Common Financial Weaknesses and How to Overcome Them (2024)

Everyone has different financial weaknesses, some more common than others. These can include overspending, living beyond your means, not having an emergency fund and not tracking your money. These weaknesses can lead to financial stress and can prevent you from reaching your financial goals.

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Fortunately, there are steps you can take to overcome these common financial weaknesses and build a sound financial foundation. Through careful budgeting, setting achievable goals and being mindful of spending habits and decisions, you can gain control of your finances and put yourself on the path to financial success.

Financial Weakness: Overspending and Living Beyond Your Means.

Overspending is when you spend more money than you have. It can be a challenge for many people, especially if you have a lot of financial commitments. Overspending may stem from many places – boredom, psychological issues, poor understanding of your finances, or it could simply be habitual. You may also be easily influenced by what you see on social media, which isn’t always reality.

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Similarly, living beyond your means is consistently spending more money than you make. It often happens when you take on unnecessary financial commitments such as credit card debt, car loans, student loan debt and mortgages. If you find yourself living beyond your means, it’s important to take action.

How to overcome: There are a few ways you can combat both overspending and living beyond your means. First, you need to get comfortable with your finances and track your spending. This will help you see where your money is going and where it may be overspent, and ultimately will help you determine if your issue is a spending issue or that you’re not making enough money to support your lifestyle.

You can also try creating a budget. A strict budget is one in which you don’t allow any overspending. Another option is to simplify your life to reduce financial commitments. This will free up more of your money so that you can stick to your budget.

You could also try to get a side hustle or additional source of income. This will help you offset any overspending you may have and give you more money to put toward your expenses, and this may also help if you’re living beyond your means.

If your overspending is due to boredom, try starting hobbies that don’t involve spending money – borrow library books or take up running or walking. If your overspending is influenced by social media, try limiting your social media usage or unfollowing the accounts that trigger your spending. Overspending that is psychological in nature may be helped by working with a therapist and a financial adviser in tandem.

If you find yourself overspending or living beyond your means, remember you’re not alone. Everyone overspends from time to time, but you can use this as a learning experience and get back on track.

Financial Weakness: Not Having an Emergency Fund.

An emergency fund is a savings account where you put money for unplanned events such as a car accident, sudden medical emergency, job loss, etc. Having an emergency fund is important for financial security. Unfortunately, many people don’t have an emergency fund. If you don’t have an emergency fund yet, try to prioritize building one.

How to overcome: If you’re not tracking your spending, start. This will help you see where your money is going. You can then use this information to determine where you can cut back and put that money toward your emergency fund. For example, are you spending money on subscriptions, such as streaming services, that you aren’t even using?

Getting a side hustle or additional source of income would help with this weakness, too. It would allow you to put more money toward your emergency fund and give you financial security.

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If you have some wiggle room in your budget, setting up an automatic deposit of a portion of your paycheck into a savings account earmarked for emergencies is a simple way to build up that emergency fund without feeling it month to month.

Additional Strategies for Overcoming Financial Weaknesses

Once you’ve identified your financial weaknesses, you can begin to work toward overcoming them. There are a few general strategies you can employ to deal with these common financial weaknesses.

Creating a budget, or using a budgeting app, can help you identify any financial issues and take steps to resolve them. You’ll be able to see what you’re spending your money on, and you’ll be more aware of your spending habits in general – which can help you to identify where you may need to make adjustments in your financial life.

Setting financial goals and then getting a partner, friend or financial adviser involved to hold you accountable for those goals can help you stay in control of your finances.

When you’re making a financial goal, don’t shoot for the stars – start with an achievable goal that you can complete in a short time frame and break it down into manageable sections. If you have a long-term goal, such as paying off a big debt or saving for retirement, break that down into monthly goals that are easier to meet each month. Automate your savings so you can give yourself a better chance of reaching that goal.

If you’re prone to overspending, make it a little more difficult to spend your money. For example, if you love to use your credit cards, take out cash for the week instead and use that cash only instead of your cards. Or write a list when you go to the store and buy only what is on that list.

If you notice that you always overspend when you stop into certain stores or shop online, switch your routines to avoid those stores and set up screen-time limits on your phone to remind you to avoid the urge to online shop.

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If you’re struggling with any aspect of your finances, talking with a financial adviser may help, as they can likely provide additional tips.

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Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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Building Wealth

Common Financial Weaknesses and How to Overcome Them (2024)

FAQs

How do you identify and overcome your financial weaknesses? ›

  1. Identify the problem. ...
  2. Make a budget to help you resolve your financial problems. ...
  3. Lower your expenses. ...
  4. Pay in cash. ...
  5. Stop taking on debt to avoid aggravating your financial problems. ...
  6. Avoid buying new. ...
  7. Meet with your advisor to discuss your financial problems. ...
  8. Increase your income.
Jan 29, 2024

What is an example of a financial weakness? ›

Everyone has different financial weaknesses, some more common than others. These can include overspending, living beyond your means, not having an emergency fund and not tracking your money. These weaknesses can lead to financial stress and can prevent you from reaching your financial goals.

