balance. The credit might counter with $2,000. Keep trying.

Do not give the creditor access to your checking account over the phone. Send a cashier’s check by certified mail once you've received a letter confirming your deal and keep a copy of that letter in case there's a question later on.

You might be responsible for paying income taxes on any debt that's forgiven. You could receive an IRS Form 1099-C from the creditor, and a copy is sent to the Internal Revenue Service as well, showing how much of your debt was erased. You must generally report this amount as taxable income on your tax return.

Check with a tax professional to be sure before you report this money on your tax return. You might not receive one at all because these forms generally apply to $600 or more of canceled debt.  

You can begin moving forward more quickly if you can get your hands on some extra money to pay off your debts. You might consider selling items you no longer use or look in your budget for things you can cut out without feeling the pain too much.

You might want to consider cutting your cable or cellphone service back to a less expensive package. You might be surprised at just how much you can pay off if you sacrifice a bit of your lifestyle for a while.

Another option is to take on a second job. In fact, you might want to try a combination of all three approaches if you're serious about conquering your debt.

Don't Add On

There's no point in working to get out of debt if you continually add onto it each month. Stop using your credit cards as much as possible. You're effectively just treading water if you make payments then turn around and charge right back up to your previous balance.

Don't Forget That Emergency Fund

Budgeting gurus came up with the concept of an emergency fund for good reason. Maybe life is moving along nicely, then the company you work for goes out of business. You're out of work through no fault of your own. Or maybe you're crossing the street when a taxi hits you. You're out of work while you recuperate and you might have uninsured medical expenses as well.

Having some cash stashed away in an  emergency fund might not save the day entirely, but life will be a lot easier than it would have been if you hadn't saved for the unexpected.

It's recommended that you have at least three months' living expenses set aside, and some experts say six months. Yes, that can be an intimidating number if your monthly nut is $3,500 or more. Start small if you must, but start. You'll get there eventually and you might be glad you did.

Credit problems can make it difficult to land a job, rent an apartment, or buy a home. Poor or even iffy credit can affect the interest rates on your car loan and negatively affect your finances. Understand how your credit works so you can identify why your credit score is low and start to fix it.

Two common culprits are making late payments and maxing out credit cards. Paying a week or two late might not ding your score too horribly, but paying 30 days late — or even worse, 60 — can deal it a serious blow.  

Your credit utilization ratio is also critical to your credit score. Ideally, you'll want to keep it at less than 30%. This means that your total balances add up to no more than $3,000 if you have credit limits of $10,000.

Internal Revenue Service. " About Form 1099-C, Cancellation of Debt ."

Experian. " Can One 30-Day Late Payment Hurt Your Credit? "

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6 ways to tackle financial stress

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For many Americans, financial concerns are ever present, especially given the uncertainties of today’s economy. While worrying doesn’t solve much, having a plan to manage financial challenges can help ease some of the stress. Plus, the monetary benefits of dealing with financial problems—paying off bills, saving more and reducing debt—can help improve your overall outlook. Here are some suggestions for tackling your money stress and taking control of your finances.

Identify top sources of financial stress

If financial anxiety is weighing on you, start by identifying the specific issues keeping you up at night. Whether the problem is credit card debt or upcoming bill payments, pinpointing the source of your stress will help you determine your next move .

Create a monthly budget

A budget is a powerful tool for taking control of—and understanding—your finances. It can help you avoid spending more than you have as well as save for future goals. Once you have a full picture of where your money is going every month, you can look for opportunities to redirect some of it to the areas causing your financial stress.

There are lots of apps and online tools to help you track spending or set up a budget. If you have an account with Bank of America, consider using the Spending & Budgeting tool .

Make the most of your income

When money is tight, you may think you don’t have enough to deal with your financial problems. However, it’s important to make the most of the income you do have. Know that small steps add up. You may not be able to cut any one expense by $500 a month, but you may be able to identify five that you can cut by $100 each.

Article continues below

Build an emergency fund.

Having money set aside for an emergency—such as car repairs, job loss or illness—can go a long way towards relieving financial anxiety. However, building an emergency fund can seem overwhelming, especially one with enough to cover three to six months of expenses. Don’t get hung up on the amount—what’s important is that you’re consistently setting money aside.

Bank of America offers a Savings Calculator to help you see how much time it could take to hit your savings goal.

Be strategic about reducing debt.

Credit card debt is a common source of financial stress. Not only is it expensive—it can also get in the way of your savings goals. The anxiety antidote: a plan to pay off the debt . If you have balances on multiple cards, consider using the snowball method (paying off your debts one-by-one, focusing on the smallest first) or the high-rate method (concentrating on the cards with the highest interest rates first).

Consider outside help

If you’re not satisfied with your progress in reducing debt, you may want to seek help from trusted resources, such as the Federal Trade Commission and the National Foundation for Credit Counseling. Or if you want guidance on long-term goals, such as saving for retirement or college, financial advisors can help. Finally, your friends and family may be able to offer support—just make sure to set clear boundaries and expectations to avoid damaging those relationships.

The material provided on this website is for informational use only and is not intended for financial or investment advice. Bank of America Corporation and/or its affiliates assume no liability for any loss or damage resulting from one’s reliance on the material provided. Please also note that such material is not updated regularly and that some of the information may not therefore be current. Consult with your own financial professional when making decisions regarding your financial or investment management. ©2024 Bank of America Corporation.

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7 ways to manage financial stress during trying times

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From recent high-profile bank failures to sky-high inflation and worries of a recession, many consumers are coping with financial stress as they try and keep their money safe, plan for the future and simply try to make ends meet.

In fact, more than half (52 percent) of adults say money has a negative impact on their mental health at least occasionally, according to Bankrate’s 2023 Money and Mental Health Survey . Among those impacted by money worries, almost one-third (29 percent) worry every single day.

While financial stress can often be attributed to external factors, there are ways you can mitigate it and take steps to improve your financial security. Here are seven steps to help you manage financial stress during trying times.

Impact of financial issues on mental health

• More than half (52 percent) of adults say money has a negative impact on their mental health at least occasionally.
• Women are significantly more likely than men to say money negatively impacts their mental health (56 percent versus 47 percent).
• Gen Xers (ages 43-58) are the most concerned, since 60 percent say money negatively impacts their mental health, compared with 55 percent of millennials (ages 27-42), 52 percent of Gen Zers (ages 18-26) and 45 percent of baby boomers (ages 59-77).
• More than one-third (35 percent) of those with annual household incomes under $50,000 who say their mental health is negatively impacted by money matters say this happens every day. That figure falls to 29 percent in households that earn between $50,000 and $79,999, 21 percent in households that earn between $80,000 and $99,999 and 23 percent in households that earn more than $100,000.
• Inflation is the top money worry that has grown over the past year. More than half (57 percent) of those whose mental health is negatively impacted by money concerns said this issue has worsened over the past year.

1. Prioritize what you can control on discretionary spending

You probably can’t change everything that’s causing you stress. Focus instead of what you can control so you can improve your situation. For instance, consider your food budget. Look for ways to shave a few dollars off your grocery bill , like comparing prices on different brands. You’ll not only save money, but the feeling of accomplishment and being in control may help reduce your stress as well.

Lowering your food bills can really impact your budget, since food prices are expected to increase 6.5 percent in 2023, according to the U.S. Department of Agriculture . One simple way to save on groceries is to buy store brands over name brands. Store-brand groceries tend to run around 40 percent cheaper than name brands, according to CNET research .

2. Find ways to earn more money

You can only cut a budget so far, and you’ll want to be careful that your tight budget doesn’t become a source of additional stress. With the price of consumer goods being higher than normal, line items in your budget are likely already under strain.

It might be worth looking for ways to increase your income instead. Some ways to do so include:

• Work a few extra hours: Try talking to your employer about putting in some extra time each week, if you’re paid hourly or at least eligible for overtime pay.
• Negotiating for a raise: Given high inflation and a tight labor market, employers may be more willing to grant a pay increase.
• Selling items you no longer need: This can include things such as old furniture, clothing, toys, pet items and tools.
• Taking on a side gig : A side gig can be a good option for those who want a flexible way to pad their income alongside a full-time job. This can include things like delivering food, tutoring or running a blog. The money can really add up, considering the monthly average and median income from side hustles in 2022 was $996 and $400, respectively, according to a Bankrate survey .

3. Pay essential bills

A majority of employed Americans (55 percent) say their income has not kept up with the increase in household expenses due to inflation , a recent Bankrate survey found. If you’re worried about being able to pay all your bills, prioritize essential bills first. Sorting through your bills and prioritizing them serves multiple purposes:

• Thinking through what you spend your money on can help you identify some bills that can be eliminated or reduced.
• Deciding in advance which bills you need to prioritize can help ensure you set aside enough money to pay them on time.

Paying close attention to your bills and prioritizing them will help reduce your financial anxiety and hopefully allow you to sleep better.

Some service providers and lenders may allow for payment extensions, which give you extra time to pay your bill. This can come in handy during a time of financial hardship. It’s important to read the terms of any extension agreement to understand whether associated fees will be charged and how the extension impacts any interest accrued.

4. Save money during trying times

It’s often hard to consistently save money, especially if you’re struggling just to make ends meet. In fact, 74% say economic factors, including inflation, rising interest rates, and change in income/employment, are causing them to save less right now, Bankrate found .

Following a savings plan and building up your emergency fund will not only help you feel more in control, but it will also relieve some stress.

Shopping around for the best high-yield savings account is worth your time, considering these accounts often earn exponentially higher yields than the near-zero rates commonly offered at big banks.

Many consumers continue to earn lackluster rates on their savings accounts, however. Only around 1 in 5 Americans (22 percent) with short-term savings say they’re earning a yield that’s 3 percent or higher, according to Bankrate’s Online Savings Survey . Nearly a quarter (24 percent) earn mediocre annual percentage yields (APYs) of 1 to 2.99 percent, while the same percentage (24 percent) report earning a rock-bottom APY of less than 1 percent and 16 percent say they’re earning no interest whatsoever.

If you want to contribute a certain amount to your savings each month, you can set up an automatic transfer from your checking account .

Once you’ve built an emergency fund, you may want to put any extra savings into a certificate of deposit (CD) . In exchange for keeping the money in the account for a set time frame, you’ll earn a guaranteed return rate that may be higher than traditional savings accounts.

Other places to save your money include money market accounts, cash management accounts and individual retirement accounts (IRAs).

5. Track your money-saving progress

You won’t really know if you’re making progress if you don’t track it. Make sure you know where you stand.

“Do the work to figure out your exact financial situation,” says Tracey Bissett, president at Bissett Financial Fitness. Tracking your progress lets you know whether the actions you’re taking are moving the needle.

Tracking your progress in adding to your emergency fund over time can have a positive impact on your wellbeing. Of all U.S. adults who say concerns about money have negatively impacted their mental health, 41 percent say not enough emergency savings has caused an increase in concern over the past year, Bankrate found in its Money and Mental Health Survey.

“Having good financial health and a positive mindset is really all about understanding your opportunities, your options and how your money is working for you,” says Cara Macksoud, a certified financial behavior specialist and CEO of Money Habitudes, a financial personality assessment provider.

“If you don’t have a positive mindset currently, understanding your finances will let you know what story your money is telling, and that may be the check-in that helps you begin to have a positive mindset around money,” Macksoud says.

Bankrate’s savings calculator is a handy way to determine how soon you can reach a financial goal based on how much you save every month. Another resource, Bankrate’s Magnify My APY , helps you determine your current savings rate, compare other rates, and see how much more you can earn with a higher APY.

6. Talk to your lenders

Debt can be both a financial and mental burden. Before you let debt and the stress it causes overwhelm you, talk to your lenders.

“Always remember that lenders are often open to discussing your issues and finding at least a short-term solution,” says Anna Barker, personal finance expert and founder of personal finance website LogicalDollar.

The lender may be willing to make a modification on the loan, such as extending its term or lowering the interest rate, to reduce your monthly payments. You could also try refinancing .

7. Consult with an expert financial advisor

Consider talking to a financial advisor to help take some of the weight off your shoulders when it comes to things like setting goals, saving money and decreasing debt.

Working with a financial advisor on aspects that include financial planning and investment selection can add around 3 percent to your portfolio annually, based on research by consulting group Envestnet | PMC .

“In times of stress, a financial advisor should be there to validate your feelings [and also] show you why you should feel calm with the plan you have in place,” says Money Habitudes’ Macksoud. “If you have a longer-term relationship with an advisor, the greatest part of that is you can see where you were, where you are, and where you’re going. And if you’re still on track, even with market uncertainty as it is, you should find peace with the diversification you have.”

Bottom line

Financial stress and anxiety are common nowadays, whether you’re struggling to make ends meet due to inflation or you’re worried about the safety of your money in the bank after several high-profile bank failures.

Though it will take some effort, you can work to stay ahead of expenses and curb financial worries. This can be accomplished through steps like creating a budget and tracking your savings progress. Also, don’t hesitate to reach out to a financial advisor or a trusted friend or relative for advice.

Various online resources are available for free to help you save money, spend wisely and live within your means. Bankrate’s money-saving calculator can help you determine how long it’ll take to save for goals. What’s more, you can help build up your nest egg through a money-saving app or any savings features available in your own bank’s app.

— Bankrate’s René Bennett and Brandon Renfro, CFP, contributed to previous versions of this story.

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8 Ways to Manage Money Stress

The only way to not stress about money is by facing your financial stress head on.

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Face your finances by sitting down with your bills and a calculator to see just how big of a hole you’re in.

It's easy to get stressed about money. Inflation hasn’t helped, nor has Congress arguing over the debt ceiling, and ever since the first bill was paid, it was likely that money stress was a thing. Meanwhile, all year-round, there are chances for plenty of financial stress. Maybe you're trying to save up for a summer vacation while also thinking about home improvements or back-to-school expenses that you're going to incur. And before long, you'll be thinking about all of the holiday spending you have to do, and after that, there’s taxes to consider.

So if you’re frazzled and wishing you knew how not to stress about money, it's no wonder.

Even though inflation has improved, it's still ever-present in everybody's lives. According to the Consumer Price Index, the price of everything, on average, is 4.9% more expensive than it was a year ago. That’s actually good news. About a year ago, inflation was a lot worse.

Still, lack of money and anxiety tend to go hand in hand. What’s a financially crunched person feeling acute money stress to do?

Get help, suggests Darren Moore, a licensed psychotherapist in Columbus, Georgia. He says that might mean getting financial help or medical help or both.

"A financial advisor can help develop the most effective financial strategy, and a mental health professional can help discuss the impact these changes might have on the couple and family relationship,” Moore says.

Of course, if money is tight, you may feel like the last thing you can do is pay for professional help.

But you have to do something, and you should.

“There are different kinds of money problems, ranging from true poverty to having too much credit card debt to not being able not afford a vacation this year – and everything in between. But no matter what the circumstances, if you are unable to make ends meet, it will wear you down, physically and emotionally, and in every other way,” says Naomi Angoff Chedd, a licensed mental health counselor and director of counselor support services at Counslr, a text-based mental health support platform.

“Money worries often change behavior, almost always in negative ways. It can affect your sleep, your ability to concentrate, your ability to do your job, your relationships with family and friends, and it certainly affects your self-esteem,” Chedd says.

So, in light of May being Mental Health Awareness month, we reached out to some experts to get their thoughts on what you should do if you’d like to take a do-it-yourself approach to financial anxiety and solving money stress.

Run Toward Your Financial Problems, Not Away From Them

Sit down with your bills and a calculator and start trying to see just how big of a financial hole you’re in.

“In my experience, the greatest source of financial stress and anxiety is the fear of the unknown. We're often terrified of digging into our numbers and finding out bad news,” says Chris Janeway, a certified plan fiduciary advisor and the founder and president of Fourth Point Wealth, a financial management firm in Newport Beach, California.

“The reality is, the truth is a liberating thing. More often than not, the fear is worse than the facts of anyone's situation and once we pin down the facts, we can create the steps to progress forward,” he says.

None of this is to say that once you crunch the numbers, you’re going to feel great. If you’re really in a financial bind, being more aware of how bad things are may make you feel even worse. But Janeway is right: No one can get out of a financial hole without understanding how deep it is. If you can figure out just how bad things are, that knowledge can often serve as a pretty good flashlight.

Create a Financial Plan and Share It With Your Household

Revamping your budget – or starting a budget for the first time – is your next step.

You may also need to start a plan to pay down your debt. That might mean getting help from a professional , like going to see a credit counselor. It could mean hiring a financial advisor or working with the IRS to pay back taxes.

Maybe your financial plan is simply that you’re going to look for a new job , one that pays more money.

But assuming your financial plan involves cutting back on expenses, you need to make sure that you’re not the only one in your home fighting what can be a very lonely battle. If you have a spouse, partner or teenagers, looping them into the financial picture could help combat your stress – and keep everyone from blowing up your budget.

“My wife and I, each year, use a date night to sit down with our computers and map out holiday travel, shopping lists and a budget,” Janeway says. “It can seem tedious, and it is, but we leave that date night with a plan that builds trust and reduces an incredible amount of stress as we head into the holidays.”

Use Positive Language When Thinking of Your Financial Situation

Look at the bright side. Kelan Kline, who runs the personal finance blog The Savvy Couple with his wife Brittany, says positive talk is part of financial self-care. He says that it’s very important to not beat yourself up.

He offers up the classic example of not having enough money for the holidays.

“If you don't have as much money as you'd like to spend on gifts, decorations and other holiday purchases, don't get down on yourself,” Kline says. “When trying to cut down on spending, focus on the positive. For example, instead of saying, 'I can't afford that Christmas gift I want to give,' reframe it as, 'I have the opportunity to give a homemade gift from the heart.' This change in language can help you remain relaxed and gain a sense of empowerment.”

While empowering language can’t always turn a cloudy day into a bright one, it’s better to try and reframe a situation positively rather than dwell on the negative. For instance, if you’re paying your rent or mortgage every month and feeding your family, you are succeeding. Maybe not as much as you want, but you’re holding your own.

Remember: You’re Not the Only One Experiencing Financial Problems

If you spend a lot of time on social media, some people you follow may occasionally mention a scary health issue or a frightening moment, like a car accident, but it’s rare that you see posts saying, “Wow, I have $18 in my bank account, and I’m not getting paid for another three days.”

So heed some advice from Joshua Zimmelman, managing director of Westwood Tax & Consulting, a New York City-based virtual accounting firm.

“Remember that you’re not alone,” he says. “Financial anxiety is super common. According to the American Psychological Association, money issues are a major source of stress for most adults.”

