Part five of the “Live Your Resolutions” series.
According to Statistica, the fourth leading New Year’s resolution of Americans is to save more and spend less, with more than 55 million Americans having no money in savings and 157 million of Americans carrying a debt of some kind (source CNBC).
The Bureau of Labor Statistics for 2016 show the average income for an American household is $74,664, with $57,311 going toward living expenses. That left $17,353 in cash each year.
Debt.com showed that only 32 Americans have an established budget, and only 30 percent of Americans have a long-term financial plan that includes savings and investment goals.
Forty-nine percent of Americans have anxiety about their financial futures. In fact, 31 percent of Americans have less than $500 in savings, and only one of five Americans facing financial hardships are living below the poverty line.
According to Nerdwallet.com, 157 million Americans carry a credit card debt, with an average balance of $16,245. Forty-four million Americans have a student loans averaging $50,868.
Matt Bennett, a financial advisor for Modern Woodmen of America in Winona, said in order to get control of spending, accrue an emergency fund, and get out of debt, you must first know your financial basics.
“First, you need to know how much money you have coming in each month, and how much you have going out,” Bennett said. “You need to know how much you need to cover your core expenses. Your core expenses are what is needed for you to survive – housing, utilities, food, and transportation to get to work. If what you are making isn’t covering those core expenses, you have to cut something.”
Bennett said every dollar that comes in each month should have “a place to live” – or a specific line item on a written budget or plan. Line items should include mortgage, utilities, vehicle loans, food, insurance, gas, and credit card/loan payments. There should also be a line to include savings. He said an individual has to be “very systematic” with his plan to get out of debt and create savings.
“If what is coming in versus what is coming out is a negative, you have to solve that problem,” Bennett said. “The first rule is to stop spending and live as cheaply as you can. Set the heat a little cooler in the winter, and the air conditioning a little warmer in the summer. Sell what you can. Get a side job.”
Bennett quoted personal finance expert Dave Ramsey, “If you live like no one else, you can live like no one else.”
After all expenses are paid each month, Bennett said to take any extra money and put it toward an emergency fund.
“Most people say an emergency fund is $1,000, but for someone it could be $500,” he said. “But at a minimum, have $500 in an emergency fund.”
Once an emergency fund is established, Bennett said to focus that extra money to paying off debt, and he suggested using the “debt snowball” plan.
He said an individual needs to maintain the minimum payments of each debt to avoid late charges, and any extra money each month should go to the smallest debt. Once that debt is paid in full, take the money spent on that retire that debt to pay on the next smallest debt. Follow the “debt snowball” plan until all debts are paid, and then put the money used to pay off debt into a savings plan.
Bennett said for some individuals, consolidation of credit card debt can be beneficial. By taking out a loan with a lower interest rate from a bank or financial institution, all debts can be paid in full and high interest rates eliminated. Then there will only be one debt to pay each month.
For those who can’t acquire a loan to consolidate under a lower interest rate, he suggests contacting the credit card company and work out a payment plan and try to negotiate a lower interest rate.
“If someone is over their head, the best route is to sell assets to get a nice lump sum to pay off debt,” Bennett said.
Bennett said if there is a true desire to spend less and save more, take small steps.
“You have to be committed to the plan,” Bennett said. “You are going to get frustrated and feel like you aren’t gaining traction, but don’t give up. You didn’t get into debt overnight.”
For those looking at the future, Bennett said to determine what your individual goals are, and those goals will determine what you need to do to create a financial plan for the future – whether those plans require a basic savings account or investing in the stock market. He recommended a life insurance policy as a starting point in planning for the future.
According to americasaves.org, a campaign managed by the nonprofit Consumer Federation of America to motivate, encourage, and support low-to-moderate-income households to save money, reduce debt, and build wealth, money savings tips include:
• Create an automatic draft each month from your checking account to your savings account.
• Save a portion of employer bonuses and tax refunds in a savings account.
• Take advantage of your employer match retirement plan.
• Save your loose change.
• Use the 24 hour rule to eliminate impulse purchases. If after waiting for 24 hours, you still want to make a purchase after 24 hours, then make the purchase.
• Treat yourself, but use it as a savings plan. If you splurge on an item, put a matching amount into your savings account. If you can’t afford the savings, you can’t afford the splurge.
• Calculate the cost of an item into the time it took to work for that item. If something costs $50, and you make $10 per hour, ask yourself if it is worth five hours of work.
• Pay all your bills on autopay to avoid late fees and penalties.
• Commit to eating out less each month. Bring your lunch to work instead of ordering out.
• Plan your meals in advance to grocery shopping.
• Take advantage of your public library for books, DVDs, and other services offered.