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Regardless of household income, most people are struggling financially. That’s right, it doesn’t matter if a person’s household income is $20,000 per year or $200,000, it’s hard making ends meet. Life is expensive. It costs you $150 just to go outside. Just think back to the shutdown during COVID. People had to stay inside. No one was spending money on anything other than essential items such as food, housing, transportation and utilities. The end result, the personal savings rate soared in the United States. Prior to COVID, the average person saved $7 for every $100 of disposable income. During COVID, the average person saved $33 for every $100 of disposable income.
This proves a couple of things. 1. The basic necessities of life are in fact expensive. But lifestyle is what breaks the bank. 2. When people are focused on saving money, they will find a way to do so.
How did I conclude that most people are struggling financially? Forbes Magazine reported that 78 percent of Americans are living paycheck to paycheck. Marketwatch reported that 49 percent of Americans earning $100,000 or more are living paycheck to paycheck. CNBC reported that 30 percent of Americans earning $250,000 or more are living paycheck to paycheck. According to the Fed’s Economic Well-Being Report, 37 percent of Americans lack enough money to cover a $400 emergency expense. According to Nerd Wallet, less than half (45 percent) of Americans would be able to cover a $1,000 emergency expense without turning to a credit card, a loan or borrowing from family and friends.
Most Americans aren’t saving enough for retirement. According to the National Institute on Retirement Security, more than 75 percent of Americans have retirement savings that fall short of saving 15 percent of their income and 21 percent of Americans aren’t saving for retirement at all. According to Yahoo! Finance, only 14 percent of Americans have $100,000 or more saved in their retirement accounts. In fact, about 78 percent of Americans have $50,000 or less saved for retirement. Respondents aged 65 and older have the most saved but, according to the survey, just 36 percent of that age group have $100,000 or more saved, and almost 24 percent haven’t saved anything at all.
As you can see from published statistics, most people are struggling financially. Most people will retire or die broke. Most people are failing when it comes to managing money, saving for emergencies, and retiring with mega money in the bank. Nobody plans to fail, they just fail to plan.
In today’s fast-paced world, personal finance plays a crucial role in achieving financial stability and building a secure future. It encompasses various aspects, such as budgeting, saving, investing, and managing debt. This article aims to provide valuable insights and practical tips to help you take control of your finances and make informed decisions.
- Establishing Financial Goals:
The first step towards effective personal finance management is setting clear financial goals. Whether it’s paying off debt, buying a house, saving for college, saving for retirement, or building wealth, defining your objectives will provide direction and motivation. It will give you the purpose you need to make the necessary sacrifices that are required to win with money.
- Creating a Budget:
A budget is a fundamental tool for managing personal finances. It involves tracking your income, expenses, and identifying areas where you can cut back or save. If you’ve already cut expenses to the bare bones, a budget forces you to take a hard look at your income, helping you to calculate how much more income you need to bring in so that you pay bills, save, and have a life free of mounting debt, worry and struggle. Create a budget that accounts for your income and expenses, and make sure that you include all your monthly bills and other expenses. By creating a realistic budget, you can allocate your resources efficiently and prevent overspending.
- Creating Wiggle Room:
The gap between your income and expenses is the tool you’ll use to pay off debt, cash flow emergencies, and save for future goals. The larger the margin between your income and expenses, the faster you can reach your financial goals. Increasing income, reducing expenses, and sound money management is how you create wiggle room.
- Managing Debt:
Debt can be a significant burden if not handled properly. Understanding the different types of debt, such as credit cards, student loans, or mortgages, and developing a plan to pay them off as soon as possible is essential.
- Saving and Emergency Funds:
Saving money is a critical aspect of personal finance. Saving money is the cornerstone of sound money management. Establishing an emergency fund that covers 3-6 months of living expenses provides a safety net during unexpected financial setbacks. From a practical perspective, trying to save 3-months of living expenses for emergencies isn’t doable when your income is tied down making payments on expenses and debts. Therefore I recommend a starter emergency fund of $500 to $1,000 for emergencies. After you pay off some debt, it will be easier to save 3-6 months worth of living expenses. Additionally, saving for short-term goals and retirement should be incorporated into your financial plan.
- Investing Wisely:
Define a goal for investing. It could be college, retirement, or wealth building. Investing offers opportunities for long-term wealth accumulation. Consider diversifying your investments across various asset classes, such as stocks, bonds, real estate, or mutual funds. Understand your risk tolerance and seek professional advice if needed.
- Insurance and Protection:
Insurance is a necessary evil. It’s the only financial product we buy and hope we never need. You need insurance in case something catastrophic happens.
Protecting your financial well-being is vital. Evaluate your insurance needs, including health, life, disability, and property insurance, to ensure you have adequate coverage in case of unforeseen circumstances.
- Evaluate and Adjust Your Plan:
Finally, review your financial plan regularly, and adjust it as necessary. Your goals may change, and your financial situation may evolve. Be flexible and willing to modify your plan.
- Continual Learning:
Staying informed about personal finance concepts and strategies is crucial. Keep abreast of financial news, read books, attend seminars, or consider online courses to enhance your financial literacy. This knowledge will empower you to make informed decisions and adapt to changing economic conditions.
- Seeking Professional Guidance:
If you find personal finance overwhelming or require expert advice, consider consulting a financial advisor. They can help you develop a comprehensive financial plan tailored to your needs and provide guidance on investment strategies, tax planning, and retirement planning.
Mastering personal finance is an ongoing journey that requires discipline, knowledge, and smart decision-making. By setting clear goals, creating a budget, managing debt, saving, investing wisely, protecting your assets, and continually learning, you can take control of your financial future and achieve long-term financial success. Remember, small steps taken today can lead to significant financial rewards tomorrow.
(Damon Carr, Money Coach can be reached @ 412-216-1013 or visit his website @ damonmoneycoach.com)
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