He adds that it may not make your own money situation any less stressful, but hopefully you can take comfort in knowing that a lot of other people feel the exact same way.

Zimmelman is correct about that. A survey by FinFit with Salary Finance, which surveyed 2,000 Americans, found that almost 60% of those making under $55,000 a year feel financial stress, but nearly 40% of those making over $200,000 experience it, too.

Make Some Room in the Budget to Splurge

Remember to not beat yourself up too much – or at all – if you occasionally spend money on something you don't need.

If you like to go to the movies, or you refuse to give up a beloved coffee drink or you’re purchasing a toy for your kid just because you want to, and you know the money would be better spent on something else – don’t beat yourself up.

Yes, staying within your budget is important, but so is financial self-care. Nobody’s suggesting that you should be reckless with your money, but keep in mind that being too rigid with how you spend your money can also be somewhat reckless. Even when inflation is high, sometimes we all need to splurge.

Identify the Causes of Any Bad Financial Habits

Some people simply don’t have enough money. They aren’t spending badly; they just don’t have enough to spend. But you may be in the other camp, where you always pick up the check when dining out with friends, or maybe you always have food delivered when you could be picking it up yourself or making it at home.

“Identify the circumstances and triggers that lead to unhealthy spending,” Chedd says. “Do you order things that you want – but may not need – online? Do you buy on impulse when you are in the check-out line?”

If you are mismanaging your money and can figure out where you’re always going wrong, developing better financial habits should give you more funds in the bank and a little less money stress.

Take Care of Yourself

“Healthy eating, sleeping, regular exercise and relaxation will contribute to your ability to remain calm, clear-headed and more able to find solutions to your problems, even your financial problems,” Chedd says.

She suggests identifying activities “that are fun, relaxing and do not cost money – or cost very little. Going for a walk in the woods or along the water can do wonders for your mental, physical and financial health.”

Consider Getting Professional Help

Again, that might be financial help or someone like a mental health counselor. And, yes, professional help is going to cost something, which will add to your stress – but it may not cost you anything or at least less than you think.

"Seeking mental health treatment does not always require a lot of funds,” Moore says. “Depending on where a person works, they may actually have access to free resources including mental health as well as financial advisors through employee assistance programs.”

He adds that about 20% of his clients are referred to by their employers, and their employers generally cover anywhere from two to 10 appointments as part of their employee benefits . So if you’re really feeling anxious over money stress, you could talk to somebody about it for free.

And if that’s not in the cards for you? “There are mental health professionals that offer services that are pro bono or at a reduced cost. Also, there are educational programs that offer services that are pro bono or at a substantially reduced cost,” Moore says.

Finding those services will cost time, of course, but at least not money.

“People might be able to gain access to resources through their medical insurance specifically if their medical insurance coverage includes mental health benefits – which could be completely covered or at a significant reduced cost, such as a copay," Moore says.

And, of course, it must be said that if you’re feeling seriously or chronically depressed or suicidal, you could and should get help very quickly. Chedd says that you can call 988, which is the National Suicide Prevention Lifeline, or text 741741, which would put you in touch with the Crisis Text Line, a global nonprofit that provides a free mental health texting service.

But if you feel like it’s professional financial help you need for your money stress rather than a therapist, there are free places to go for that as well, says Howard Dvorkin, a certified public accountant and chairman of the debt education website, Debt.com.

“There’s no shortage of free assistance,” Dvorkin says. “Your bank or credit union probably offer free online budgeting tools that can help you squeeze every last dime from your income. Nonprofit credit counseling agencies ... offer you a free, in-depth debt analysis over the phone.”

And if you want some monetary guidance for your money stress, Dvorkin says that after experiencing a couple years of historical inflation, getting financial professional help may be your best bet.

“Do-it-yourself solutions are mostly played out,” he says. “There are only so many coupon and gasoline apps you can download.”

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Emma Kerr May 17, 2022

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How to Get Out of Financial Trouble

Last Updated: May 19, 2023 References

This article was co-authored by Michael R. Lewis . Michael R. Lewis is a retired corporate executive, entrepreneur, and investment advisor in Texas. He has over 40 years of experience in business and finance, including as a Vice President for Blue Cross Blue Shield of Texas. He has a BBA in Industrial Management from the University of Texas at Austin. This article has been viewed 123,055 times.

Financial trouble can strike suddenly and can come from a variety of sources. Perhaps you lose your job, suddenly find yourself in credit card debt, or lose it all on an investment gone wrong. In any case, the most important thing you can do is stop and think to identify the problem and plan a way out of it. By doing so, you can immediately get started on the path towards regaining your financial security.

Planning a Way Out

• Make a list of your biggest financial problems. Remember that you do not need to fix everything at once. Instead, try to prioritize the items on your list, such as paying off a major source of debt or finding a job. The rest of your financial woes will be easier to solve once the major ones are out of the way.
• After you have identified and prioritized your financial problems, try setting a goal date for solving each one. [1] X Research source For example, you might give yourself until the end of the month to find a job or make it your goal to pay off your largest source of debt within two years.
• If you are married or in a long-term relationship, then make sure that you involve your spouse or partner in this process as well.

• For example, if your goal is to pay off a large credit card debt within two years, then you will need to calculate how much to pay each month and be consistent with those payments. You will also need to avoid using the credit card if the account is still open.
• If your goal is to find a job, then you might list solutions such as search job postings daily, submit 10 applications per week, or call after a week if you have not heard back.

• However, if the issue is simply that you can't pay your debt, you can try to set up a new payment schedule with your creditors. Odds are they prefer giving you more time to repay your debt to potentially receiving nothing when you file for bankruptcy. So, call them, explain your situation, and negotiate a new repayment schedule. [2] X Research source

• Examine your spending. Odds are, there are some areas in which you are overspending. Take a hard look at your expenses (food, living expenses, car, entertainment, etc.) and try to find areas where you are spending more money than you need to be. Maybe you buy lunch every day when you could be packing a lunch instead, or perhaps you buy books instead of renting them for free from the library. Make a plan to reduce your expenses as much as possible to reduce your financial burden.
• For instructions on how to create a budget spreadsheet, see how to make a personal budget on Excel.

Executing Your Plan

• For more information, read how to live on practically nothing.

• Start by finding a person, like a family member or close friend.
• Let this person know about your financial goals, what steps you're taking to get out of financial trouble, and your timeline for doing so.
• Call this person regularly (weekly or monthly) to talk about how your plans are going. [7] X Research source

• If you really see no other way out, you can file for bankruptcy. Just know that doing so will destroy your credit score and require months of legal proceedings.

Staying Out of Financial Trouble

Expert Q&A

You might also like.

• ↑ https://www.bankofamerica.com/deposits/manage/ways-to-address-financial-problems.go
• ↑ http://fso.cpasitesolutions.com/Premium/LE/06_le_ic/fg/fg-Trouble.html
• ↑ http://www.nolo.com/legal-encyclopedia/avoiding-financial-trouble-ten-tips-29485.html
• ↑ http://wealthpilgrim.com/in-financial-trouble-how-to-get-out-fast-and-free/
• ↑ http://www.learnvest.com/knowledge-center/your-ultimate-budget-guideline-the-502030-rule/
• ↑ http://www.americasaves.org/for-savers/set-a-goal-what-to-save-for/save-for-emergencies

About this article

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Claudia Mueller

Jun 17, 2016

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How to deal with money struggles during a financial crisis

Jannese Torres-Rodriguez

Explore Life Kit

This story comes from Life Kit , NPR's podcast to help make life better — covering everything from exercise to raising kids to making friends. For more, sign up for the newsletter .

Navigating a financial crisis can be overwhelming. How do you decide what expenses should be prioritized? Should you tap into your retirement accounts? What about asking friends or family for financial help? Should you apply for a payday loan?

The first step of creating your emergency plan is understanding your essential needs. "Traditionally, financial experts say, 'Try to pay all your bills, pay them on time.' And we just drill that into people's heads until they lose their job." says personal finance columnist Michelle Singletary."When you don't have enough income, you just pay for what you need, a roof over your head and food on a table."

Her new book, What To Do With Your Money When Crisis Hits: A Survival Guide , is an emergency field guide for your money. It's intended to help you tackle the issues you'd likely face in the event of a job or income loss, which many people experienced during the ongoing pandemic.

"There are plenty of great personal finance books out there," says Singletary. "But when you're in the middle of a crisis, when you're trying to figure out what to pay, you're not going to grab a book on retirement savings and read it, you know, 200 pages of that."

In the book, Singletary also explains her approach to managing money like she's in a perpetual recession. It's not so much about living in fear but more about being prepared to face financial crises at all times. "I have to always be prepared for the worst and hope for the best," she says.

Life Kit spoke with Singletary about her new book and advice on navigating financial crises. Highlights from our conversation are below, edited for brevity and clarity.

Jannese Torres-Rodriguez: One of the first places that people might turn to for financial support is friends and family. When is the right time to ask for a loan versus a financial gift?

Michelle Singletary: There is never a right time to ask for a loan. If you're in a financial crisis, go to the people who love you and care for you and say, "I've lost my job. I don't know when I can pay you back. I don't want to make a promise that I'm going to break and hurt our relationship." I think you, people will be surprised at the number of folks in their life that would be absolutely willing to help.

Emotions, Money, And What It Means To Be 'Financially Whole'

What is the best way to respond when someone asks you for financial help?

If you find yourself on this side of the conversation, relieve people of that need to pay you back. Whenever anybody approaches me, I say right away, "this is not a loan." If I write them a check, I write on the memo line in capital letters, NOT A LOAN. Just as a reminder to them that it's OK that you came to me. I had the resources. I wouldn't give you what I can't afford. I release them of that obligation and we never speak about it again. If you're going to help someone, don't keep bringing it up, because if you do, the person feels like they have to pay you back. So just don't say anything.

If You're Drowning In Debt, There's A Way Out

People might be tempted to turn to predatory lending options like payday loans or title loans. Why should we avoid these at all costs?

Payday loans are loans that are given to people based on their next paycheck. Title loans use your vehicle's title as collateral to guarantee the loan. What happens in that situation is say you've got a car that's worth $5,000 and you borrow $500, but you default on that? Now they take your $5,000 for that $500 loan.

Title loans are particularly dangerous for two reasons. One, when you look at the fees and you annualize those fees and turn them into an interest rate, you will see that those fees translate to interest rates of anywhere from 300 percent to 1000 percent. If you were in trouble and someone said, "Hey, I'm going to lend you money at 300 percent," you wouldn't do it. Two, if you're in a jam and you don't have enough money now, you're pledging money from your next paycheck, you're already behind. How are you going to catch up? Studies show that many people end up in a debt cycle with these loans.

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What are your thoughts on taking 401k loans or early withdrawals from your retirement accounts in order to make ends meet?

In the book, I talk about where to go before you reach that point. But if you've tapped everybody that you could or there is nobody to tap, if you have no savings, then that is a source of money that you can tap. It's not ideal. I'd hope and pray that you don't have to do it. But if you do, go ahead and do it, because sometimes you gotta do what you got to do. Now, don't take a lot of the money. Take it little by little as you need it.

Can you walk us through the order of succession when it comes to who you should be talking to, what resources you should be accessing when you're in a financial crisis?

First, go through all of your savings — all of it. That's why it's there. Then, go to friends and family and ask them to help you out. Many churches, synagogues and religious organizations have funds that they set aside for members in need. Tap into state and federal funds, apply for unemployment benefits if necessary, apply for welfare, Medicaid. Use those resources. That's why they're there. If none of that is available, then you can tap your retirement funds. It's going to cost you. But it's there.

Spend Savvier, Save Smarter: 5 Tips To Stop Stress-Spending

I think there's a lot of confusion around whether an emergency fund is enough as far as savings go. How many types of savings accounts should people have in order to be able to adequately deal with emergencies?

I like to have my money in different savings "pots." It is a way to organize my savings and also prevent me from tapping money that I shouldn't be tapping. I have something called a "Life happens pot," which is different from the emergency fund. "Life happens" is the pot of money for when life happens, like your car breaks down. That's the pot that you reach for in those situations, because a lot of times, people don't have the emergency funds when they get in a crisis because they've been dipping into it.

People are always asking me, "I've got all this money, but it just is not earning anything." That's not that money's purpose. Don't worry about that. Its job is to be there risk-free. I make sure that I'm investing and getting growth in my other "pots" of money like my retirement account and my children's college fund.

How To Save For Your Kid's College Education

What are common financial scams that we should look out for?

In many communities, particularly minority communities, there are Ponzi and pyramid schemes like the sou-sou, which is a savings technique that many immigrants use where people pool their money and somebody gets the pot of savings every month. Now, people have used that to create these pyramid schemes where, say, you put in five hundred and they promise you four thousand dollars. If they say "I can guarantee you return," you are about to be scammed. Scammers know that people feel like they're behind the curve. They know that people are anxious to grow their money. They know that people are behind in savings. And so they're eager to find a quick fix, a quick way to make money. And they play on that. They play on your trust.

It's A Good Time To Save More. Here's How

Do you have any final words of advice?

I don't want you to feel guilty. I want you to feel energized. I want you to feel motivated. Don't just say, "Oh, that's right," and then go back and do the same thing. Take it slow. I'm telling you a whole bunch of stuff that requires a lot of money and discipline. Once you develop that habit, when you start to make money or you get back on track, then it'll become easier, because you have more money at hand. All of us will encounter some sort of financial emergency. And if you're prepared next time around, you can find yourself in a much better situation.

The audio portion of this episode was produced by Clare Marie Schneider. Engineering support was provided by Patrick Murray.

We'd love to hear from you. If you have a good life hack, leave us a voicemail at 202-216-9823, or email us at [email protected]. Your tip could appear in an upcoming episode.

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5 money mistakes you can learn from

Key takeaways

• Before co-signing a loan or a lease with someone, make a plan for covering payments and consider putting it in writing.
• Compound interest works against you with credit card debt. Try not to charge more than you can afford and always pay on time—more than the minimum when you can.
• Before taking out a student loan or withdrawing from your retirement savings, do your research to understand how doing so could affect your future plans.

Have you ever made a money decision you regretted? If the answer is no, congrats—bet you floss every day too, you rock star. On the other hand, if you still cringe over a past money move, you’re not alone. In 2022, 76% of Americans reported making at least one financial mistake, according to a Credit Karma survey. 1

We asked 5 real people to share their past financial problems, so you can learn their lessons without feeling the pain yourself.

Feed your brain. Fund your future.

1. Co-signing for a friend who didn’t repay the loan

When Molly Watters was a 25-year-old graduate student, a close friend came to her with a question: Would she co-sign a $10,000 student loan? Watters, now 40 and living in Hollywood, MD, says she thought about it carefully. “I’m someone who says I would do anything for a friend, and here she was asking me to do something for her. So I figured, ‘I’m going to do it,’” says Watters. They discussed that payments, which would start immediately, had to be paid on time. Watters says her friend paid $10 each month faithfully until she graduated in 2010. Then, when the monthly payments went up to $125, she simply stopped paying.

Not only did this money mistake cause an irreparable rift in the friendship, Watters found herself dealing with it for more than a decade. Watters protected her credit by making on-time payments until the loan was paid off in 2022—and walked away with an important lesson: “If you co-sign for someone, you’re stuck paying it off if they don’t,” she says. “So be very careful before making that kind of commitment.”

2. Racking up credit card debt

Mark Margarit, a 41-year-old team leader at Fidelity, says he ran up $20,000 worth of credit card debt in his 20s. He got his first credit card when he was in college and used it for school-related purchases. His intent was to pay off any charges at the end of each month when he was reimbursed by his parents—but that didn’t always happen. Instead, he used the new card for day-to-day living expenses, such as health insurance, food, parking, gas, and nights out. He also took cash advances, not realizing that those came with a much steeper interest rate. The worst part, he says, was that he didn’t  understand you need to pay off your balance each month to avoid racking up interest charges. 

Once he graduated, Margarit took over paying the credit card bill with his own money. He never missed a payment, but he often only paid the minimum each month based on what he thought he could afford, and the card’s interest rate was well over 20% by then. This ballooned the total amount he owed as the interest compounded. Margarit says it seemed as though he would never pay it off. It wasn’t until he educated himself that he turned the tide on his debt, but it took years. He finally made his last debt payment only a few years ago.

“I read about the importance of always paying more than the minimum and always paying on time ,” Margarit says. “So I started trying to pay a little bit more each month, even if it was only $5 more than the minimum. That kept me going from a mindset perspective not to break the chain. I also started to limit my use of the card whenever I could.”

3. Borrowing from future you for a wedding

Bethany Marlatt, 36, wishes she had more financial education, too, before she and her husband made their own money mistake. The couple, who live in Sugar Grove, IL, were planning their wedding and finding it difficult to pay for everything with cash. They had already run up high-interest credit card debt and were paying off a car loan at 26% interest, due to a low credit score.

“We had intended to save up for our wedding, but the budget was just spiraling out of control,” she says. So the couple took a 2-year, $10,000 loan against her husband’s 401(k) to pay wedding bills. Though opting for a loan rather than withdrawing the money outright saved them from penalties and fees, it still impacted their retirement planning, as they missed out on several years of potential tax-free investment growth. The wedding was beautiful, but Marlatt says she wouldn’t recommend doing what she did. “I don't think we understood how important it was to save for retirement until we were older.”

Read more about the tradeoffs and other considerations before taking out a 401(k) loan .

4. Moving in with a partner without a written agreement

Ten years ago, Misti Nippert, 40, and her fiancé decided to rent a house together in Hendersonville, TN. But when the couple experienced problems, Nippert asked her fiancé to move out. Although he was listed on the lease, her fiancé immediately stopped paying rent and refused to pay thousands of dollars in damages his dog caused.

Between window replacements, carpet cleaning, and 4 months of rent, Nippert owed $17,000. She emptied her savings account but still couldn’t pay everything, so she took a high-interest loan and borrowed money from her father. “It took me 2 years to recover from that,” she says. “Now I wouldn’t go into any type of rental or home purchase with someone unless I could afford 100% of the rent or mortgage on my own salary. And that includes all the utilities.”

Among other tips when moving in with a partner , it’s important to discuss how expenses will be covered including what happens if you split up. Consider putting that agreement in writing—beyond co-signing a lease—just in case. This could give you a stronger position should you have to take legal action to recoup your money.

5. Taking on too much student debt compared to future income

Katie Munizza, 35, a part-time occupational therapist from Abington, PA, attended school on and off for 10 years—in part because she switched majors along the way. She borrowed both federal and private student loans to finance her education, and by 2016—after earning 2 associate degrees and being one class away from a bachelor’s degree—she owed more than $100,000. Today, she still owes about $78,000.

