MarketWatch recently reported that 66% of Americans feel they are living paycheck to paycheck, and 49% consider themselves broke. Additionally, the survey revealed that on average, Americans believe they need $17,430 in savings to feel financially secure. To feel secure, they also think earning a $73,785 salary is necessary, yet the average salary is just $61,659.
Much of these financial insecurities are attributed to debt. According to the Federal Reserve Bank of New York, the country’s total household debt is at an all-time high of more than $17.5 trillion. Americans are struggling more than ever to pay off mortgages, student loans, and credit cards.
Start Budgeting
James Allen, CPA, CFP, and founder of Billpin, emphasizes that the first step to financial stability is creating a budget. He describes a budget as a financial GPS that guides you to your destination. The 50/30/20 rule is a good starting point, allocating 50% of your income to needs, 30% to wants, and 20% to savings. It helps you understand what’s coming in and what’s going out, maintaining a healthy financial balance.
Embrace a Spending Fast
Mary Hines Droesch, head of consumer and small business products at Bank of America, suggests a spending fast or no-spend period. This technique involves cutting off non-essential purchases for a specified length of time, such as a week or month. Although it might seem daunting, it helps you gain a deeper understanding of your spending patterns and develop a healthier relationship with money.
Set Goals
Sean Fox, president of debt resolutions at Achieve, advises setting financial goals to navigate through financial challenges like inflation, rising interest rates, and debt. Establishing both short-term and long-term goals can guide your finances, boost confidence, and ease stress. These goals can range from buying a new appliance to taking a vacation, purchasing a car or house, retirement, or pursuing a favorite hobby. Paying off a credit card or student loans can also be a goal, relieving financial stress and allowing for more savings.
Make Savings Automatic
From your budget, determine how much you can save each week or month. Even a small amount is a start. Set up automated savings with your employer or directly with your bank or credit union. Saving even $50 a month can accumulate to $600 in a year, enough to cover unexpected expenses without reaching for a credit card.
Understand Options to Deal with Debt
If you have debt, use your budget to decide if you can pay it off on your own using the avalanche or snowball method. Alternatively, consider a personal loan to consolidate and pay off debt. Balance transfers to low- or zero-interest credit cards and credit counseling firms offering debt management plans are other options. For those who have experienced financial hardship, debt settlement could be a viable solution. The American Fair Credit Council is a resource for learning about debt settlement and finding credible providers.
Try Negotiating with Creditors
Moulik Jain, a financial expert and head of marketing at CaptainBiz, suggests explaining your situation to creditors to see if they can ease your payment terms. Many creditors are willing to help if they understand your circumstances and may offer a lower interest rate or alternative payment plan for more manageable payments.
Be Aware of How You Got into Debt
Melanie Musson, a finance expert with InsuranceProviders.com, highlights the importance of understanding how you got into debt to avoid repeating the same mistakes. Identify whether your debt was due to higher costs, insufficient income, or unexpected purchases. Once you know the reasons, you can devise a plan to address the underlying issues.
Generate Additional Income
For those with debt, lacking retirement savings, and worried about inflation, generating additional income might be necessary. Many people are taking advantage of high rates paid to part-time employees or leveraging the gig economy by offering services like pet care, lawn care, tutoring, or consulting.
Contribute to Employer-Sponsored Retirement Plans
If your employer offers a retirement savings plan, contribute to it even while managing debts and building emergency savings. Employer matching contributions provide additional savings at no extra cost to you.
Have Patience with Yourself
Maya Sudhakaran, head of growth and acquisition at Plynk, advises being patient with yourself if you get off track financially. Acknowledge and reflect on any setbacks and focus on what you can do to further your financial goals. Starting is more important than perfection, and any progress, no matter how small, can add up over time.
