How to Solve Financial Shortfalls

Financial shortfalls are not easy to deal with, but finding you have a shortfall when you sit down to plan or create a budget for the first time doesn’t have to see you dragged into a financial black hole, either. While our natural instincts and initial reaction to a financial shortfall may be to look at the short term and look to plug the gap immediately, it is better to take a more considered, longer-term view.

Why Might Financial Shortfalls Occur?

If you are able to identify the reason for your financial shortfall then it may be easy to prevent yourself being in such a situation again. For example, if you’ve simply been over-exuberant with your income or miscalculated your disposable income level, it should be easy to rebalance this in the future by being more careful with what you spend.
However, in other circumstances you might find that your income doesn’t cover all of your essential and otherwise necessary expenses. This could be a consequence of poor planning on your part, or it may be due to yourself or your partner losing or changing jobs, or a change to benefits or other supplementary income you receive.
Depending on the reason for the shortfall, you can deal with this accordingly and ensure your plan and budget effectively to ensure it doesn’t happen again. Here are some potential solutions you can implement.

What Not To Do: Recklessly Cut Expenses

Earlier we touched on the natural instinct to take a short-term view, but this is never a good idea. Often people will cancel direct debits for bills or cancel an insurance policy so they have the money they need now. Unfortunately, the bill still needs to be paid at some point. Depending on what it is, not paying it could affect your credit score, and you never know when you might need insurance for whatever reason. What looks like the easiest expense to cut may well end up costing you in other ways in the long-term.

“Instead of taking a short-term view, sit down, assess all your expenses and look at where savings can potentially be made in the long-term.”

Taking Time to Look at Where You Can Make Savings

Instead of taking a short-term view, sit down, assess all your expenses and look at where savings can potentially be made in the long-term. If you’re in a couple make sure you are both involved as a joint enterprise so one of you doesn’t continue to spend beyond your means. If you’re single you could always enrol a family member or a friend to help you, often a fresh set of eyes and an objective viewpoint can make all the difference.
When you first start this exercise, you will probably find it difficult to identify savings. In reality, with the exception of a few fixed expenses, you will be able to reduce your outgoings for most things. Some of the areas you might be able to reduce your expenditure are:

• On your weekly grocery bill. Can you buy cheaper brands or leave out a treat?
• On clothes shopping. Is your wardrobe filled with things you have worn once or not at all? Think about this the next time you see that dress, pair of jeans, or jacket that catches your eye.
• Could you potentially reduce your mobile phone costs if you’re on a contract?
• Are you getting the best price on your utilities, broadband, and television?
• Instead of cancelling your insurance as a knee-jerk reaction to save, can you negotiate a cheaper premium?

“Instead of taking a short-term view, sit down, assess all your expenses and look at where savings can potentially be made in the long-term.”

Can You Increase Your Income?

While evaluating our expenses is usually the first step to solving a financial shortfall, we can also look at our income and ascertain whether there are any opportunities to increase what we earn. You might decide to ask your boss for a pay rise, but if that feels daunting there’s also the option of looking for a new job, or simply finding a way to generate an additional incremental income, be it by using a hobby in a money making venture or taking on a second job.
Again, you should look to avoid the short-term view, which sees many people selling possessions on eBay or similar websites to meet a shortfall now, when ultimately this doesn’t solve the problem in the long-term.

“You might decide to ask your boss for a pay rise, but if that feels daunting there’s also the option of looking for a new job, or simply finding a way to generate an additional incremental income, be it by using a hobby in a money making venture or taking on a second job.”

Solving Your Financial Shortfalls

By taking a considered approach to your spending, planning well, and carefully balancing the money you spend on things you want rather than need, you will put yourself in a great position to avoid financial shortfalls in the near and medium to long-term future. Take the time you need to plan a budget for yourself and ensure you’re always on a positive financial path.



What you need to know

Constancy Wealth Management is an Authorised Representative and Credit Representative of AMP Financial Planning Pty Limited ABN 89 051 208 327 AFSL 232706 and Australian Credit Licence 232706. This information does not take your circumstances into account, so read the relevant disclosure documents and consider what’s right for you. If you acquire an AMP product or service, AMP companies and/or their representatives will receive fees and other benefits, which will be a dollar amount and/or a percentage of either the premium you pay or the value of your investments. Ask us for more details.

This post contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information