Munizza has hustled to pay down her loans by working 2 jobs, but she says she wishes she had done more research before spending so much time and money on degrees that didn’t set her up to earn a lot.

Student loans can be an important tool for gaining access to higher education, and nearly 1 in 4 adults with a bachelor’s degree or higher have at least some student debt. 2 But prospective students should understand how much their potential salary could be—or could increase to—and how that compares to their loan amount and future payments. Just like any investment, it’s important to calculate the ROI (return on investment) of taking out a student loan .

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The Most Common Financial Problems and How to Avoid Them

Financial problems can create unnecessary stress in your life. avoid common money problems with these tips..

Justin Cupler

Contributing Writer at Tally

October 29, 2021

Money troubles can put massive stress on you and your relationships. Fortunately, many of these financial problems are avoidable, or you can at least mitigate their impact by taking specific steps and careful financial planning. 

Below, we'll cover some of the common financial problems people find themselves in today and how to avoid them or lessen their effect on your life. 

Living above your means

A budget is a roadmap to your financial life. Without one, you may lose your way and get into serious financial issues because you're living beyond your means. 

Despite the importance of budgeting and living below your means,  65% of people have no idea how much they spent last month, indicating they don't have a firm budget in place, which can lead to financial problems.

Creating a fixed monthly budget gives you an overhead view of cash flow in and out. It also ensures you’re in good financial health, have your bills covered and have enough money left over to save. 

There is no shortage of budgets to follow , including the 50/30/20 budget , the envelope budget, the zero-based budget and many more. Use the one that best suits your lifestyle to keep your financial life in order. 

When creating your budget, be prepared to trim expenses to get your cash outflow below your inflow. At this point, you're living below your means and can start saving money. 

A huge issue throughout the coronavirus pandemic and many other financial crises was job loss. Millions of Americans lost their jobs , many dealt with pay cuts and others fought job insecurity. 

Preparing for a potential job loss is critical to avoiding money problems if the unthinkable happens.

Here are some tips to keep you prepared for potential job loss. 

Avoiding credit card debt with an emergency fund

Credit cards can be helpful tools, as they provide financial flexibility and offer great rewards points in return. But, they can also become a financial crutch, as many people turn to them when they lose their job, creating more financial problems than they solve. 

This can turn what could be a short-term emergency into a long-term financial burden due to the high interest rates of credit cards and minimum payments designed to keep you in debt as long as possible.

Let's say your monthly expenses are $4,000, and you're out of work for two months. If you turned to your credit cards, you'd rack up $8,000 in debt. 

Using a credit card with 19% interest and a 4% minimum payment, your minimum payment would be $320 per month. At just the minimum payment, it'd take you 157 months to pay off the debt, and you'd pay $5,101.78 in interest. 

You can avoid this racking up credit card debt by tucking aside 20% of your monthly income into an emergency fund until you've saved at least three to six months of living expenses. If you can't afford to save 20%, just save as much as you can until you reach the three- to six-month goal. 

This emergency fund will help you avoid reaching for a credit card every time a problem arises. 

Take on a side hustle

In today's gig economy, it's simple to get a side hustle and make a little extra cash. You can monetize a hobby, perform on-demand odd jobs or become a freelancer in your industry of expertise. 

With a side hustle, you're mitigating the dangers of job loss, as you can convert your side hustle into a full-time gig if you lose your job to make ends meet and get through the temporary financial difficulty. 

Ignoring your credit and credit score

While you want to avoid most debt, some debt can be helpful, such as a mortgage or a car loan. These debts give you access to the cash you need to make larger purchases. In the case of a mortgage, you’ll grow your net worth via property ownership. 

If you don't monitor your credit history and credit score , you won't know if you can get one of these loans until you apply. Then, you could be unpleasantly surprised by a rejection due to a poor credit score or an unknown negative mark on your credit report. 

You can avoid this financial problem by signing up for a free credit score site, such as Credit Karma or Credit Sesame . These sites will give you an estimated credit score and allow you to keep an eye on your credit report. 

Alternatively, you can also get your free credit score and report from any of the three credit bureaus , or you can sign up for TransUnion or Equifax's credit report services. The latter two give you full access to all three credit bureaus' reports, but they come with monthly fees. 

Keep in mind that the free credit monitoring sites provide estimated scores only. Your actual scores will vary, but they at least give you an idea of where your score is. More importantly, you can see any potential red flags on your credit report and take care of them before they become problems. 

Impulsive spending

Impulse spending is a big financial challenge for Americans. On average, this common financial problem costs us $2,196 per year . That's cash you could add to an emergency fund or invest into your retirement to ease future financial anxiety. 

This spending habit is controllable with a few targeted strategies:

Let yourself spend. Yes, let yourself spend, but do so within reason. Create a “fun money” category within your budget that allows you to impulse spend in a way that fits your financial situation. Want that new pair of sunglasses? Check the fun budget first.

Delay gratification. See an item you want? Set it back on the shelf and think about it for a day or two. If you don't remember the item after a few days, it likely wasn't something meaningful anyways. 

Shop with a list. Whether you're shopping for — groceries, holiday gifts or clothing — always do so with a list. Having a list allows you to simply put your head down and get what you need instead of browsing and possibly overspending because there's a great sale on televisions.

Bring a shopping buddy. Bring a friend or family member with you to go shopping, and let this person be the buffer between you and all the impulse spends you want to make. Explain to your buddy that you'd like them to help keep you on the task at hand of buying the items on your list. 

Ignore the Joneses. Keeping up with the Joneses — buying more expensive items just because your neighbors did — is a quick way to get into the area of impulse spending. Ignore the neighbor's huge purchases and live within your means. If your neighbors do get something that you really want, save for it. When you have the money saved, you may realize how little you wanted that item and use the savings on something more productive. 

Carrying excessive debt

Debt can put a massive strain on your personal finances, especially high-interest credit card debt. Sure, you can make the minimum payments, which are generally relatively low, but you'll likely spend a while paying off your debt and incur huge amounts of interest. 

For example, the average American has $5,313 in credit card debt . Let's say this debt is spread across multiple credit cards with an average interest rate of 15% and a 4% minimum payment amount. 

At these amounts, you'd pay $212.48 per month as a minimum payment, and it'd take you 140 months to pay it off at that pace. Plus, you'd pay $3,340.73 in interest fees over this period. 

Fortunately, you can take control of your finances and manage this financial problem with two surefire techniques: the debt avalanche and debt snowball. 

Debt avalanche

With the debt avalanche payment plan , you focus all your extra funds toward your creditor with the highest interest rate while making the minimum payments on all your other debts. 

Once you pay off that debt, you focus all your extra funds on the debt with the next highest interest rate while continuing to make the minimum payments on your other debts. 

Continue this process until you've paid off all your debts. 

The benefit of the debt avalanche is that it focuses on interest rates, potentially saving you tons of cash on interest charges. On the flip side, it may take a while to pay off that first debt, so you can't rely on quick payoffs to keep you motivated early in the process. 

Debt snowball

In the debt snowball payment plan , focus all your extra money on the debt with the lowest balance while making the minimum payments on all your other debts. 

Once you pay off the lowest balance debt, you focus all your extra money on the debt with the next lowest balance and make the minimum payments on all your other debts. 

Repeat this process until you've paid off all your debts. 

The benefit to the debt snowball is the quick payoffs in the early stages can help keep you motivated. The downside is since you're focusing on the lowest balances, you can incur interest charges from your higher-balance and higher-interest debts. 

Starting retirement savings too late

Some people have access to great retirement plans, like 401(k) plans at work with employer matches, but they fail to see the value in saving now for their future. They may look at their budget, see they can only afford to save $100 per month, and decide that's not enough. 

However, if you saved $100 per month with a 100% employer match starting at age 21, you'd have more than $166,000 in a 401(k) when you reach 67 at a 10% rate of return. Sure, that's not enough to retire on, but you will likely see pay increases over the years that you can add to your savings rate and build a larger nest egg. 

The key to successful and stress-free retirement savings is to save money as soon as possible. This’ll help reduce financial stress and increase financial security when it matters most: in your golden years of retirement. 

Here are some ways to start investing in your retirement early and put this financial problem behind you. 

Employer-sponsored 401(k)

In the U.S., 56% of employers offer a 401(k) retirement plan for their employees, and 51% of those offer an employer match. The employer match is when your employer will match a percentage of your 401(k) contributions up to a set percentage of your salary. 

For example, a common 401(k) match is 100% of contributions up to 4% of your salary. This means if you earn $100,000 per year and contribute $4,000 per year to your 401(k), your employer will also contribute $4,000 to your 401(k). 

This is free money for the taking. 

Your initial retirement savings goal should be to maximize this match. If you can't do it immediately, just invest as much as you can afford into your 401(k) initially, then with each pay increase, bump up your 401(k) contributions until you reach this max. 

After you've maximized the matching, continue increasing your contributions with each pay increase until you reach the IRS limit on yearly contributions. As of 2021, this contribution cap is $19,500, or $26,000 for those over 50 years old. 

A 401(k) benefit is the contributions are taken before taxes, reducing your tax burden today. Your 401(k) can also grow tax-free. The IRS taxes your 401(k) as income only when you start making withdrawals. 

Many employers make it simple to sign up for a 401(k) each year. So, reach out to your benefits department to find out when the next enrollment period is. 

Roth individual retirement account

A Roth individual retirement account (IRA) is similar to a 401(k), but you run it instead of your employer. With a Roth IRA, you make your contributions after taxes. This means there are no immediate tax benefits, but a Roth IRA grows tax-free and you can make qualified withdrawals tax-free . 

Plus, you can withdraw any portion of your principal contributions — your contributions before interest is paid — tax-free. So, if you need to tap into your Roth IRA for any reason, you can access some of the money without paying any penalties. 

Like a 401(k), a Roth IRA has contribution limits. As of 2021, this limit is $6,000, or $7,000 if you're over age 50. 

You can easily sign up for a Roth IRA online through many banks. 

Put your financial problems behind you

Everyone runs into financial problems in life, so there's no need to feel bad for running into your own problems. The key is to face them and move forward toward a more secure financial situation. 

From creating a budget that allows you to live beneath your means to taking on a side hustle to saving as early as possible for retirement, you can easily avoid some significant financial problems. 

If debt is one of the financial problems you're struggling with, the Tally† credit card payoff app can help. This app rolls all your credit card payments into just one monthly payment. Plus, it offers a lower-interest personal line of credit. This allows you to efficiently pay off higher-interest credit cards and save money along the way.

† To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. The APR (which is the same as your interest rate) will be between 7.90% and 29.99% per year and will be based on your credit history. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 - $300.

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10 Tips for Resolving your Financial Problems

No one is immune to financial problems. Poor planning or going through a tough time, such as a divorce, illness or unemployment, can really tip the scales. Need help? Here are 10 tips for resolving your financial problems.

• Identify the problem
• Make a budget to help you resolve your financial problems
• Lower your expenses
• Pay in cash     
• Stop taking on debt to avoid aggravating your financial problems
• Avoid buying new
• Meet with your advisor to discuss your financial problems
• Increase your income
• Be realistic when it comes to resolving your financial problems
• Improve your credit score and adopt good habits

1. Identify the problem

Being in debt does not necessarily mean that you have financial problems . Very few people would be able to buy a house or a car otherwise. However, certain red flags should be taken seriously.

Do any of the following statements apply to you?

• You have many credit cards and you sometimes use one to pay off another.
• You've had to refinance your home to support your lifestyle or pay off debts.
• You are unable to pay off more than the minimum amount required on your credit cards.
• You delay or skip certain payments.
• More than 40% of your gross income goes to paying off debt.
• Your financial situation is a source of stress.

If so, you'll need to take some steps to correct the situation .

2. Make a budget to help you resolve your financial problems

The first step towards managing your financial problems is making a budget . You can use:

• Budgeting software
• An online budgeting tool  
• A mobile app
• Or simply a piece of paper, a pencil and a calculator

Write down all your sources of income and all your expenses.

To avoid underestimating your expenses, save all your bills and receipts for a month. 

Also consider occasional expenses like school supplies, gifts, vacations, your driver’s licence, etc. Don't forget to budget for paying off your debts .

Reorganize your debts 

Don't forget to include debt repayment among your expenses. 

Start by identifying your debts and listing their amounts and interest rates. Then pay off the debt with the highest interest rate, or consider debt consolidation . Consolidating your debts into a single loan with a lower interest rate will help you pay them off faster. In this case, make sure the interest savings are used to accelerate debt repayment, or for long-term savings. If these savings end up as expenses, the problem will persist.

→ To find out more, read our article Debt management: How to pay off your debt

Good to know: Many consumer associations offer training on budgeting and debt managment. You should have a look!

3. Lower your expenses

Analyze all of your expenses to see which ones you can reduce or eliminate .

Think about reviewing various packages, such as your telecommunication services. You could save by ensuring all they do is meet your needs—nothing more and nothing less. You could also start looking for deals, make a food budget and limit the cost of eating out by packing your own lunch.

4. Pay in cash

Paying in cash can help you stick to your budget . Debit and credit cards are convenient, but they can make it harder to track your expenses.

Budget tip: Put your cash in separate envelopes for groceries, entertainment and clothing.

→ Looking for new tips to help you save? Read our article: 35 tips to help you save money and optimize your budget .

5. Stop taking on debt to avoid aggravating your financial problems

If you tend to make impulse purchases and regret them later, you may want to start leaving your credit card at home .

Avoid taking on additional debt by living within your means. Make sure you have enough to repay your credit card balance and other debts.

6. Avoid buying new

There are many alternatives to buying new .

• Buy used or exchange goods . Check out thrift stores, online classifieds ads and Facebook pages for neighbourhood sales. There are many bargains and opportunities for trades.
• Borrow or rent . This is a good option for items you will rarely use. For example, sign up for a library card to check out books and magazines.
• Do it yourself . Over the long term, using a coffeemaker is much cheaper than buying coffee every day.
• Take advantage of freebies . For example, there are many free shows and activities at festivals.

7. Meet with your advisor to discuss your financial problems

Your advisor can help with your financial problems . They will help you review:

• Your banking package  
• Your banking fees 
• Your insurance coverage
• Whether you should apply for a reduced interest rate credit card (with an annual fee)

→ For tips on optimizing your credit card use, read our article : 6 smart ways to use your credit card .

8. Increase your income

Think about ways to increase your income to deal with your financial problems. Here are some options :

• Ask your employer if you can work overtime.
• Offer products and services for extra income.
• Sell items that you no longer use.
• Find a roommate.
• Get a second job.

Be wary of ads that claim you can earn money easily. These are often scams.

Use your emergency fund

In the event of a problem, you can dip into your emergency fund instead of putting yourself into debt . However, make sure you don't make a habit of it. As the name implies, it should only be used in exceptional circumstances. 

Your emergency fund is a cushion to help you deal with the unexpected, such as losing your job or a broken electrical appliance. Ideally, it should cover between 3 to 6 months of expenses , so be sure to use it wisely!

Pro tip: avoid dipping into your retirement savings, especially your RRSPs. Your withdrawals will be taxable, and you'll also lose contribution room that could be useful in the long term. 

→ Read our article on withdrawing funds from an RRSP in the event of debt to further understand the potential implications .

9. Be realistic when it comes to resolving your financial problems

Realistic goals will help you stay motivated and reduce your financial stress .  If you've overspent for many years, you can't expect to pay off your debts in just a few weeks. 

Just like a diet, significantly restricting your expenses will only increase your appetite to spend. Plan a little wiggle room in your budget to treat yourself .

10. Improve your credit score and adopt good habits

Do you have bad credit? That means you'll be offered higher rates on financing. Why? Because you present a greater risk for the financial institution. Here are a few tips to improve your credit score :

• Pay your bills on time.
• Try to keep your credit card balance well below your limit.
• Don't submit too many credit applications.

Once you have managed your financial problems, continue taking care of your personal finances . The money you save will allow you to create an emergency fund. Ideally, this fund should equal three to six months of expenses . If you run into issues, you'll be able to withdraw money from the fund instead of going into debt.

Next, you can start saving to finance other goals, like retirement, travel or your children's education.

Nobody is immune to financial problems. A stroke of bad luck or a poorly controlled budget could happen to anyone. The important thing is to take action and get help from our team of specialists when necessary. With the right support, you'll be able to manage your financial problems.

Video transcript

- You asked: “How do I make a personal budget?”

I’ll explain faster than I can do 20 push-ups.

A budget can help anyone understand their spending habits, avoid debt, prepare for emergencies and reach their financial goals.

- Finding a tool that helps you organize your budget can be a big help.

It can be anything from an Excel spreadsheet to an app that you download on your phone.

- Identify all your sources of income.

Use your bank statement to identify precisely how much money you make.

You could add up all your deposits, and that’ll tell you how much you have coming in every month.

Don’t be lazy!

Sorry, I’m talking to myself.

- A good personal budget includes three spending categories.

Fixed expenses, that’s like your rent or your phone bill.

Variable expenses.

That’s groceries, or restaurants or shopping.

And infrequent or annual expenses like insurance, or your driver’s licence renewal and your annual ski pass.

- Experts typically recommend putting 10% to 20% of your gross income towards savings.

Now I know, I know. 

That might be painful at first, but no pain no gain!

- Easy for you to say.

- When you deduct expenses from income, you’ll find out if you’re at a deficit or not.

If you are, you might need to make a few cuts to your budget.

Maybe you’re like me and you spend way too much on stylish activewear.

If you have a deficit, it’s easier to cut down on variable expenses like restaurants or shopping.

But if you have any money left over – you can pay off some debt or put some into savings in case an emergency comes up.

Now that you know how to do it, stay on top by keeping track of your budget month to month.

It’s all part of getting into great shape... financially. 

I think I’m done.

How about you?

- Only one left!

- You wish.

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4 financial problems you can get help solving for little or no cost

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• If you're in debt or need help with your taxes, you can often get free help.
• Government programs often provide low or no-cost counseling services.
• Some situations may require the help of a financial advisor, and a fee-only advisor can be a good choice.

In the United States, 29% of workers and 38% of retirees employ the help of a financial advisor, according to the Employee Benefit Research Institute and Greenwald Research. However, if you've ever tried to get advice from traditional financial advisors, you'll know that many of them require cost-prohibitive fees or high investment requirements.

Whether you simply don't want to pay for a help or are unable to, there's good news: Expensive professional help isn't the only way to solve your financial problems.

While financial professionals can help you design a budget, create a retirement savings plan, and invest your money , you can do much of this on your own — or at least get started — through self-education and free or inexpensive resources.