What is an example problem of financial problems? ›

Lack of income/job loss. Unexpected expenses. Too much debt. Need for financial independence.

How to overcome financial debts? ›

  1. Basic steps to help you deal with a debt. ...
  2. Step one - make a list of everything you owe. ...
  3. Step two - put your debts in order of importance. ...
  4. Step three - work out a personal budget. ...
  5. Step four - get independent advice. ...
  6. Step five - talk to your creditors. ...
  7. More useful links.

How do you overcome financial struggles? ›

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.

How do you overcome financial mistakes? ›

7 Tips to Bounce Back from Financial Mistakes
  1. Don't Dwell on It. ...
  2. Take Stock of Your Situation. ...
  3. Get Back to Basics. ...
  4. Freeze Your Spending. ...
  5. Don't Be Tempted by Quick Fixes. ...
  6. Take Care of Your Health. ...
  7. Start Preparing for Emergencies.

What is your greatest weakness as a finance professional? ›

5 weaknesses to mention in an interview
  1. Lack of self-confidence. A lack of self-confidence can make you hesitate to make important decisions. ...
  2. Being sensitive. ...
  3. Dislike for working under pressure. ...
  4. Lack of experience. ...
  5. Dislike for repetitive tasks.
Jan 26, 2023

What are some examples of financial strengths? ›

At its most basic level, financial strength is the ability to generate profits and sufficient cash flow to pay bills and repay debt or investors. Most business owners are focused on generating sales to increase profitability, however, sales alone do not build financial strength.

What are the main weaknesses in the financial planning process? ›

The main weaknesses in financial planning models are: - All working capital accounts do not necessarily vary directly with sales, especially cash and inventory. - This model ignores the risk, timing, and size of cash flows, and it is a major weakness of the financial planning model.

How to overcome a financial crisis? ›

One of the best ways to deal with a financial crisis is to make a good budget plan. Make a weekly or monthly spending plan and stick with it. Cut down on unnecessary expenses such as eating outside, spending a lot on hobbies and entertainment, etc.

What is a common cause of financial difficulties? ›

Financial hardships can be caused by a variety of situations and behaviors such as job loss, medical bills, a lack of financial planning, poor spending habits, and other life events.

How can I improve my financial situation? ›

Five Steps to Improving Your Financial Situation
  1. Know your numbers. Before you can determine which areas of your financial life are going well and which may need a tune-up, it's critical to have a solid idea of where you are today. ...
  2. Reduce spending. ...
  3. Start an emergency fund. ...
  4. Pay down debt. ...
  5. Save for your best future.

How do I fix my finances? ›

5 Steps to Take Control of Your Finances
  1. Take Inventory—and Set Goals. ...
  2. Understand Compound Interest. ...
  3. Pay Off Debt and Create An Emergency Fund. ...
  4. Set Up Your 401(k) or Individual Retirement Account (IRA) ...
  5. Start Building Your Investment Profile.
Jan 9, 2024

How to overcome money loss? ›

Here are five ways to cope with a financial loss so that you can move forward and make the best of your situation.
  1. Acknowledge Your Emotions. It is normal to experience a range of emotions after suffering a financial loss. ...
  2. Create a Plan. ...
  3. Find a Support System. ...
  4. Adjust Your Lifestyle. ...
  5. Seek Professional Help. ...
  6. Conclusion.
Mar 16, 2023

What is the process of identifying financial strengths and weaknesses? ›

Financial Statement Analysis (FSA) can also be defined as the process of identifying financial strengths and weaknesses of the firm by properly establishing relationship between the items of the balance sheet and the profit and loss account.

How would you assess the financial strengths and weaknesses of a company? ›

For example, a high gross profit margin indicates that your company is earning more than it is spending on production costs, which is a strength. On the other hand, a low net profit margin or negative cash flow indicates that your company may be spending more than it is earning, which is a weakness.

How are you handling your finances so that you feel you have some financial stability? ›

Set saving and expense budgets

For the basic cost of living such as housing, utilities, food, and transportation, this should to be controlled to not over 50% of monthly income. Saving and emergency budgets should be set at least around 10-20% a month. Lastly, other expenses should be less than 30% of income.

How do you control your financial situation? ›

Here are some ways to manage your money wisely:
  1. Create a budget: Making a budget is the first and the most important step of money management. ...
  2. Save first, spend later: ...
  3. Set financial goals: ...
  4. Start investing early: ...
  5. Avoid debt: ...
  6. Save Early: ...
  7. Ensure protection against emergencies:

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