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Guest Post: ​What Results in a Personal Financial Disaster?

Guest Post by our member Nancy 

What Results in a Personal Financial Disaster?

Well, the number of bankruptcies throughout the world, especially in developed countries like the U.S., is growing at an alarming rate. This is an indicator of how poorly the world population is managing their financial lives, and falling prey to what can be termed as “personal financial disaster”.

The major problems behind such terribly poor financial management seem to be focusing solely on making more money, and not learning anything about how to manage it. It seems that most of us have made it a goal to make more money, just so that we can spend more money. We don’t try to look further than that, or think what’s really important, or what can help us financially in the long term.

The primary cause of personal financial disasters

Keeping short term financial goals isn’t really something wrong, but we simply “feel” that we aim for short term financial goals. Most of the time, it seems that all we aim for is more money to spend, and more luxuries to accumulate.

Also, even if one is focusing on achieving their short term financial goals only, their financial vision isn’t broad enough. There are two reasons for this. Firstly, short term financial goals are never enough to provide you the financial strength you actually need in your life. Secondly, such goals, nowadays, usually include accumulation of unproductive assets, if at all they can be called assets.

Managing to achieve such short term goals usually leads to having more liabilities to look forward, meaning that a huge chunk of your paycheck will go towards paying off such liabilities.

This rather misleading financial concept in people’s mind seems to be the primary cause of increasing personal financial disasters. However, there are quite a few other specific financial blunders that result in a personal financial disaster, the major ones being mentioned below.

Spending carelessly

I know this sounds too basic, and maybe even repetitive to a lot of you. However, this is indeed one of the major reasons a surprisingly large number of people end up coming across a personal financial disaster.

Most of the people nowadays don’t even have a track of how much they spend on a daily, weekly, or even monthly basis. I might as well add that some people don’t even consider going into much detail about their expenses when they are going through their yearly financial statements.

This leads to being completely unaware of where one is going with their spending habits, and they might as well end up spending more than they make, thanks to all the rather dangerous financial tools out there, such as credit cards. If you don’t keep a track of your spending, you are most probably going to end up spending far more than you should. This, over a surprisingly short period of time, is going to lead to a massive level of financial instability in your life, more or less leading to a personal financial disaster.

Accumulation of debt

The banks and financial institutions have made it so very easy for people to acquire whatever they desire, without spending a dime, or just a fraction of the entire price of such things. However, the banks and financial institutions have a reason for giving you this comfort, and it’s their own benefit.

For you, however, the picture is probably the exact opposite of what it’s for them. Your loans, or in other words, the money they lend to you, are their “assets”, while it’s your “liability”. Whenever you take a loan for buying something expensive which you don’t even need, or skip a cheaper option and go for a more luxurious, expensive option, you make a terrible financial mistake.

Accumulation of such debt, over the long term, is going to make the base your financial foundation weaker, and may even lead to a financial disaster. This turns out to be perfectly true in times like the recession, where many people no longer have fat paychecks to look forward to as they had during times of boom, when they had decided to accumulate all the debt.

The 2008 financial crisis in the US and the fall of major banks was due to such accumulation of debt on a rather massive level throughout the nation. Not to mention, it affected the whole world, and many countries still haven’t managed to recover entirely from it, including many from Europe.

Lack of focus on savings and investments

It seems that a lot of people feel that savings and investments are a thing of the past. Some of the people who do find it important, hand all their money set aside for such things to someone they think are financially smarter than them. I’m not criticizing anyone here, but I think it’s better to take your financial matters in your own hands.

You can obviously always resort to taking advice of a financial expert, or let them handle your savings and investments for you, but you should at least be aware of what’s going on. As if you would do that, you would be able to take immediate action in case your funds aren’t being used in the right way according to you.

However, despite this alternative being available, I’d rather educate myself on the different types of investments as well as how to save money the right way than leaving everything to a financial expert. As this way, you will be able to understand about your own specific needs and financial position, and hence save and invest in a way that will be right for YOU, and not just in general.