1. Paying off debt

If you find yourself crushed under credit card balances, car loans, and other consumer debt, a credit counselor can help you. These professionals focus on changing your daily spending and saving habits.

The National Foundation for Credit Counseling provides credit counseling for any income level. While the exact fee varies by state, the NFCC says these services are typically no or low cost to clients. 

The Consumer Financial Protection Bureau and the Federal Trade Commission also both have tips on finding a reputable credit counselor, but it's up to you to vet an organization. Both agencies say that a credit counselor should be willing to provide free information before meeting with you, give you specific quotes regarding any one-time or recurring fees, and be willing to help you even if you can't afford to pay.

Additionally, personal finance books , podcasts, and even social media content can help you stay motivated during your debt-payoff journey.

2. Reducing your tax bill

Most tax software provides a free option in partnership with the IRS Free File program. They are generally limited to straightforward tax filing situations and incomes under a certain threshold, but almost every major tax-filing software provides some free functionality.

If you need help filing your taxes, the IRS offers free services such as the VITA grant program and Tax Counseling for the Elderly to help those with lower incomes get tax advice from qualified volunteers. Many local libraries host VITA services.

Or, if you have a more complicated tax situation and room in your budget, a tax-focused certified public accountant is a great resource here. Small business owners can especially benefit from consulting a CPA on how to maximize tax deductions, write off expenses, and minimize their tax liability.

3. Investing for retirement

The  Financial Planning Association allows financial planners to provide free advice for families experiencing cancer, households needing help after COVID-19, and more. On its website, you can look up available resources near you. 

Employers, banks, and credit unions also often have educational materials and free consultations for customers that want general advice for investing in retirement accounts.

For allocating assets within a retirement account, you can use a target date fund or robo-advisor to help balance your portfolio at a fraction of the cost of a traditional advisor.

4. Buying, selling, or foreclosing on a house

The US Department of Housing and Urban Development offers free counseling for homebuyers and sellers on the implications of different mortgages, taxes, and other housing-related issues. It also has a list of foreclosure avoidance counselors .

However, you can choose to pay for help

Not all financial issues require professional attention. Just like you can replace a toilet with the help of a few YouTube videos and a trip to the hardware store, many money problems can be solved with some self-education and easily acquired tools.

That said, some people like the peace of mind that comes from professional oversight, and some lack the time or inclination to learn to confidently manage every aspect of their financial life. Plumbers and financial advisors (see Insider's picks for the best financial advisors ) exist not just for the people who cannot do the work themselves, but also for those who simply do not wish to.

If your matter is urgent or complex, it may be worth it to book a single appointment with a fee-only advisor . Maximize your time with the advisor by coming prepared with specific questions.

Editorial Note: Any opinions, analyses, reviews, or recommendations expressed in this article are the author’s alone, and have not been reviewed, approved, or otherwise endorsed by any card issuer. Read our editorial standards .

Please note: While the offers mentioned above are accurate at the time of publication, they're subject to change at any time and may have changed, or may no longer be available.

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9 practical steps to solve your financial problems without an ivy league education.

by Julie Jaggernath

Worried about your debts and trying to decide on the best way to solve your financial problems ? Many people start to wonder if they missed something as they went through school. As adults, we’re expected to know how to manage our money properly. However, either a lot of people skipped that class, or maybe it was never offered. The good news is that you don’t need a degree from an ivy-league university to help you solve financial problems. Here are 9 steps and 8 self-study assignments, a little catch-up homework if you will, from the school of common cents that you can challenge yourself with if you want to solve your money and debt problems :

1. Live on Cash for 2 Weeks

When is the last time you only used cash to pay for your purchases? Debit and credit cards help many people develop bad money habits and the fine line between what they can afford to pay for and what they can afford payments on blurs. With cash, it’s very easy to tell if you can afford to pay for something or not.

Your first assignment is to put all of your cards away for at least 2 weeks. When you need to buy something, you’re only allowed to use cash. After 2 weeks, if you’ve managed to do it, give yourself a passing grade.

How to Stop Living Pay Cheque to Pay Cheque

2. Become Mindful of Your Spending – Increase Your Awareness

Consider what you learned about your spending habits by only using cash. Was it easier or harder to part with cash than pay with plastic? Did you only buy things you needed, or was there also enough money to buy something that you wanted? How much did you have left at the end?

Some studies have found that people spend as much as 15% more per purchase when they use plastic instead of cash. Spending more on every purchase adds up over the years, and if you want debt solutions that last for life, be aware of how you spend your money.

How to Reduce Your Credit Card Debt

3. Find Out Where Your Money Goes - Track Your Spending for 2 Weeks

Where does it all go? Every pay day there’s money in our bank account, but it never seems to last long enough. Solid money management includes being conscious about where your money goes and while it can be a little tedious to figure it out, this exercise proves incredibly revealing even for the most seasoned finance professional.

Another Simple Way to Track Your Money

4. Create a Spending Plan or Budget to Solve & Prevent Financial Problems

Creating a monthly plan for your spending is one of the smartest things you can do for your finances, yet it’s the most overlooked solution to most people’s financial problems. Having a budget or spending plan (spending plan is a synonym for budget) makes life so much easier because you’ve given yourself a guide to decide how you want to spend your money.

Ironically, it’s also one of the things that you’ll likely never learn in a class at Cambridge or Harvard. Not to pick on these universities though; most schools don’t teach students how to create a budget. So to help with this lack of training, your third assignment is to outline your budget.

If you’ve never created a household budget that works, here is a personal budget workbook to get you started or try out this interactive budgeting resource that guides you through the whole process. A budget based on real numbers sets you up for success, so use what you learned when you tracked your spending.

If there’s an expense you want to cut out of your budget, start by reducing it by 50%. This will tell you if you can stick it out for the long term. If you can make having a budget part of your life, you’ll know that you’ve passed this assignment successfully!

5. Find a Replacement for One Large Expense in Your Monthly Budget

Cutting out an expense or changing a habit is easier if you replace it with something else. For instance, if you want to quit buying expensive coffee on your way to work, plan how you can replace this habit with a new one. You might buy yourself a new travel cup and purchase some coffee that you enjoy drinking (and can make at home!). Then change your routine so that you’re not tempted to stop for coffee anyways, e.g. travel a different route to work.

Your fourth assignment is to find one expense that’s taking a real bite out of your budget and find replacement solutions. Cutting back on coffee is just one example. What about your entertainment costs, quitting smoking, or scaling back what you spend on hobbies and recreational activities? You’ll know that you’ve passed this assignment when all of your bills are paid up to date and you’ve got a little extra left in your bank account.

Subscriptions: The Silent Spender

6. Identify Expenses You Can Reduce

Over the next month, identify areas of your budget that need some special attention. Look for ways to decrease your spending with your utilities . Do your laundry with cold water instead of hot; turn the heat down and the lights off when you’re not home. If you have a home phone as well as a cell phone, decide if you need both. Routines can be hard habits to break.

Also identify products or services you no longer need but which you’re still paying for. Many people simply let their bundled services renew from month to month, even when their needs have changed. This might be because they’re too busy to look at their bills carefully, but taking the time to go through your bills line by line and calling the companies to make changes to service plans, or cancel services altogether, can find a lot of hidden cash.

If you haven’t guessed it yet, your fifth assignment is to identify what expenses you can reduce and then create the plan to follow through with your changes. If you’re not sure where to start, here’s a list of our most popular money saving tips . You’ll know you’ve passed this assignment when your bills get a little smaller.

7. Create a Plan to Pay Off Your Debt

Everybody has some, so is it really that big a deal? Yes, it can be. If you have debt that has slowly accumulated over a number of years, you need realistic debt solutions that work for your lifestyle, not quick fixes that you can’t live with for the long term. At some point interest rates will start going up and eventually your income will likely decrease, e.g. when you retire. When either of these things happens, if you have relied on credit to make ends meet, you will find yourself facing some tough choices.

Dealing with debt sooner than later leaves you with more options. That said, many people delay getting debt help because they’re either embarrassed or don’t know where to turn. Here are some of our very best tips to help you deal with your debt . Use these tips to help complete assignment six – create a plan to pay your debts off, but also maintain a reasonable standard of living. You will only be able to pass this assignment if your plan is realistic and you draw on what you learned in the other five assignments.

8. Educate Yourself & Keep Improving Your Level of Financial Literacy

One of the best things any high level university could instill in its students is the desire to learn more. Any degree of learning from our mistakes is worthwhile, especially when we’re educating ourselves about how to manage our money and debt better. Improving our level of financial literacy is always worthwhile and remember, there’s no sprint to the finish line; it’s all about the journey.

Your seventh assignment is to keep learning. Take on more challenges or homework from the school of common cents. Life skills that further develop your new money habits will keep you on track with your budget, help you avoid financial problems, and allow you to plan for your future successfully. And that’s a graduation worth celebrating!

The 5 Most Important Things a University Grad Can Do for Their Finances

9. Get Help with Your Debts & Your Budget – How to Find Financial Help that Will Work for You

If you need help dealing with your debts and finances, don’t be afraid to ask. Your final assignment is optional but will earn you a bonus if you choose to complete it. Seek out professional, objective advice from a reputable non-profit credit counselling organization for a second look at your budget and your plan to deal with your debts. You’ll know you’ve passed this assignment when you come away with additional insight about what you can do to deal with your debts more effectively and implement your budget realistically. Any good solution takes time to follow through with. Your debt didn’t happen over night; paying it off will likely take as much time as getting a degree from an ivy league university.

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Gracious replied on Wed, 10/14/2020 - 8:15am Permalink

How to overcome the financial problems

Mathola replied on Sun, 11/21/2021 - 3:35pm Permalink

9 practical steps to solve your financial and debts problems

Justice Ramsey ... replied on Wed, 12/01/2021 - 6:57pm Permalink

Practical Steps to solve financial problems

Somnath ashok k... replied on Thu, 02/03/2022 - 8:29am Permalink

I'm in very serious problems.please help me ,God bless u

MyMoneyCoach Team replied on Thu, 02/03/2022 - 9:16am Permalink

Give a credit counsellor a call

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7 Main Causes of Financial Problems (And How To Fix Them!)

Are you struggling with financial problems and have no idea how to get out discover what are the main causes of financial problems, and how to fix them .

It can be hard, or nearly impossible even, to recognize the real causes of financial problems you’re facing , especially when it feels like they’re consuming you and there’s no way out. 

But let me tell you: there is . No financial struggle is a complete doomed cause once you know where it originates and follow some steps to correct that, even if some seem completely unsolvable. 

In this post you’ll find the most common causes of financial problems to help you recognize which are yours, and hopefully teach you how to fix them, so you can move a step closer to living a life of financial freedom .   

Table of Contents

Poor Money Management 

It sounds harsh, but it’s arguably the number one cause for most financial difficulties , and might be the one that’s affecting you. 

Poor money management means that even if you have the funds , or enough monthly income to cover your expenses and maybe even save a little, it’s very hard to make ends meet and you never know where the money goes. 

A lack of supervision of your incomes and expenses results in spending too much on unnecessary things , using more money than you actually have, and, consequently, incurring in debt : a massive cause of financial issues (and which we’ll cover more in detail in the next point!)  

Poor money management also comprises the inappropriate use of credit . Credit cards are an amazing asset, and they can be great life saviours in emergencies, but they’re also dangerous if misused . They give you the false belief that you have more spending money than you actually do, and it makes it very easy to indebt yourself by overspending. 

Now, how do you fix the financial problems that derive from mismanaging your money? The answer actually lies in the main cause of poor money management: the lack of a budget .  

Not having a budget or a financial plan to guide your expenses can get you into real trouble. On the other hand, having one will not only help you prevent overspending , but can also keep you on track to achieving your financial goals . 

What’s more important, you’ll know where your money goes every month, and being aware of your income and expenses makes it easier to address financial problems ahead of time.

If budgeting sounds too complicated (I promise it’s not!), you might also want to consider learning a little bit about personal finances , how to manage your money, and how to budget . There are plenty of blogs and books for beginners that can give you the boost you need to get your finances in order.   

Financial literacy is, in fact, one of the best (if not the best) financial problems solutions for any circumstance , so it’s always worth learning about it!

One of the main causes of financial distress is debt . The dreaded term has nothing but bad connotations, although there are debts that are actually good ones : mortgage and student loans , for instance. 

Those kinds of debts are difficult to escape if you’re planning on going to college or dream of owning your own home, but as long as you include them in your budget and plan for them, they shouldn’t be a cause of financial stress. 

The other kinds of debt, though, should be avoided at all costs . Most solutions for financial problems actually involve getting rid of debt – and we’ll see how to do that in a minute. But first, you need to make sure not to indebt yourself any further (or at all, if you have no debt!) 

The most common type of debt comes from credit cards , as you saw in the previous point. Remember : Credit card money is nothing but a loan , so only spend what you already have in your pocket or bank account (never more!) and be sure to pay them on time. 

Don’t take loans for anything that’s not a life or death emergency, and start working on your emergency fund ASAP (next point!) so that even then you have no need for them. 

Pay your bills on time , every time. Having a budget will help you know how much you’re due in the different areas of your life , and keep track of them so you’re always prepared to pay them.   

Finally, identify any areas in which you’re prone to splurge or overspend , so you can work on cutting those impulses. Are you a shopaholic? Do you always get more than you need when grocery shopping? Do you eat out every night? 

A good motivation to stay clear of those expenses is knowing how far they can set you back financially , and imagining what the pile of debt they’ll create will feel like.

You now know the basics to stay out of debt. How to solve financial problems when you’re already struggling with it?

First and most important, make a list of all your debts and create a financial plan to pay them off. Once you know how much you should allocate to that purpose each month, add it to your budget and stick to those payments . 

You will likely need to make some cuts on other areas of your life to afford them , like entertainment, shopping sprees or dining out, but paying off debt should be your first priority . You can always go back to enjoying your lifestyle – and with much more freedom – once the debt is gone.   

If you’re battling with mortgage payments, look into refinancing it . This could not only lower your monthly fees but also the interests, and on some occasions even shorten the term of your mortgage, so you’d be winning on all ends. 

You can also look for ways of increasing your income , refinance other loans , or try to get lower interest rates .

Not Being Prepared for Emergencies 

Not investing in an emergency fund can also be the cause of financial difficulties. Emergencies are, as you surely know, never planned for or expected, and they can take any shape – car breakdown, medical urgencies, leaking roof – and show up any time .

Since emergencies don’t necessarily occur when it’s most convenient for your budge, it’s important to be prepared for them . And that’s where emergency funds come in. 

An emergency fund is basically a savings pot that you’ll contribute to on a monthly basis , but won’t use until an emergency arises and you have a real need for the money. 

Not being prepared for these occasions is one of the things that can get you into debt and, consequently, financial trouble – it’s one of the worst money habits you can have!

You can start by allocating to it any amount of money you can afford , and increase it overtime – remember to add this new category to your budget!

Loss of Income 

Loss of income is another reason for having financial difficulties . Either because you lost your job, or your salary was reduced , your expenses won’t suddenly adapt to the lack of income , and that could get you intro monetary trouble. 

If you have an emergency fund (good for you!) now it’s a good time to use it . How long you’ll survive with it will depend on how many months’ income your savings are worth – some say an emergency fund should cover you for a year, some aim at having a 6-month savings pot. 

Whichever your case is, your emergency fund should be able to keep you afloat for some time while you look for more permanent solutions. 

The first solution would be getting a new job or increasing your income in some way. There are plenty of jobs you can do from home, or side gigs that can start making you money in no time so you get back to your feet. 

It’s important to either make use of your emergency fund or get some extra income , even if it’s small, as soon as possible, so you don’t start accumulating debt. Once that’s covered, you’ll be able to focus on what to do next without having to worry about the bills . 

Taking Risks when Investing

It shouldn’t come as a surprise that risky investments are often the cause of financial problems . The possibility of substantially increasing your net worth by investing a few thousand dollars can be tempting to anyone, especially when the return seems feasible. 

This notion of becoming rich through investing, though, can lead new investors to allocate their money on stocks, bonds, or companies without truly understanding how the stock market works . This is a disaster recipe, because more times than not, those investments will result in losses . 

It can also be the cause of monetary distress when it’s done recklessly and on impulse , instead of taking place after a careful analysis of the market. That’s why investing should go hand in hand with education about the topic .

If you’d like to take up investing to grow your revenue or net worth, you should first know what you’re doing , study the market, and maybe even get some advice on what are the best assets for you to invest in . 

The rule of gold? Only invest what you’re willing (and can afford) to lose . If you get something out of your investment, fantastic! But if you don’t, at least you won’t be paying for that financial setback for years on end. 

Starting Fresh

Starting anew is refreshing , and it’s also a great opportunity to widen horizons , take up new activities and renew energies. But more often than not it also has a nasty side effect: financial difficulties . 

Starting fresh can involve anything from getting your own place , moving in with a partner , or getting divorced . It could also mean moving to a different city or country, or changing jobs. 

While the last alternative can hardly get you in a bad monetary position (unless your salary is lower than before), the rest of them, as fun and exciting as they sound, cost money . 

If you’re moving on your own for the first time , you’ll have to start paying for your own bills (and maybe discover some you didn’t even know existed!), as well as pay rent or mortgage fees , and perhaps even new furniture and appliances .  

While moving in with someone has the benefit of there being two of you for those expenses , living with a partner also means re-learning how to manage your money , perhaps creating a common budget , and deciding how you’re gonna split costs and contribute to the household . 

If you have no idea how to do so, not only could you struggle financially but the relationship could suffer – and you don’t want money to be the reason for arguing or worse!

And while divorce can already be painful in itself, it also involves the breaking up of a common budget and finances management , as well as finding a new home and starting to pay for everything on your own . 

There’s no escaping the changes in life, and most of them are actually positive! So, how can you avoid the financial distress they can cause? 

Know exactly what your expenses will look like when you make the change . If you can, plan for that new flat or project of living together in advance, so you can start saving or looking for alternative sources of income to help support it. 

Once you start fresh, budget and be mindful of what you spend your money on . It may be that, at least for the first few months, you can’t really afford that daily iced latte on your way to work like you used to. And that’s ok, because you just moved on your own! That’s gotta be worth some effort and frugality, which should only last until you get your new budget under control anyway . 

Budget, budget, budget! That’s the key to success . 

Not Planning for Retirement 

Retirement might seem like a million miles away right now, especially if you’re in your twenties and just getting out in the world. But there’s no better time to start saving for retirement like the present !

It’s the only way you can ensure that you won’t go through deep financial stress and struggles when your working days come to an end – or that you can actually stop working at some point. If you don’t prepare for it in advance (meaning years to decades in advance), it might be that you can’t afford to retire at all . 

