Statistics show that somewhere around 75% of Americans live paycheck-to-paycheck despite being employed full-time. So it’s no surprise that 7 out of 10 people have only $1,000 or less in their savings accounts. In the case of an unexpected event, the ‘average’ American has nowhere to turn for financial assistance…. so they rely on high-interest credit cards and predatory ‘payday’ loans.
For those folks who are already spending every penny trying to keep a roof over their heads, getting buried in credit card debt will happen in the blink of any eye.
Whether you’re talking about a minor car repair or a major medical bill, sudden loss of employment or the unexpected death of a spouse, your financial circumstances can change suddenly and drastically without any fault of your own.
This is why savings are so important. But as I just mentioned above, only 30% of Americans have any savings to speak of, and even them it’s usually insufficient.
But this all begs the question: why is everyone so broke??
Well, you can blame it on low wages, inflation or high cost of living. But we all know that these problems exist, have exited for a long a time and will likely continue into the foreseeable future. The truth is that most of us were never taught how to be financially responsible.
So what can you do NOW to improve your financial circumstances and achieve your financial goals?
Pay Yourself First.
The first 20% of every paycheck should go directly to savings. Every. Single. Paycheck. Even if this only translates to a few dollars, it will add up over time and may save your life one day (literally). You are your most valuable asset. So take care of yourself first and foremost by ensuring that you will be able to provide for your most basic needs (and emergencies) when proverbial lightening strikes. Take a different perspective on self-care and ‘treat yo’self’ mantras by building a safety net for yourself and your family.
If 20% of your paycheck is earmarked for savings, what should you do with the rest? Here is a tried and true formula for success:
30% for housing expenses (rent and utilities)
15% for transportation (vehicle expenses, public transportation)
15% for food and personal items (cleaning supplies, toiletries, clothing, etc)
20% for miscellaneous or discretionary purchases (cell phone, cable/internet, leisure, recreation and social activities, etc)
Of course, if you spend less on housing or miscellaneous, you can increase spending elsewhere. But you should aim to stay within these guidelines and you’ll always have the funds for the two most important things: life necessities and savings. The first step is to sit down with a calculator and do the math. You may have to make some adjustments to to your spending and lifestyle, but who ever said that anything worthwhile would be easy?
People have no clue where their money is going. There should be money left at the end of the month, but there isn’t… so where did it go??
I go through a ‘disposable income’ exercise with every client. We use recent pay stubs to calculate monthly income and then make deductions from a list of expenses they’ve provided. It’s shocking how many people have money left over at the end of the month… on paper. In reality, they’re barely scraping by every week and they don’t have a penny saved to their name but they don’t know why.
I strongly encourage every client to scour their bank statements. Since debit cards are the most popular method of purchasing in the 21st century, all (or most) of your spending can be reviewed by looking to your bank statements. Review 6 months of statements, line-by-line and you will quickly locate your missing cash. For some, all you’ll have to do is cut back on Starbucks and beer; for others you may have to make some real changes in your life but you’ll never get ahead if you refuse to embrace positive change.
It’s human nature to seek instant gratification. We all want to experience pleasure and avoid pain. It’s important to re-think how we view these two concepts.
You’ve had a bad week, so you treat yourself to some retail therapy. You’re too rushed in the morning to make your coffee so you spend $7 at Starbucks every day (that’s almost $150 a month, by the way). These purchase may make you feel better now, in the short term, but will those new shoes be there to save you when your car breaks down? (I hope they’re comfortable for walking!!) Will Starbucks help you pay the rent when you get laid off? Probably not.
If your ultimate pleasure is being free from debt and financially secure, then you’ll have to sacrifice the small things for your long-term goals. It’s not easy breaking these habits, for sure. Start by reducing slowly and eventually new habits will form.
Ask for Help.
Earlier I said that we have not been properly educated on financial responsibility. It’s not taught in school and budgeting does not come naturally for most. Making financial adjustments can have a significant impact on lifestyle, which can be scary as well.
More importantly, every situation is different and although I firmly believe in the guidelines and principles I’ve discussed in this article, I also acknowledge that this is not a one-size-fits-all approach. I’ve been counseling and educating clients for 8 years, helping to improve financial security for hundreds of people. I welcome you to reach out. I’m here to help.
LAW OFFICE OF LEAH E. CAPECE
Call: 908-353-6700 Text: 908-266-4843 E-Mail: email@example.com