To prevent this financial crisis, which can be catastrophic, it’s as important to start a retirement savings account as it is to have an emergency fund , if not more. 

How do you do it? First, find out if your company offers a retirement plan , and start matching your employers’ contribution. An alternative would be opening your own retirement account, either a 401(k) or an IRA , and start investing in it yourself (and ASAP).   

Both accounts are tax-advantaged , and they’ll ensure you have a nice amount of money by the time you decide to retire, solving financial problems ahead of time and allowing you to maintain your lifestyle, with no money-related issues to worry you while you enjoy your new freedom – that of time !

Hopefully, this list of the most common causes of financial problems has helped you identify some of yours, and get you on track to solving them .

Remember that having a healthy financial situation requires commitment and work , and money matters are not solved overnight if you’re in trouble – but they can be solved, and that’s worth all the effort ! 

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Home » Blog » Financial problems: 10 Steps to Resolve your Financial Problems

Financial problems: 10 Steps to Resolve your Financial Problems

Manuraj jain.

• December 29, 2022
• Last Updated: December 29, 2022

Has money ever been an issue for you? Are you worried that your financial situation may prevent you from achieving your objectives? In this article, we will discuss about the financial problems and its solutions.

Read: What Is An Emergency Fund & How To Build Emergency Funds?

Start Your Savings Journey With The Money Club Today

The Method Of Solving Financial Problems

Let’s look at a basic problem-solving approach first, one that you may use to resolve any financial problem issue.

Discovering the issue

Finding the source of the issue and realising what you need to do to solve it is the first step towards addressing a problem. The most typical financial issues that people encounter are listed below:

• Loss of income or employment
• Unexpected costs
• A surplus of debt
• The requirement for financial autonomy
• Insufficient or excessive spending
• Having no savings

Each of these frequent issues can be categorised as either requiring more money, a reduction in debt, or a change in spending habits.

Read: Family financial plan- 7 steps of Financial planning for families

Financial Planning For Women: 10 Money Management Tips

Making a plan

Making a plan is the next step after determining the issue you must solve. Don’t know where to begin? Fear not! With some advice and starting points, we’ve got you covered.

Issue 1: You’re short on cash. A source of income is required whether you are trying to improve your financial independence, have lost your job, or have encountered an unforeseen bill.

Update your resume and cover letter if you’re looking for new employment or even just a higher-paying position. Check to see if they are well-kept, accurate, and free of grammatical and spelling mistakes.

Be cautious of any adverts or jobs that promise quick, simple money.

Read: Financial Planning for Salaried Employee

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Issue 2: You should pay off your debt. High debt can be crippling if you have to pay high interest rates or live paycheck to paycheck. It can occasionally seem as though you’re ascending an unclimbable mountain with no visible peak. You may, however, manage your debt better by setting priorities and negotiating your debt.

Try making a list of all your debts, along with their interest rates. Pay attention to first paying off the debts with the highest interest rates. Call the loan provider if you’re having issues paying payments to see if it has any suggestions for you. In order to help you get back on your feet, the company might be able to reduce your interest rate or grant you a brief forbearance.

Issue 3: You must alter your spending habits. Organization and a change in perspective are frequently needed to move from financial difficulties to a sound financial position. Good spending habits can frequently be used to prevent overspending, accumulate money, and achieve financial independence.

Making a budget can be the first thing you want to try. You can make one with the aid of numerous templates and tools. It can be difficult to stick to one, but even just having one in place will show you where you need to start cutting back on your spending.

Plan your savings in addition to your budget. Begin modestly. It can be very beneficial to save even a few additional dollars here and there. Additionally, consider investing your savings somewhere you can’t get to it quickly. Set up a savings account, for instance, at a bank that you don’t frequently use. Your likelihood of spending money decreases as accessing it becomes more challenging.

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Implementing the plan

Although this component is the easiest to explain, it is frequently the hardest to actually carry through. It calls for perseverance and self-control. The most crucial component of this phase is understanding that all is not lost if your strategy fails or if you find it difficult to keep to it. In that case, proceed to the next phase, assess your strategy, and then repeat the procedure.

Changing your lifestyle may be necessary to overcome financial challenges, and this process takes time. But even just having a strategy in place will make you feel more assured that you can finally get through whatever is standing in your way.

Money Management Secrets to Improve Your Finances

Assessing your plan

You’ll need to continuously assess your plan as you carry it out. It’s possible that something happens, forcing you to alter your initial strategy. Maybe as you’ve gone along, you’ve picked up additional knowledge and saw how incomplete your first plan was. Or perhaps your initial strategy came together and was successful. It is always a good idea to reflect and reassess, regardless of the situation. Answer the following inquiries:

• Was your problem solved? Did a new problem arise?
• What went well?
• Why did it go wrong?
• What situation changed?
• Did you overlook anything in your calculations?
• What about putting your strategy into action was simple?
• What aspect of carrying out your plan presented difficulties?

Financial Problem Solution with Financial Management

New Year’s resolutions are frequently made by people regarding travel goals, weight loss, waking up early, and other lifestyle modifications. The following 5 New Year’s resolutions should be made by our readers this year, for all financial problem solutions. These would improve our financial situation overall and take away a significant source of anxiety and uncertainty from our life. A steady financial situation makes it easier for us to deal with any crisis that may arise.

Read: Financial Awareness – Benefits, Importance for Entrepreneurs?

Importance Of Saving Money: Why Is Saving Money Important?

It is a deeply ingrained Indian tendency to believe in living within one’s means and saving money for the future. We advocate pursuing satisfaction rather than seeking out excessive pleasure. The use of personal loans and credit cards to finance daily expenses has only recently become more common. But we must escape from this gloom, and we can accomplish so by establishing a straightforward rule, that we only spend what we already have and keep the rest.

The key lesson is to resist peer pressure. Never assume out of the blue that you aren’t making enough money and dwell on it. Simply develop a spending plan and a savings strategy based on your income. You’ll also observe that even small salaries can appear high when one leads a disciplined, uncomplicated life. Building a savings account with enough money in it to cover your monthly expenses for six months is an expert recommendation as a rough guide. In case of emergency, that can be used as a contingency fund.

Open a Sukanya Samruddhi Yojana or a PPF account in the name of your female kid. Decide whether to use your bank’s Fixed Deposit or Recurring Deposit plan. You can also open a SIP account for a few successful mutual funds.

Read: How to Save Money from Salary? 15 Smart Tips

How to Save Money For The Future? 10 Ways to Save Money For The Future

Chit Funds are yet another excellent choice for your savings and investments. Make regular monthly contributions to a chit plan for a set term of two to three years. Take your money out at the conclusion of the term with decent returns and make between 10% and 15%. You can always take the entire prize money throughout the duration of the chit scheme if you need money right away. No debt, no fines. Your money is your own! Chit fund is a savings and borrowing instrument that is distinct from other financial systems. When you invest in chits, you earn a higher return than other financial intermediaries, and when you borrow, you pay less interest.

The Money Club is a Fintech Company that has built an AI-based P2P group savings platform to enable individuals to save, borrow and invest digitally.

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Diversify your financial portfolio

The rental property market was flourishing, particularly in major cities, before the epidemic struck more over two years ago. Therefore, a lot of people invest their entire surplus in real estate. These are all excellent, sound investment options: real estate, gold, stocks, mutual funds, FDs, government savings programmes. But when an individual relies too much on only 1-2 of these options, the risk of failure is very high. So balance out your portfolio. Remember to include Chit funds as one of the investment alternatives in your portfolio.

Read: How to Set Financial Goals For Your Future: A Detailed Guide

Avoid taking on debt

No such thing as a good debt exists. Unless, of course, someone offers to lend money at 0% interest! Your wage credit earns only 2.5–3% interest as it sits in a savings account. But you’ve racked up credit card debt of thousands of rupees. Is it a sound financial decision? By paying merely the minimal amount due, you are in fact paying interest and penalties of anywhere between 18 and 40%! The same is true for installment loans and bank overdrafts. Calculate the real repayment you are required to make by reading the fine print. Then contrast that with the growth of your capital. A poor debt is one that costs you more to pay down than you would make via investments or cash on hand. Stay away from it. We recommend chit funds as a good alternative for this.

What Is Financial Freedom? How To Achieve Financial Freedom?

Set and meet committed expenses

In order to directly contribute to the well-being of our family, we must clearly prioritise the necessary and productive expenses. Additionally, we need to work to cut back on spending binges, which only provide fleeting pleasure and are perfectly preventable. Make sure your budgets for necessary spending are crystal clear, and set aside some cash for entertainment as well. After making your projections, however, attempt to keep your costs within the limits of your predetermined budget. You can also use the 50-30-20 budget rule to manage your income and expenses. There are numerous apps which help in saving money, budgeting and keeping a track on your expenses.

Read: Best Apps For Saving Money- 10 Best Money Saving Apps

Money manager apps: 5 best money management apps in India

Personal Expense Tracker App: 6 Best Money Tracking App

We hope that this article can help all readers to be better prepared to deal with existing financial problems. Try to make careful financial planning and press a simple lifestyle in order to minimize unexpected expenses. Financial planning will help you achieve the expected goals such as buying an item or financial independence that you dream of.

Read: Where To Invest Money To Get Good Returns In India?

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Best Return On Investment: 14 High Return Investments In India

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Siddhant gupta.

CEO’s Office

Siddhant is a B.A., LL.B. graduate from Jindal Global Law School, Sonipat. During his time at law school, he did 10 law and marketing internships with senior Supreme Court lawyers, top law firms and companies, physically attended 4-credit summer courses in business and international laws at Columbia University and University of Oxford, and aced electives such as ‘Chinese business & Economics’ and ‘Principles of Global Business Management & Entrepreneurship’ taught by alumni of the Stanford Graduate School of Business. He joined The Money Club right out of college to kickstart his entrepreneurial journey.

Kishalay Kundu

V.P. Engineering

Kishalay is a tech innovator with a decade-plus development experience in a wide variety of technologies including GPU graphics, HPC applications and more recently, cloud-based fullstack architectures in ecommerce, fintech etc. Kishalay is currently interested in hybrid-tech-stack devops architectures that support programming-language-agnostic innovations. Kishalay’s educational journey includes stops at IIT Kharagpur, Univ. Manitoba and UMBC.

Randeep Pathak

Club Management Head

Randeep is a B.tech Civil Engineering graduate from Vellore Institute of Technology, Vellore. During his academic years to gain more practical knowledge and a better hands-on approach, he undertook few internships beginning with a technical internship in MP Government and a Marketing internship in Spectrum Medical Industries. Pursuing his inclination and passion towards Management, Sales and Marketing he was a core committee member of VIT’s famous Tech fest ‘Gravitas’ and the Cultural fest ‘Riviera’. To sum it up, he has an overall work experience that amounts to over 5 years, out of which 2 years of experience he gained by working as a Relationship Manager at Aeronube Technology. He is currently working at The Money Club as the Club Management Head since 2018.

Mahesh Ramachandra

Advisor on Fintech

• Partner, Pontaq Cross Border Innovation Fund and Leadership Council Member – FinTech Centre of Excellence, Government of India www.finblue.in.
• Founder & Chief Mentor – Commonwealth Inclusive Growth Services Ltd.

Gaurav Suri

Advisor on Capital structuring

• BTech from IIT Delhi’99 and MBA’07 from INSEAD.
• An investment Manager of a $300m fund, Livermore Capital AG, Zurich.
• Previously worked with Deloitte in US.

Rishi Anand

Advisor on all things Legal

• Partner with DSK Legal.
• 12 years of experience in domestic and cross-border mergers and acquisitions, foreign direct investments, joint ventures, general corporate, restructuring and reorganisations, with a particular focus on complex, high-end corporate transactions.

Alok Nandan

Advisor on Product Management

• Alok has over a decade of product management experience in blue chip companies and startups.
• He is an engineer from IIT KGP, MS and PHD from UCLA.
• Currently a General Partner with Emergent VC, a silicon valley based venture capital firm investing in the Indi-US corridor.

Ramanna Sathyanarayana

Advisor on Engg

• He has 20+ years of experience as a Director at SAP, California.
• low level system software, Database, High Availability and Disaster Recovery, Software Security, Distributed Computing, Performance and complex application software.
• Masters in Computer Science from IIT Delhi.

Vikrant Singh

Head of Operations

Vikrant is a bachelor of science and a truly creative person. He is the first point of contact with the customers. Handling customers’ queries and helping them become a part of the Money Club is his core role but one can also find him working on various other roles like that of a product manager. He is diligent, highly motivated and has an engaging and friendly personality.

Surajit Ray

CO-Founder and CTO

Surajit is an engineer from IIT Kgp. He joined Schlumberger right out of college for 2 years, then worked at (Halliburton Logging Services) Asia Ltd. for 1 year, and later joined Jawaharlal Nehru University (JNU) as a research associate. While at JNU, he designed and developed a solution in Java for predictive analytics for toxicity of novel drug candidates and took part in other research projects. He has been a CTO for 3 other ecommerce startups, and founded Rareindianart and Aqpredict Solutions. He was the Chief Architect for Apollo Munich Health Insurance for 4 years.

Founder and CEO

Manuraj is an engineer from IIT Kgp and an MBA from INSEAD, France. In his early days he worked for Schlumberger as an oilfield engineer in the US, Middle East and India. Later he joined a start-up, Intellecap in Mumbai and worked on strategy, research and capital structuring for MFIs in India. Post his MBA from INSEAD he founded Vinculum Capital Partners which is a Strategy and Capital advisory boutique specializing in small and medium enterprises ( from 50 crs to 300 crs in turnover).

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7.3 Methods for Solving Time Value of Money Problems

Learning outcomes.

By the end of this section, you will be able to:

• Explain how future dollar amounts are calculated.
• Explain how present dollar amounts are calculated.
• Describe how discount rates are calculated.
• Describe how growth rates are calculated.
• Illustrate how periods of time for specified growth are calculated.
• Use a financial calculator and Excel to solve TVM problems.

We can determine future value by using any of four methods: (1) mathematical equations, (2) calculators with financial functions, (3) spreadsheets, and (4) FVIF tables. With the advent and wide acceptance and use of financial calculators and spreadsheet software, FVIF (and other such time value of money tables and factors) have become obsolete, and we will not discuss them in this text. Nevertheless, they are often still published in other finance textbooks and are also available on the internet to use if you so choose.

Using Timelines to Organize TVM Information

A useful tool for conceptualizing present value and future value problems is a timeline. A timeline is a visual, linear representation of periods and cash flows over a set amount of time. Each timeline shows today at the left and a desired ending, or future point (maturity date), at the right.

Now, let us take an example of a future value problem that has a time frame of five years. Before we begin to solve for any answers, it would be a good approach to lay out a timeline like that shown in Table 7.1 :

The timeline provides a visual reference for us and puts the problem into perspective.

Now, let’s say that we are interested in knowing what today’s balance of $100 in our saving account, earning 5% annually, will be worth at the end of each of the next five years. Using the future value formula

that we covered earlier, we would arrive at the following values: $105 at the end of year one, $110.25 at the end of year two, $115.76 at the end of year three, $121.55 at the end of year four, and $127.63 at the end of year five.

With the numerical information, the timeline (at a 5% interest or growth rate) would look like Table 7.2 :

Using timelines to lay out TVM problems becomes more and more valuable as problems become more complex. You should get into the habit of using a timeline to set up these problems prior to using the equation, a calculator, or a spreadsheet to help minimize input errors. Now we will move on to the different methods available that will help you solve specific TVM problems. These are the financial calculator and the Excel spreadsheet.

Using a Financial Calculator to Solve TVM Problems

An extremely popular method of solving TVM problems is through the use of a financial calculator. Financial calculators such as the Texas Instruments BAII Plus™ Professional will typically have five keys that represent the critical variables used in most common TVM problems: N , I/Y , PV , FV , and PMT . These represent the following:

These are the only keys on a financial calculator that are necessary to solve TVM problems involving a single payment or lump sum .

Example 1: Future Value of a Single Payment or Lump Sum

Let’s start with a simple example that will provide you with most of the skills needed to perform TVM functions involving a single lump sum payment with a financial calculator.

Suppose that you have $1,000 and that you deposit this in a savings account earning 3% annually for a period of four years. You will naturally be interested in knowing how much money you will have in your account at the end of this four-year time period (assuming you make no other deposits and withdraw no cash).

To answer this question, you will need to work with factors of $1,000, the present value ( PV ); four periods or years, represented by N ; and the 3% interest rate, or I/Y . Make sure that the calculator register information is cleared, or you may end up with numbers from previous uses that will interfere with the solution. The register-clearing process will depend on what type of calculator you are using, but for the TI BA II Plus™ Professional calculator, clearing can be accomplished by pressing the keys 2ND and FV [ CLR TVM ].

Once you have cleared any old data, you can enter the values in the appropriate key areas: 4 for N , 3 for I/Y , and 1000 for PV . Now you have entered enough information to calculate the future value. Continue by pressing the CPT (compute) key, followed by the FV key. The answer you end up with should be displayed as 1,125.51 (see Table 7.3 ).

Important Notes for Using a Calculator and the Cash Flow Sign Convention

Please note that the PV was entered as negative $1,000 (or -$1000). This is because most financial calculators (and spreadsheets) follow something called the cash flow sign convention, which is a way for calculators and spreadsheets to keep the relative direction of the cash flow straight. Positive numbers are used to represent cash inflows, and negative numbers should always be used for cash outflows.

In this example, the $1,000 is an investment that requires a cash outflow. For this reason, -1000 is entered as the present value, as you will be essentially handing this $1,000 to a bank or to someone else to initiate the transaction. Conversely, the future value represents a cash inflow in four years’ time. This is why the calculator generates a positive 1,125.51 as the end result of this calculation.

Had you entered the present value of $1,000 as a positive number, there would have been no real concern, but the ending future value answer would have been returned expressed as a negative number. This would be correct had you borrowed $1,000 today (cash inflow) and agreed to repay $1,125.51 (cash outflow) four years from now. Also, it is important that you do not change the sign of any input value by using the - (minus) key). For example, on the TI BA II Plus™ Professional, you must use the +|- key instead of the minus key. If you enter 1000 and then hit the +|- key, you will get a negative 1,000 amount showing in the calculator display.

An important feature of most financial calculators is that it is possible to change any of the variables in a problem without needing to reenter all of the other data. For example, suppose that we wanted to find out the future value in our bank account if we left the money from our previous example invested for 20 years instead of 4. Before clearing any of the data, simply enter 20 for N and then press the CPT key and then the FV key. After this is done, all other inputs will remain the same, and you will arrive at an answer of $1,806.11.

Think It Through

How to determine future value when other variables are known.

Here’s an example of using a financial calculator to solve a common time value of money problem. You have $2,000 invested in a money market account that is expected to earn 4% annually. What will be the total value in the account after five years?

Follow the recommended financial calculator steps in Table 7.4 .

The result of this future value calculation of the invested money is $2,433.31.

Example 2: Present Value of Lump Sums

Solving for the present value (discounted value) of a lump sum is the exact opposite of solving for a future value. Once again, if we enter a negative value for the FV, then the calculated PV will be a positive amount.

Taking the reverse of what we did in our example of future value above, we can enter -1,125.51 for FV , 3 for I/Y , and 4 for N . Hit the CPT and PV keys in succession, and you should arrive at a displayed answer of 1,000.

An important constant within the time value of money framework is that the present value will always be less than the future value unless the interest rate is negative. It is important to keep this in mind because it can help you spot incorrect answers that may arise from errors with your input.

How to Determine Present Value When Other Variables Are Known

Here is another example of using a financial calculator to solve a common time value of money problem. You have just won a second-prize lottery jackpot that will pay a single total lump sum of $50,000 five years from now. How much value would this have in today’s dollars, assuming a 5% interest rate?

Follow the recommended financial calculator steps in Table 7.5 .

The present value of the lottery jackpot is $39,176.31.

Example 3: Calculating the Number of Periods

There will be times when you will know both the value of the money you have now and how much money you will need to have at some unknown point in the future. If you also know the interest rate your money will be earning for the foreseeable future, then you can solve for N, or the exact amount of time periods that it will take for the present value of your money to grow into the future value that you will require for your eventual use.

Now, suppose that you have $100 today and you would like to know how long it will take for you to be able to purchase a product that costs $133.82.

After making sure your calculator is clear, you will enter 5 for I/Y , -100 for PV , and 133.82 for FV . Now press CPT N , and you will see that it will take 5.97 years for your money to grow to the desired amount of $133.82.

Again, an important thing to note when using a financial calculator to solve TVM problems is that you must enter your numbers according to the cash flow sign convention discussed above. If you do not make either the PV or the FV a negative number (with the other being a positive number), then you will end up getting an error message on the screen instead of the answer to the problem. The reason for this is that if both numbers you enter for the PV and FV are positive, the calculator will operate under the assumption that you are receiving a financial benefit without making any cash outlay as an initial investment. If you get such an error message in your calculations, you can simply press the CE/C key. This will clear the error, and you can reenter your data correctly by changing the sign of either PV or FV (but not both of these, of course).

Determining Periods of Time

Here is an additional example of using a financial calculator to solve a common time value of money problem. You want to be able to contribute $25,000 to your child’s first year of college tuition and related expenses. You currently have $15,000 in a tuition savings account that is earning 6% interest every year. How long will it take for this account grow into the targeted amount of $25,000, assuming no additional deposits or withdrawals will be made?

Table 7.6 shows the steps you will take.

The result of this calculation is a time period of 8.7667 years for the account to reach the targeted amount.

Example 4: Solving for the Interest Rate

Solving for an interest rate is a common TVM problem that can be easily addressed with a financial calculator. Let’s return to our earlier example, but in this case, we know that we have $1,000 at the present time and that we will need to have a total of $1,125.51 four years from now. Let’s also say that the only way we can add to the current value of our savings is through interest income. We will not be able to make any further deposits in addition to our initial $1,000 account balance.

What interest rate should we be sure to get on our savings account in order to have a total savings account value of $1,125.51 four years from now?

Once again, clear the calculator, and then enter 4 for N , -1,000 for PV , and 1,125.51 for FV . Then, press the CPT and I/Y keys and you will find that you need to earn an average 3% interest per year in order to grow your savings balance to the desired amount of $1,125.51. Again, if you end up with an error message, you probably failed to follow the sign convention relating to cash inflow and outflow that we discussed earlier. To correct this, you will need to clear the calculator and reenter the information correctly.

After you believe you are done and have arrived at a final answer, always make sure you give it a quick review. You can ask yourself questions such as “Does this make any sense?” “How does this compare to other answers I have arrived at?” or “Is this logical based on everything I know about the scenario?” Knowing how to go about such a review will require you to understand the concepts you are attempting to apply and what you are trying to make the calculator do. Further, it is critical to understand the relationships among the different inputs and variables of the problem. If you do not fully understand these relationships, you may end up with an incorrect answer. In the end, it is important to realize that any calculator is simply a tool. It will only do what you direct it to do and has no idea what your objective is or what it is that you really wish to accomplish.

Determining Interest or Growth Rate

Here is another example of using a financial calculator to solve a common time value of money problem. Let’s use a similar example to the one we used when calculating periods of time to determine an interest or growth rate. You still want to help your child with their first year of college tuition and related expenses. You also still have a starting amount of $15,000, but you have not yet decided on a savings plan to use.

Instead, the information you now have is that your child is just under 10 years old and will begin college at age 18. For simplicity’s sake, let’s say that you have eight and a half years before you will need to meet your total savings target of $25,000. What rate of interest will you need to grow your saved money from $15,000 to $25,000 in this time period, again with no other deposits or withdrawals?

Follow the steps shown in Table 7.7 .

The result of this calculation is a necessary interest rate of 6.194%.

Using Excel to Solve TVM Problems

Excel spreadsheets can be excellent tools to use when solving time value of money problems. There are dozens of financial functions available in Excel, but a student who can use a few of these functions can solve almost any TVM problem. Special functions that relate to TVM calculations are as follows:

Excel also includes a function called Payment (PMT) that is used in calculations involving multiple payments or deposits (annuities). These will be covered in Time Value of Money II: Equal Multiple Payments .

Future Value (FV)

The Future Value function in Excel is also referred to as FV and can be used to calculate the value of a single lump sum amount carried to any point in the future. The FV function syntax is similar to that of the other four basic time-value functions and has the following inputs (referred to as arguments), similar to the functions listed above:

Lump sum problems do not involve payments, so the value of Pmt in such calculations is 0. Another argument, Type, refers to the timing of a payment and carries a default value of the end of the period, which is the most common timing (as opposed to the beginning of a period). This may be ignored in our current example, which means the default value of the end of the period will be used.

The spreadsheet in Figure 7.3 shows two examples of using the FV function in Excel to calculate the future value of $100 in five years at 5% interest.

In cell E1, the FV function references the values in cells B1 through B4 for each of the arguments. When a user begins to type a function into a spreadsheet, Excel provides helpful information in the form of on-screen tips showing the argument inputs that are required to complete the function. In our spreadsheet example, as the FV formula is being typed into cell E2, a banner showing the arguments necessary to complete the function appears directly below, hovering over cell E3.

Cells E1 and E2 show how the FV function appears in the spreadsheet as it is typed in with the required arguments. Cell E4 shows the calculated answer for cell E1 after hitting the enter key. Once the enter key is pressed, the hint banner hovering over cell E3 will disappear. The second example of the FV function in our example spreadsheet is in cell E6. Here, the actual numerical values are used in the FV function equation rather than cell references. The method in cell E8 is referred to as hard coding . In general, it is preferable to use the cell reference method, as this allows for copying formulas and provides the user with increased flexibility in accounting for changes to input data. This ability to accept cell references in formulas is one of the greatest strengths of Excel as a spreadsheet tool.

Download the spreadsheet file containing key Chapter 7 Excel exhibits.

Determining Future Value When Other Variables Are Known . You have $2,000 invested in a money market account that is expected to earn 4% annually. What will be the total value in the account in five years?

Note: Be sure to follow the sign conventions. In this case, the PV should be entered as a negative value.

Note: In Excel, interest and growth rates must be entered as percentages, not as whole integers. So, 4 percent must be entered as 4% or 0.04—not 4, as you would enter in a financial calculator.

Note: It is always assumed that if not specifically stated, the compounding period of any given interest rate is annual, or based on years.

Note: The Excel command used to calculate future value is as follows:

You may simply type the values for the arguments in the above formula. Another option is to use the Excel insert function option. If you decide on this second method, below are several screenshots of dialog boxes you will encounter and will be required to complete.

This dialog box allows you to either search for a function or select a function that has been used recently. In this example, you can search for FV by typing this in the search box and selecting Go, or you can simply choose FV from the list of most recently used functions (as shown here with the highlighted FV option).

Figure 7.6 shows the completed data input for the variables, referred to here as “function arguments.” Note that cell addresses are used in this example. This allows the spreadsheet to still be useful if you decide to change any of the variables. You may also type values directly into the Function Arguments dialog box, but if you do this and you have to change any of your inputs later, you will have to reenter the new information. Using cell addresses is always a preferable method of entering the function argument data.

Additional notes:

• The Pmt argument or variable can be ignored in this instance, or you can enter a placeholder value of zero. This example shows a blank or ignored entry, but either option may be used in problems such as this where the information is not relevant.
• The Type argument does not apply to this problem. Type refers to the timing of cash flows and is usually used in multiple payment or annuity problems to indicate whether payments or deposits are made at the beginning of periods or at the end. In single lump sum problems, this is not relevant information, and the Type argument box is left empty.
• When you use cell addresses as function argument inputs, the numerical values within the cells are displayed off to the right. This helps you ensure that you are identifying the correct cells in your function. The final answer generated by the function is also displayed for your preliminary review.

Once you are satisfied with the result, hit the OK button, and the dialog box will disappear, with only the final numerical result appearing in the cell where you have set up the function.

The FV of this present value has been calculated as approximately $2,433.31.

Present Value (PV)

We have covered the idea that present value is the opposite of future value. As an example, in the spreadsheet shown in Figure 7.3 , we calculated that the future value of $100 five years from now at a 5% interest rate would be $127.63. By reversing this process, we can safely state that $127.63 received five years from now with a 5% interest (or discount) rate would have a value of just $100 today. Thus, $100 is its present value. In Excel, the PV function is used to determine present value (see Figure 7.7 ).

The formula in cell E1 uses cell references in a similar fashion to our FV example spreadsheet above. Also similar to our earlier example is the hard-coded formula for this calculation, which is shown in cell E6. In both cases, the answers we arrive at using the PV function are identical, but once again, using cell references is preferred over hard coding if possible.

Determining Present Value When Other Variables Are Known

You have just won a second-prize lottery jackpot that will pay a single total lump sum of $50,000 five years from now. You are interested in knowing how much value this would have in today’s dollars, assuming a 5% interest rate.

• If you wish for the present value amount to be positive, the future value you enter here should be a negative value.
• In Excel, interest and growth rates must be entered as percentages, not as whole integers. So, 5 percent must be entered as 5% or 0.05—not 5, as you would enter in a financial calculator.
• It is always assumed that if not specifically stated, the compounding period of any given interest rate is annual, or based on years.
• The Excel command used to calculate present value is as shown here:

As with the FV formula covered in the first tab of this workbook, you may simply type the values for the arguments in the above formula. Another option is to again use the Insert Function option in Excel. Figure 7.8 , Figure 7.9 , and Figure 7.10 provide several screenshots that demonstrate the steps you’ll need to follow if you decide to enter the PV function from the Insert Function menu.

As discussed in the FV function example above, this dialog box allows you to either search for a function or select a function that has been used recently. In this example, you can search for PV by typing this into the search box and selecting Go, or you can simply choose PV from the list of the most recently used functions.

Figure 7.10 shows the completed data input for the function arguments. Note that once again, cell addresses are used in this example. This allows the spreadsheet to still be useful if you decide to change any of the variables. As in the FV function example, you may also type values directly in the Function Arguments dialog box, but if you do this and you have to change any of your input later, you will have to reenter the new information. Remember that using cell addresses is always a preferable method of entering the function argument data.

Again, similar to our FV function example, the Function Arguments dialog box shows values off to the right of the data entry area, including our final answer. The Pmt and Type boxes are again not relevant to this single lump sum example, for reasons we covered in the FV example.

Review your answer. Once you are satisfied with the result, click the OK button, and the dialog box will disappear, with only the final numerical result appearing in the cell where you have set up the function. The PV of this future value has been calculated as approximately $39,176.31.

Periods of Time

The following discussion will show you how to use Excel to determine the amount of time a given present value will need to grow into a specified future value when the interest or growth rate is known.

You want to be able to contribute $25,000 to your child’s first year of college tuition and related expenses. You currently have $15,000 in a tuition savings account that is earning 6% interest every year. How long will it take for this account grow into the targeted amount of $25,000, assuming no additional deposits or withdrawals are made?

• As with our other examples, interest and growth rates must be entered as percentages, not as whole integers. So, 6 percent must be entered as 6% or 0.06—not 6, as you would enter in a financial calculator.
• The present value needs to be entered as a negative value in accordance with the sign convention covered earlier.
• The Excel command used to calculate the amount of time, or number of periods, is this:

As with our FV and PV examples, you may simply type the values of the arguments in the above formula, or we can again use the Insert Function option in Excel. If you do so, you will need to work with the various dialog boxes after you select Insert Function.

As discussed in our previous examples on FV and PV, this menu allows you to either search for a function or select a function that has been used recently. In this example, you can search for NPER by typing this into the search box and selecting Go, or you can simply choose NPER from the list of most recently used functions.

• Once you have highlighted NPER, click the OK button, and a new dialog box will appear for you to enter the necessary details. As in our previous examples, it will look like Figure 7.12 .

Figure 7.13 shows the completed Function Arguments dialog box. Note that once again, we are using cell addresses in this example.

As in the previous function examples, values are shown off to the right of the data input area, and our final answer of approximately 8.77 is displayed at the bottom. Also, once again, the Pmt and Type boxes are not relevant to this single lump sum example.

Review your answer, and once you are satisfied with the result, click the OK button. The dialog box will disappear, with only the final numerical result appearing in the cell where you have set up the function.

The amount of time required for the desired growth to occur is calculated as approximately 8.77 years.

Interest or Growth Rate

You can also use Excel to determine the required growth rate when the present value, future value, and total number of required periods are known.

Let’s discuss a similar example to the one we used to calculate periods of time. You still want to help your child with their first year of college tuition and related expenses, and you still have a starting amount of $15,000, but you have not yet decided which savings plan to use.

Instead, the information you now have is that your child is just under 10 years old and will begin college at age 18. For simplicity’s sake, let’s say that you have eight and a half years until you will need to meet your total savings target of $25,000. What rate of interest will you need to grow your saved money from $15,000 to $25,000 in this time, again with no other deposits or withdrawals?

Note: The present value needs to be entered as a negative value.

Note: The Excel command used to calculate interest or growth rate is as follows:

As with our other TVM function examples, you may simply type the values for the arguments into the above formula. We also again have the same alternative to use the Insert Function option in Excel. If you choose this option, you will again see the Insert Function dialog box after you click the Insert Function button.

Once we complete the input, again using cell addresses for the required argument values, we will see what is shown in Figure 7.16 .

As in our other examples, cell values are shown as numerical values off to the right, and our answer of approximately 0.0619, or 6.19%, is shown at the bottom of the dialog box.

This answer also can be checked from a logic point of view because of the similar example we worked through when calculating periods of time. Our present value and future value are the same as in that example, and our time period is now 8.5 years, which is just under the result we arrived at (8.77 years) in the periods example.

So, if we are now working with a slightly shorter time frame for the savings to grow from $15,000 into $25,000, then we would expect to have a slightly greater growth rate. That is exactly how the answer turns out, as the calculated required interest rate of approximately 6.19% is just slightly greater than the growth rate of 6% used in the previous example. So, based on this, it looks like our answer here passes a simple “sanity check” review.

• 1 The specific financial calculator in these examples is the Texas Instruments BA II Plus™ Professional model, but you can use other financial calculators for these types of calculations.

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• Book title: Principles of Finance
• Publication date: Mar 24, 2022
• Location: Houston, Texas
• Book URL: https://openstax.org/books/principles-finance/pages/1-why-it-matters
• Section URL: https://openstax.org/books/principles-finance/pages/7-3-methods-for-solving-time-value-of-money-problems

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6: Mathematics of Finance

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• Page ID 37818

• Rupinder Sekhon and Roberta Bloom
• De Anza College

Learning Objectives

In this chapter, you will learn to:

• Solve financial problems that involve simple interest.
• Solve problems involving compound interest.
• Find the future value of an annuity, and the amount of payments to a sinking fund.
• Find the future value of an annuity, and an installment payment on a loan.
• 6.1.1: Simple Interest and Discount (Exercises)
• 6.2.1: Compound Interest (Exercises)
• 6.3.1: Annuities and Sinking Funds (Exercises)
• 6.4.1: Present Value of an Annuity and Installment Payment (Exercises)
• 6.5.1: Miscellaneous Application Problems (Exercises)
• 6.6.1: Classification of Finance Problems (Exercises)
• 6.7: Chapter Review

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Solving problems in financial contexts

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Chapter 1: Whole numbers

In this chapter you will engage with different kinds of numbers that are used for counting, measuring, solving equations and many other purposes.

Properties of numbers

Different types of numbers, the natural numbers.

The numbers that we use to count are called natural numbers :

\(1 \quad 2 \quad 3 \quad 4 \quad 5 \quad 6 \quad 7 \quad 8 \quad 9 \quad 10 \quad 11 \quad 12 \quad 13 \quad 14\)

Natural numbers have the following properties:

When you add two or more natural numbers, you get a natural number again.

When you multiply two or more natural numbers, you get a natural number again.

Mathematicians describe this by saying: The system of natural numbers is closed under addition and multiplication .

However, when a natural number is subtracted from another natural number the answer is not always a natural number again. For example, there is no natural number that provides the answer to \(5 - 20\).

Similarly, when a natural number is divided by another natural number the answer is not always a natural number again. For example, there is no natural number that provides the answer to \(10 \div 3\).

When subtraction or division is done with natural numbers, the answers are not always natural numbers.

The system of natural numbers is not closed under subtraction or division .

Is there a smallest natural number, that means a natural number that is smaller than all other natural numbers? If so, what is it?

Is there a largest natural number, in other words, a natural number that is larger than all other natural numbers? If so, what is it?

In each of the following cases, say whether the answer is a natural number or not.

• \(100 + 400\)
• \(100 - 400\)
• \(100 \times 400\)
• \(100 \div 400\)

The whole numbers

Although we don't use 0 for counting, we need it to write numbers. Without 0, we would need a special symbol for 10, all multiples of 10 and some other numbers. For example, all the numbers that belong in the yellow cells below would need a special symbol.

The natural numbers combined with 0 is called the system of whole numbers .

If you are working with natural numbers and you add two numbers, the cd will always be different from any of the two numbers added. For example: \(21 + 25 = 46\) and \(24 + 1 = 25\). If you are working with whole numbers, in other words including 0, this is not the case. When 0 is added to a number the answer is just the number you start with: \(24 + 0 = 24\).

For this reason, 0 is called the identity element for addition. In the set of natural numbers there is no identity element for addition.

Is there an identity element for multiplication in the whole numbers? Explain your answer.

What is the smallest natural number?

What is the smallest whole number?

The integers

In the set of whole numbers, no answer is available when you subtract a number from a number smaller than itself. For example there is no whole number that is the answer for \(5 - 8\). But there is an answer to this subtraction in the system of integers.

\(5 - 8 = -3\). The number \(-3\) is read as "negative 3" or "minus 3".

The whole numbers start with 0 and extend in one direction:

The integers extend in both directions:

All whole numbers are also integers. The set of whole numbers forms part of the set of integers. For each whole number, there is a negative number that corresponds with it. The negative number -5 corresponds to the whole number 5 and the negative number -120 corresponds to the whole number 120.

Within the set of integers, the sum of two numbers can be 0.

For example \(20 + (-20) = 0 \) and \(135 + (-135) = 0\).

20 and -20 are called additive inverses of each other.

Calculate the following without using a calculator.

• \(100-165\)
• \(300-700\)

You may use a calculator to calculate the following:

• \(123-765\)
• \(385-723\)

The rational numbers

Five people share 12 slabs of chocolate equally among them.

Will each person get more or less than two full slabs of chocolate?

Can each person get another half of a slab?

How much more than two full slabs can each person get, if the two remaining slabs are divided as shown here?

Will each person get \(2\), \(4\) or 2\(\frac{2}{5}\) slab?

The system of integers does not provide an answer for all possible division questions. For example, as we see above, the answer for 12 \(\div\) 5 is not an integer.

To have answers for all possible division questions, we have to extend the number system to include fractions and negative fractions, in other words, numbers of the form \(\frac{\text{integer}}{\text{integer}}\). This system of numbers is called the rational numbers . We can represent rational numbers as common fractions or as decimal numbers.

Express the answers for each of the following division problems in two ways: using the common fraction notation and using the decimal notation for fractions.

• \(23 \div 10\)
• \(23 \div 5\)
• \(230 \div 100\)
• \(8 \div 10\)

Answer the statement by writing 'yes' or 'no' in the appropriate cell.

Irrational numbers

Rational numbers do not provide for all situations that may occur in mathematics. For example, there is no rational number which will produce the answer 2 when it is multiplied by itself.

\(2 \times 2 = 4\) and \(1 \times 1 = 1\), so clearly, this number must be between 1 and 2.

But there is no number which can be expressed as a fraction, in either the common fraction or the decimal notation, which will solve this problem. Numbers like these are called irrational numbers .

Here are some more examples of irrational numbers:

The rational and the irrational numbers together are called the real numbers .

Calculations with whole numbers

Do not use a calculator at all in Section 1.2.

Estimating, rounding off and compensating

A shop owner wants to buy chickens from a farmer. The farmer wants R38 for each chicken. Answer the following questions without doing written calculations.

If the shop owner has R10 000 to buy chickens, do you think he can buy more than 500 chickens?

Do you think he can buy more than 200 chickens?

Do you think he can buy more than 250 chickens?

What you were trying to do in question 1 is called estimation . To estimate, when working with numbers, means to try to get close to an answer without actually doing the calculations. However, you can do other, simpler calculations to estimate.

When the goal is not to get an accurate answer, numbers may be rounded off. For example, the cost of 51 chickens at R38 each may be approximated by calculating \(50 \times 40\). This is clearly much easier than calculating \(51 \times \text{R }38\).

To approximate something means to try to find out more or less how much it is, without measuring or calculating it precisely.

• How much is \(5 \times 4\)?
• How much is \(5 \times 40\)?
• How much is \(50 \times 40\)?

The cost of 51 chickens at R38 each is approximately R2 000.

This approximation was obtained by rounding both 51 and 38 off to the nearest multiple of 10, and then calculating with the multiples of 10.

In each case, estimate the cost by rounding off to calculate the approximate cost, without using a calculator. In each case make two estimates. First make a rough estimate by rounding the numbers off to the nearest 100 before calculating. Then make a better estimate by rounding the numbers off to the nearest 10 before calculating.

83 goats are sold for R243 each.

121 chairs are sold for R258 each.

R5 673 is added to R3 277.

R874 is subtracted from R1 234.

Suppose you have to calculate \(\text{R }823 - \text{R }273\).

An estimate can be made by rounding the numbers off to the nearest 100:

\(\text{R }800 - \text{R }300 = \text{R }500\).

By working with R800 instead of R823, an error was introduced into your answer. How can this error be corrected: by adding R23 to the R500, or by subtracting it from R500?

Correct the error to get a better estimate.

Now also correct the error that was made by subtracting R300 instead of R273.

What you did in question 4 is called compensating for errors .

Estimate each of the following by rounding off the numbers to the nearest 100.

• \(812 - 342\)
• \(2 342 - 1 876\)
• \(812 + 342\)
• \(2 342 + 1 876\)
• \(9 + 278\)
• \(3 231 - 1 769\)
• \(8 234 - 2 776\)
• \(5 213 - 3 768\)

Find the exact answer for each of the calculations in question 5, by working out the errors caused by rounding, and compensating for them.

Adding in columns

Write \(8 000 + 1 100 + 130 + 14\) as a single number:

Write \(3 000 + 700 + 50 + 8\) as a single number:

Write \(5 486\) in expanded notation, as shown in 1(b).

You can calculate \(3 758 + 5 486\) as shown on the left below.

Explain how the numbers in each of steps 1 to 4 are obtained.

It is only possible to use the shorter method if you add the units first, then add the tens, then the hundreds and finally, the thousands. You can then do what you did in question 1(a), without writing the separate terms of the expanded form.

Calculate each of the following without using a calculator.

• \(3 878 + 3 784\)
• \(298 + 8 594\)
• \(10 921 + 2 472\)
• \(1 298 + 18 782\)

A farmer buys a truck for R645 840, a tractor for R783 356, a plough for R83 999 and a bakkie for R435 690.

Estimate to the nearest R100 000 how much these items will cost altogether.

Use a calculator to calculate the total cost.

An investor makes R543 682 in one day on the stock market and then loses R264 359 on the same day.

Estimate to the nearest R100 000 how much money she has made in total on that day.

Use a calculator to determine how much money she has made.

Multiplying in columns

• Write 3 489 in expanded notation:
• Write an expression without brackets that is equivalent to \(7 \times (3 000 + 400 + 80 + 9)\):

\(7 \times 3 489\) may be calculated as shown on the left below.

Explain how the numbers in each of steps 1 to 4 on the above left are obtained.

\(47 \times 3 489\) may be calculated as shown on the left below.

• Explain how the numbers in each of steps 5 to 8 on the above left are obtained.
• Explain how the number 139 560 that appears in the shorter form on the above right is obtained.

Subtracting in columns

• \(8 000 + 400 + 30 + 2\)
• \(7 000 + 1 300 + 120 +12\)
• \(3000 + 900 + 50 + 7\)

If you worked correctly you should have obtained the same answers for questions 1(a) and 1(b). If this was not the case, redo your work.

The expression \(7 000 + 1 300 + 120 + 12\) was formed from \(8 000 + 400 + 30 + 2\) by

• taking 1 000 away from 8 000 and adding it to the hundreds term to get 1 400,
• taking 100 away from 1 400 and adding it to the tens term to get 130, and
• taking 10 away from 130 and adding it to the units term to get 12.

Form an expression like the expression in 1(b) for each of the following:

• \(8 000 + 200 + 100 + 4\)
• \(3 000 + 400 + 30 + 1\)

Write expressions like in question 1(b) for the numbers below.

\(8 432 - 3 957\) can be calculated as shown below.

To do the subtraction in each column, you need to think of \(8 432\) as \(8 000 + 400 + 30 + 2\), in fact you have to think of it as \(7 000 + 1 300 + 120 + 12\).

In step 1, the 7 of 3 957 is subtracted from 12.

• How is the 70 in step 2 obtained?
• How is the 400 in step 3 obtained?
• How is the 4 000 in step 4 obtained?
• How is the 4 475 in step 5 obtained?

Because of the zeros obtained in steps 2, 3 and 4, the answers need not be written separately as shown above. The work can actually be shown in the short way below.

• \(9 123 - 3 784\)
• \(8 284 - 3 547\)

Use a calculator to check your answers. If your answers are wrong, try again.

• \(7 243 - 3 182 \)
• \(6 221 - 1 888\)

You may use a calculator to do the questions below.

Bettina has R87 456 in her savings account. She withdraws R44 800 to buy a car. How much money is left in her savings account?

Liesbet starts a savings account by making a deposit of R40 000. Over a period of time she does the following transactions on the savings account:

a withdrawal of R4 000

a withdrawal of R2 780

a deposit of R1 200

a deposit of R7 550

a withdrawal of R5 230

a deposit of R8 990

a deposit of R1 234

How much money does she have in her savings account now?

• \(\text{R }34 537 - \text{R }13 267\)
• \(\text{R }135 349 - \text{R }78 239\)

Long division

Study this method for calculating \(13 254 \div 56\):

So \(13 254 \div 56 = 236\) remainder 38, or \(13 254 \div 56 = 236 \frac{38}{56} = 236\frac{19}{28} \), which can also be written as 236,68 (correct to two decimal figures).

The work can also be set out as follows:

Mlungisi's work to do a certain calculation is shown on the right. What is the question that Mlungisi tries to answer?

Where does the number 31 200 in step 1 come from? How did Mlungisi obtain it, and for what purpose did he calculate it?

Explain step 2 in the same way as you explained step 1.

Explain step 3.

\(33 030 \div 63\)

\(18 450 \div 27\)

Use a calculator to check your answers to question 2. If your answers are wrong, try again. It is important that you learn to do long division correctly.

\( 76 287 \div 287\)

\( 65 309 \div 44\)

Use your calculator to do questions 5 and 6 below. A municipality has budgeted R85 000 for putting up new street name boards. The street name boards cost R72 each. How many new street name boards can be put up, and how much money will be left in the budget?

A furniture dealer quoted R840 000 for supplying 3 450 school desks. A school supply company quoted R760 000 for supplying 2 250 of the same desks. Which provider is cheapest, and what do the two providers actually charge for one school desk?

Multiples and factors

Lowest common multiples and prime factorisation.

Consecutive multiples of 6, starting at 6 itself, are shown in the table below.

The table below also shows multiples of a number. What is the number?

Draw rough circles around all the numbers that occur in both the above tables.

What is the smallest number that occurs in both tables?

90 is a multiple of 6, it is also a multiple of 15.

90 is called a common multiple of 6 and 15, it is a multiple of both.

The smallest number that is a multiple of both 6 and 15 is the number 30.

30 is called the lowest common multiple or LCM of 6 and 15.

Calculate, without using a calculator.

\(2 \times 3 \times 5 \times 7 \times 11\)

\(2 \times 2 \times 5 \times 7 \times 13\)

\(2 \times 3 \times 3 \times 3 \times 5 \times 13\)

\(3 \times 5 \times 5 \times17\)

Check your answers by using a calculator or by comparing with some classmates.

2 is a factor of each of the numbers 2 310, 1 820 and 3 510.

Another way of saying this is: 2 is a common factor of 2 310, 1 820 and 3 510.

Is \(2 \times 3\), in other words, 6, a common factor of 2 310 and 3 510?

Is \(2 \times 3 \times 5\), in other words, 30, a common factor of 2 310 and 3 510?

Is there any bigger number than 30 that is a common factor of 2 310 and 3 510?

30 is called the highest common factor or HCF of 2 310 and 3 510.

In question 2 you can see the list of prime factors of the numbers 2 310, 1 820, 3 510 and 1 275.

The LCM of two numbers can be found by multiplying all the prime factors of both numbers, without repeating (except where a number is repeated as a factor in one of the numbers). The HCF of two numbers can be found by multiplying the factors that are common to the two numbers, i.e. in the list of prime factors of both numbers

In each case find the HCF and LCM of the numbers.

1 820 and 3 510

2 310 and 1 275

1 820 and 3 510 and 1 275

2 310 and 1 275 and 1 820

780 and 7 700

360 and 1 360

Solving problems about ratio, rate and proportion

Ratio and rate problems.

You may use a calculator in this section.

Moeneba collects apples in the orchard. She picks about 5 apples each minute. Approximately how many apples will Moeneba pick in each of the following periods of time?

In the situation described in question 1, Moeneba picks apples at a rate of about 5 apples per minute .

Garth and Kate also collect apples in the orchard, but they both work faster than Moeneba. Garth collects at a rate of about 12 apples per minute, and Kate collects at a rate of about 15 apples per minute. Complete the following table to show approximately how many apples they will each collect in different periods of time.

In this situation, the number of apples picked is directly proportional to the time taken.

If you filled the table in correctly, you will notice that during any period of time, Kate collected 3 times as many apples as Moeneba. We can say that during any time interval, the ratio between the numbers of apples collected by Moeneba and Kate is 3 to 1 , which can be written as 3:1 . For any period of time, the ratio between the numbers of apples collected by Garth and Moeneba is 12:5.

What is the ratio between the numbers of apples collected by Kate and Garth during a period of time?

Would it be correct to also say that the ratio between the numbers of apples collected by Kate and Garth is 5:4? Explain your answer.

To make biscuits of a certain kind, 5 parts of flour has to be mixed with 2 parts of oatmeal, and 1 part of cocoa powder. How much oatmeal and how much cocoa powder must be used if 500 g of flour is used?

A motorist covers a distance of 360 km in exactly 4 hours.

Approximately how far did the motorist drive in 1 hour?

Do you think the motorist covered exactly 90 km in each of the 4 hours? Explain your answer briefly.

Approximately how far will the motorist drive in 7 hours?

Approximately how long will the motorist need to travel 900 km?

Some people use these formulae to do calculations like those in question 5.

average speed = \(\dfrac{\textbf{distance}}{\textbf{time}}\) ,which here means distance \(\div \) time

distance = \({\textbf{average speed}} \times {\textbf{time}}\)

time = \(\dfrac{\textbf{distance}}{\textbf{average speed}}\) , which here means distance \(\div \) average speed

For each of questions 5(c) and 5(d), state which formula will produce the correct answer.

A motorist completes a journey in three sections, making two long stops to eat and relax between sections. During section A he covers 440 km in 4 hours. During section B he covers 540 km in 6 hours. During section C he covers 280 km in 4 hours.

Calculate his average speed over each of the three sections.

Calculate his average speed for the journey as a whole.

On the next day, the motorist has to travel 874 km. How much time (stops excluded) will he need to do this? Justify your answer with calculations.

Different vehicles travel at different average speeds. A large transport truck with a heavy load travels much slower than a passenger car. A small bakkie is also slower than a passenger car. In the following table, some average speeds and the times needed are given for different vehicles that all have to be driven for the same distance of 720 km. Complete the table.

Look at the table you have just completed.

What happens to the time needed if the average speed increases?

What happens to the average speed if the time is reduced?

What can you say about the product average speed \(\times\) time, for the numbers in the table?

In the situation above, the average speed is said to be indirectly proportional to the time needed for the journey.

You may use a calculator in Section 1.5.

Discount, profit and loss

R12 800 is divided equally between 100 people.

How much money does each person get?

How much money do eight of the people together get?

Another word for hundredths is percent .

Instead of \(\frac{5}{100}\) we can write 5%. The symbol % means exactly the same as \(\frac{}{100}\) .

In question 1(a) you calculated \(\frac{1}{100}\) or 1% of R12 800, and in question 1(b) you calculated \(\frac{8}{100}\) or 8% of R12 800.

The amount that a dealer pays for an article is called the cost price . The price marked on the article is called the marked price and the price of the article after discount is the selling price .

The marked prices of some articles are given below. A discount of 15% is offered to customers who pay cash. In each case calculate how much a customer who pays cash will actually pay.

Lina bought a couch at a sale. It was marked R3 500 but she paid only R2 800.

She was given a discount of R700.

What percentage discount was given to Lina?

This question means:

How many hundredths of the marked price were taken off?

To answer the question we need to know how much \(\frac{1}{100}\) (one hundredth) of the marked price is.

How much is \(\frac{1}{100}\) of R3 500?

How many hundredths of R3 500 is the same as R700?

What percentage discount was given to Lisa: 10% or 20%?

The cost price, marked price and selling price of some articles are listed below.

Article A: Cost price = R240, marked price = R360, selling price = R324.

Article B: Cost price = R540, marked price = R700, selling price = R560.

Article C: Cost price = R1 200, marked price = R2 000, selling price = R1 700.

The profit is the difference between the cost price and the selling price.

For each of the above articles, calculate the percentage discount and profit.

Remey decided to work from home and bought herself a sewing machine for R750. She planned to make 40 covers for scatter cushions. The fabric and other items she needed cost her R3 600. Remey planned to sell the covers at R150 each.

How much profit could Remey make if she sold all 40 covers at this price?

Remey managed to sell only 25 of the covers and decided to sell the rest at R100 each. Calculate her percentage profit.

Zadie bakes and sells pies to earn some extra income. The cost of the ingredients for her chicken pies came to about R68. She sold the pies for R60. Did she make a profit or a loss? Calculate the percentage loss or profit.

Hire purchase

Sometimes you need an item but do not have enough money to pay the full amount immediately. One option is to buy the item on hire purchase (HP) . You will have to pay a deposit and sign an agreement in which you undertake to pay monthly instalments until you have paid the full amount. Therefore:

HP price = deposit + total of instalments

The difference between the HP price and the cash price is the interest that the dealer charges you for allowing you to pay off the item over a period of time.

• Calculate the total HP price.
• How much interest does she pay?

Susie buys a car on hire purchase. The car costs R130 000. She pays a 10% deposit on the cash price and will have to pay monthly instalments of R4 600 for a period of three years. David buys the same car, but chooses another option where he has to pay a 35% deposit on the cash price and monthly instalments of R3 950 for two years.

Calculate the HP price for both options.

Calculate the difference between the total price paid by Susie and by David.

Calculate the interest that Susie and David have to pay as a percentage of the cash price.

Simple interest

When interest is calculated for a number of years on an amount (i.e. a fixed deposit) without the interest being added to the amount each year for the purpose of later interest calculations, it is referred to as simple interest. If the amount is invested for part of a year, the time must be written as a fraction of a year.

Interest rates are normally expressed as percentages. This makes it easier to compare rates. Express each of the following as a percentage:

A rate of R5 for every R100

A rate of R7,50 for every R50

A rate of R20 for every R200

A rate of x rands for every a rands

Annie deposits R8 345 into a savings account at Bonus Bank. The interest rate is 9% per annum.

Per annum means "per year".

How much interest will she have earned at the end of the first year?

Annie decides to leave the deposit of R8 345 with the bank for an indefinite period, and to withdraw only the interest at the end of every year. How much interest does she receive over a period of five years?

Maxi invested R3 500 at an interest rate of 5% per annum. Her total interest was R875. For what period did she invest the amount?

Money is invested for 1 year at an interest rate of 8% per annum. Complete the table of equivalent rates.

Interest on overdue accounts is charged at a rate of 20% per annum. Calculate the interest due on an account that is 10 days overdue if the amount owing is R260. (Give your answer to the nearest cent.)

A sum of money invested in the bank at 5% per annum, simple interest, amounted to R6 250 after 5 years. This final amount includes the interest. Thuli figured out that the final amount is (1 + 0,05 \(\times\) 5 ) \(\times\) amount invested.

Explain Thuli's thinking.

Calculate the amount that was invested.

Compound interest

When the interest earned each year is added to the original amount, and the interest for the following year is calculated on this new amount, the result is known as compound interest .

R2 000 is invested at 10% per annum compound interest:

End of 1st year: Amount = R2 000 + R200 interest = R2 200

End of 2nd year: Amount = R2 200 + R220 interest = R2 420

End of 3rd year: Amount = R2 420 + R242 interest = R2 662

An amount of R20 000 is invested at 5% per annum compound interest.

What is the total value of the investment after 1 year?

What is the total value of the investment after 2 years?

What is the total value of the investment after 3 years?

Bonus Bank is offering an investment scheme over two years at a compound interest rate of 15% per annum. Mr Pillay wishes to invest R800 in this way.

How much money will be due to him at the end of the two-year period?

How much interest will have been earned during the two years?

Andrew and Zinzi are arguing about interest on money that they have been given for Christmas. They each received R750. Andrew wants to invest his money in ABC Building Society for 2 years at a compound interest rate of 14% per annum, while Zinzi claims that she will do better at Bonus Bank, earning 15% simple interest per annum over 2 years. Who is correct?

Mr Martin invests R12 750 for 3 years compounded quarterly (i.e. four times a year) at 5,3%.

How many conversion periods will his investment have altogether?

How much is his investment worth after 3 years?

Calculate the total interest that he earns on his initial investment.

Calculate the interest generated by an investment (P) of R5 000 at 10% (r) compound interest over a period (n) of 3 years. A is the final amount. Use the formula \(A = P(1 + \frac{r}{100})^n\) to calculate the interest.

Exchange rate and commission

Tim bought £650 at the foreign exchange desk at Gatwick Airport in the UK at a rate of R15,66 per £1. The desk also charged 2,5% commission on the transaction. How much did Tim spend to buy the pounds?

What was the value of R1 in British pounds on that day?

Mandy wants to order a book from the internet. The price of the book is $25,86. What is the price of the book in rands? Take the exchange rate as R9,95 for $1.

Bongani is a car salesperson. He earns a commission of 3% on the sale of a car with the value of R220 000. Calculate how much commission he earned.

How to Conduct a Problem-Solving Session with Finance?

In the fast-paced and dynamic world of finance, problem-solving skills are invaluable. Whether you are a financial manager, a business owner, or an aspiring finance professional, being able to effectively address and solve financial issues is crucial for success. In this article, we will explore the importance of problem-solving in finance and provide a step-by-step guide on how to conduct a problem-solving session with finance.

Understanding the Importance of Problem-Solving in Finance

Problem-solving is a fundamental skill in financial management. It involves identifying, analyzing, and resolving financial issues that may arise in a business or organizational setting. Successful problem-solving not only helps in mitigating risks but also contributes to the overall growth and profitability of a company.

When it comes to financial management, problem-solving plays a pivotal role in ensuring the smooth operation and sustainability of a business. Financial managers are responsible for making strategic decisions that can impact the organization’s financial performance. By effectively addressing problems and finding innovative solutions, financial managers can enhance financial stability, optimize resource allocation, and foster growth.

Effective problem-solving in finance offers numerous benefits. Firstly, it helps in identifying and rectifying financial inefficiencies, thus improving cost-effectiveness. For example, if a company is experiencing cash flow issues, a financial manager can analyze the problem and implement strategies to improve cash flow, such as negotiating better payment terms with suppliers or implementing more efficient billing processes.

Secondly, effective problem-solving in finance aids in identifying potential opportunities and enhancing revenue generation. Financial managers who are skilled problem solvers can identify market trends, analyze customer needs, and develop innovative financial strategies to capitalize on emerging opportunities. This could involve launching new products or services, entering new markets, or implementing cost-saving measures.

Moreover, successful problem-solving fosters teamwork, promotes critical thinking, and strengthens decision-making abilities within the finance department. When financial managers and their teams work together to solve complex financial problems, it encourages collaboration and knowledge sharing. This not only leads to better problem-solving outcomes but also cultivates a culture of continuous improvement and learning within the organization.

Preparing for a Problem-Solving Session

Before conducting a problem-solving session, thorough preparation is essential to ensure its effectiveness. Here are the key steps involved:

Identifying the Financial Issues at Hand

The first step is to clearly identify the financial issues that need to be addressed. This could include problems with cash flow, budgeting, financial reporting, investment decisions, or any other challenge affecting the financial performance of the organization.

For example, if the organization is experiencing cash flow problems, it is important to determine the root cause of the issue. Is it due to slow-paying customers, high expenses, or ineffective collection procedures? By identifying the specific financial issues, the problem-solving session can be focused and targeted.

Gathering Relevant Financial Data

Once the issues have been identified, gather all the relevant financial data that is necessary for analysis and decision-making. This may include financial statements, sales reports, budget details, and any other financial information related to the problem at hand.

For instance, if the problem is related to budgeting, it is crucial to gather information on the organization’s current budget, actual expenses, and projected revenue. This data will provide a comprehensive understanding of the financial situation and enable the team to make informed decisions during the problem-solving session.

Assembling the Right Team for the Session

Next, assemble a team of individuals who possess the required expertise and knowledge to contribute to problem-solving. This could include financial analysts, accountants, business strategists, and other relevant stakeholders. Ensure that the team members have diverse perspectives and can bring fresh insights to the table.

For example, having a financial analyst on the team can provide valuable insights into financial data analysis and forecasting. An accountant can offer expertise in identifying financial discrepancies and suggesting corrective measures. By assembling a diverse team, the problem-solving session can benefit from a wide range of perspectives and expertise.

Additionally, it is important to consider the dynamics of the team. Are the members able to collaborate effectively? Do they have good communication skills? These factors can significantly impact the success of the problem-solving session.

Conducting the Problem-Solving Session

Once the preparation phase is complete, it’s time to conduct the problem-solving session. Follow these steps to ensure a productive and efficient session:

Before diving into the problem-solving session, it is important to understand the significance of this phase. This is where the real work happens, where ideas are shared, and solutions are generated. It is a collaborative effort that requires effective communication and critical thinking.

Setting the Agenda for the Meeting

Start by setting a clear agenda for the problem-solving session. Outline the goals, objectives, and topics that need to be discussed during the meeting. This ensures that everyone is aware of the purpose of the session and can come prepared with relevant information and ideas.

When setting the agenda, consider the time constraints and prioritize the most pressing issues. This will help keep the session focused and ensure that valuable time is not wasted on less important matters.

Facilitating Open and Constructive Dialogue

During the session, encourage open and constructive dialogue among the team members. Create a safe and non-judgmental environment where everyone feels comfortable expressing their opinions and challenging existing beliefs. This fosters creativity and innovation, leading to better problem-solving outcomes.

As the facilitator, it is important to actively listen to each team member and ensure that their voices are heard. Encourage active participation and discourage any form of dominance or bias. This will help create a collaborative atmosphere where diverse perspectives can be explored.

Utilizing Problem-Solving Techniques in Finance

There are several problem-solving techniques that can be applied in a finance context. These include brainstorming, SWOT analysis, financial modeling, cost-benefit analysis, and root cause analysis, among others. Apply the appropriate techniques to systematically analyze the financial issues and generate potential solutions.

Brainstorming is a valuable technique that allows team members to freely share their ideas and thoughts without any judgment. This can lead to innovative solutions that may not have been considered otherwise. SWOT analysis helps identify the strengths, weaknesses, opportunities, and threats associated with the problem at hand. Financial modeling allows for a quantitative analysis of different scenarios, helping to evaluate the potential outcomes of each solution.

Cost-benefit analysis helps weigh the financial costs and benefits of each solution, enabling decision-makers to make informed choices. Root cause analysis helps identify the underlying causes of the problem, allowing for targeted solutions that address the core issues.

By utilizing these problem-solving techniques, the team can approach the financial issues from different angles, ensuring a comprehensive analysis and a wider range of potential solutions.

Remember, the problem-solving session is not just about finding a quick fix. It is about understanding the problem, exploring various options, and making informed decisions that will have a positive impact on the financial health of the organization.

Post-Session Actions and Follow-ups

Once the problem-solving session is over, there are critical steps to take to ensure the proposed solutions are implemented effectively:

Analyzing the Results of the Session

Review and analyze the outcomes of the problem-solving session. This step is crucial as it allows for a comprehensive understanding of the proposed solutions and their potential impact on the organization. By carefully evaluating the feasibility, potential impact, and alignment with the organization’s goals, finance professionals can make informed decisions on which solutions to prioritize.

During the analysis, it is essential to consider various factors, such as the resources required for implementation, the potential risks involved, and the expected timeline for achieving the desired outcomes. By conducting a thorough evaluation, finance professionals can identify the most viable options and prioritize them based on their urgency and significance.

Implementing the Proposed Solutions

Once the proposed solutions have been analyzed and prioritized, the next step is to develop an actionable plan for their implementation. This plan should outline the specific steps required to execute each solution effectively.

Assigning responsibilities is a critical aspect of the implementation process. By clearly defining who is accountable for each task, finance professionals can ensure that everyone involved understands their role and can contribute to the successful execution of the solutions. Additionally, setting deadlines is crucial to keep the implementation process on track and avoid unnecessary delays.

Furthermore, allocating the necessary resources is essential for the successful implementation of the proposed solutions. This includes financial resources, human resources, and any other required assets. By ensuring that the necessary resources are available, finance professionals can increase the likelihood of achieving the desired outcomes.

Effective implementation also requires clear communication and coordination among all stakeholders. Regular updates and progress reports should be shared to keep everyone informed and aligned. Additionally, monitoring the progress of the implementation is vital to identify any potential issues or roadblocks early on and take corrective actions as needed.

Monitoring the Impact of Implemented Solutions

Implementing the proposed solutions is not the end of the problem-solving process. It is crucial to regularly monitor the impact of the implemented solutions on the financial performance of the organization. This step allows finance professionals to assess the effectiveness of the solutions and make any necessary adjustments to optimize the outcomes.

Tracking relevant key performance indicators (KPIs) is an effective way to measure the impact of the implemented solutions. These KPIs can include financial metrics, such as revenue growth, cost savings, and profitability, as well as non-financial metrics, such as customer satisfaction and employee productivity. By monitoring these indicators, finance professionals can gain valuable insights into the success of the implemented solutions and identify areas for improvement.

Continuous feedback gathering is also essential in monitoring the impact of the implemented solutions. By seeking input from various stakeholders, including employees, customers, and partners, finance professionals can gain a holistic understanding of the outcomes and identify any potential issues or areas of improvement.

Based on the feedback and performance data gathered, finance professionals can make necessary adjustments to optimize the outcomes of the implemented solutions. This iterative approach ensures that the organization remains agile and responsive to changing circumstances.

In conclusion, conducting a problem-solving session with finance is an essential process for mitigating financial risks and driving organizational growth. By understanding the importance of problem-solving in finance, adequately preparing for the session, conducting it effectively, and taking post-session actions and follow-ups, finance professionals can effectively address financial challenges and steer their organizations toward success.

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Developing this skill requires a mix of strategic thinking, emotional intelligence, and the courage to try new things. Surrounding yourself with diverse perspectives can expand your vision. Leadership isn't about knowing all the answers; it's a willingness to explore and learn.

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Daniel kahneman, author of “thinking, fast and slow”, dies at 90, the rockets’ path forward with alperen sengun and jalen green, 2. financial acumen.

Businesses rise and fall on their financial acumen . To make the right decisions, you need a solid understanding of financial management, investment, and risk assessment. This encompasses everything from budgeting, cash flow management, and cost analysis to more complex financial strategies like tax planning and fundraising.

Strengthening this skill involves dedicating time to understanding your financial statements, seeking the counsel of financial experts, and continually educating yourself on changes in financial regulations pertinent to your business. Remember, financial decisions can impact every facet of your business, so don't take chances.

3. Marketing and sales

Your product or service could be ground breaking, but without the right marketing and sales skills, its potential may go unnoticed. Effective marketing is about positioning your offering in the market, understanding your customers' needs, and crafting compelling messages that resonate.

Your sales skill is the ability to convey the value of your offering and close deals. It requires tenacity, excellent communication, and the know-how to negotiate. Continual learning is necessary in the fast-evolving landscape of digital marketing and sales technologies. Invest in understanding your customer's buying journey and adapt your marketing and sales strategy accordingly.

4. Adaptability

The business world is fast-paced and dynamic, and those who can't adapt get left behind. Business owners need to develop a high degree of agility. They must be comfortable pivoting strategies, altering plans, and reassessing their business model as needed.

This doesn't mean being flighty or reactionary; rather, it's about staying attuned to changes in the market, technology, and customer needs. Cultivate a mindset that sees change not as a threat but as an opportunity.

5. Problem solving

No matter how foolproof your business plan, you will encounter challenges. Your ability to think creatively and solve problems will be your saving grace. This involves thinking outside the box, utilizing resources in unorthodox ways, and sometimes, completely re-imagining how you do business.

Problem solvers are willing to ask for help, engage in brainstorming sessions, and even look beyond their industry for inspiration. It's about building a repertoire of reliable problem-solving techniques and learning from each challenge you overcome. The more problems you solve, the more confident and capable you become in tackling the next one.

The bottom line is that being a successful business owner is not a result of luck or a set of predefined personality traits. It's the culmination of hard work, a willingness to learn and adapt, and the acquisition of these core skills. This isn't an exhaustive list; there are plenty of other competencies that can set you apart in business. However, these five skills will give you a robust foundation upon which you can develop your own unique strengths and lead your business to success. If you’re looking to not just start a business, but build a legacy, focus on the development of these fundamental attributes.

Melissa Houston, CPA is the author of Cash Confident: An Entrepreneur’s Guide to Creating a Profitable Business . She is the founder of She Means Profit, which is a podcast and blog . As a Finance Strategist for small business owners, Melissa helps successful business owners increase their profit margins so that they keep more money in their pocket and increase their net worth.

The opinions expressed in this article are not intended to replace any professional or expert accounting and/or tax advice whatsoever.

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Can Donald Trump's Truth Social deal save him from his financial woes? Maybe.

WASHINGTON – Former President Donald Trump is facing money challenges as he contends with legal fights on multiple fronts while trying to raise cash for his bid to reclaim the White House.

In a civil fraud case, Trump has been ordered to pay a half-billion dollar bond which his lawyers have called a “practical impossibility.” And in the 2024 presidential campaign, President Joe Biden has been lapping him in fundraising.

But a deal to take his social media platform, Truth Social , and its parent company public could provide the former president and business magnate a critical lifeline and could more than double his net worth and net him more than $3 billion.

The deal isn’t set in stone yet and Trump still has a few hurdles to clear if he wants immediate access to his newfound wealth. Here’s what to know about Trump’s social media deal and his financial woes.

What is Truth Social?

Truth Social is Trump's social media platform he launched after the 2020 election. The app is similar to X, formerly Twitter, and is Trump's favored messaging tool after his X account was permanently suspended for his false claims of election fraud. His account has since been reinstated after Elon Musk took control of the platform, but Trump has stayed on Truth Social.

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The app is marketed as an alternative social media platform for conservatives. Trump said in a statement he started the platform to "stand up to the tyranny of Big Tech."

What is the Truth Social merger?

Investors on Friday green lighted a merger with Trump’s media and technology company, aptly named Trump Media & Technology Group. The company, which owns Truth Social, will merge with Digital World Acquisition Corp, an SPAC – companies aimed at raising cash and merging with other entities.

If all goes well with the agreement, Truth Social can start trading on Monday labeled DJT – Trump’s initials .

Trump’s stake in Truth Social’s parent company values over $3 billion but a prior agreement bars Trump from selling any of his shares or borrowing cash against them for six months. If the agreement sticks, Trump's financial problems won't be going away anytime soon.

What are Trump’s financial problems?

Trump’s most immediate problem is a nearly half billion dollar bond he is ordered to post by Monday.  

Last month a New York judge ruled in a civil fraud case that the former president inflated the values of his properties and delivered a penalty of almost $454 million. Trump is seeking to appeal the ruling and must put up a bond equal to the penalty. His lawyers however, told an appeals court it was a “practical impossibility” to put up the bond. 

“Despite scouring the market, we have been unsuccessful in our effort to obtain a bond for the Judgment Amount for Defendants for the simple reason that obtaining an appeal bond for $464 million is a practical impossibility under the circumstances presented,” his lawyers said in a court filing.

If Trump can’t post the bond by Monday, New York Attorney General Letitia James can begin collecting the penalty from last month’s case. If Trump can’t pay up, James could begin seizing his assets.

Trump's fundraising numbers

Trump is also significantly trailing Biden in campaign fundraising as he runs for a second term while he is mired in legal trouble.

Biden raised $21.3 million in February, nearly double what Trump raised the same month – $10.9 million – according to filings with the Federal Election Commission.

Not only that, Biden’s campaign has $71 million cash on hand compared to Trump’s campaign which falls behind at $33.5 million.

Can the Truth Social deal save Trump?

Trump could ask the company Truth Social is merging with to waive the six-month waiting period – called a “lock-up” provision – before he could turn his stake into cash but that has its own set of complications. 

But waiving the requirement could lower the company’s value and might not even allow Trump to tap into all of his shares as he could be limited to how much stock he can sell.

With the Monday deadline quickly approaching, it’s still unclear how Trump will be able to post up the $464 million bond. In the meantime, Trump’s lawyers are attempting to either reduce the bond requirement or completely waive it.