Most people are struggling financially. What’s sad, many of those who are struggling financially either don’t know they’re struggling or don’t care. 78 percent of Americans are living paycheck to paycheck. Yet only 55 percent are worried about their finances. I guess the remaining 23 percent who are not worried about their finances are in denial.
Truth of the matter is money doesn’t come with instructions. Many of us graduate from high school and college with advanced degrees having never been taught how to create a budget, balance a checkbook, or the importance of saving for short and long-term financial goals. Sure, there are some banking representatives who do workshops at various high schools and colleges. Their angle is to teach us the importance of having a high credit score so that we can borrow money. Who benefits from that teaching? The bank!
When I was a kid, I used to eat a ton of candy. One of my favorite treats was a candy called “Now and Later.” The Now and Later slogan when I was coming up was, “Eat some now, save some for later.” I didn’t know it then, but that’s the cornerstone of sound money management advice if we simply replaced the word “eat” with “spend.” “Spend some now, save some for later!” You may have heard it this way, “Pay Yourself First.” Pay yourself first simply means before you spend money, you should save money for future needs and wants. Warren Buffet, the wealthiest financial guru on the planet said it best, “Do not save what is left after spending, but spend what is left after saving. Making saving a priority may be “The American Dream” but it’s not “The American Way.”
The personal saving rate is 7.9 percent in America compared to 11 percent in the 1960s. Approximately 40 percent of Americans would struggle to come up with $400 for an unexpected, emergency related expense such as car and home repairs or long-distance travel to a sick loved one. When Yahoo! Finance asked participants how much money they had saved for retirement, 45 percent of the respondents said they had no money saved for retirement. Another 19 percent said, they will retire with less than $10,000 saved for retirement. Do the math, that’s 64 percent of Americans who plan on retiring dead broke. Another 20 percent said that they will retire with anywhere from $10,000 to $100,000. Not dead broke— but looking at the numbers on the high side. $100,000 will do you fine if you plan on retiring from life shortly after you plan on retiring from work. If you spend $20,000 of the $100,000 nest egg per year, it’s gone in five years. Golden years are not looking so GOLDEN!
I was recently the keynote speaker for “Parent You” in my hometown, Youngstown. My presentation was titled, “Get A Grip On Your Money.” The emphasis on my talk was the importance of creating a budget and sticking to it. One of the things I discussed was ideas on how to create wiggle room in the budget. There has to be a gap (wiggle room) between your income and your expenses. If there’s no wiggle room, you will struggle paycheck to paycheck, month to month, year to year. If you don’t have wiggle room in your budget, you will not be able to save for emergencies and future goals. You’re literally one missed paycheck away from falling into a deeper financial hole or worse—declaring bankruptcy.
As I was being interviewed about my presentation, the host asked me three questions.
Question 1: “What’s the biggest mistake most people make when it comes to their money.” I responded, “Not having a budget is the biggest mistake most people make. Money is the greatest magician. It can disappear right before our eyes without you ever knowing. If you don’t have a budget, you’re going to wonder where your money went.”
Question 2: “If you could tell people what’s the most important thing people can do with their money right now, is it making a budget or something else?” I responded, “Making a budget is key, but if you want to build your money muscles sort to speak, SAVING money is the most important thing you can do with money right now. This is money talking to you. ‘If you save me today, I’ll save you tomorrow.’ The cornerstone of having a sound financial life is saving money!”
Question 3: “When people hear people talking about investing and saving, they think to themselves, ‘I’m just happy to be able to pay my bills every month.’ What would you say to people who say that?” I responded, “We need to fix that way of thinking. That’s not living, that’s merely existing. You don’t want to be in an environment where you’re living paycheck to paycheck for the rest of your life. That’s a stressful place to be in. First step to fixing that is creating wiggle room in your budget.”
I was recently on a call with a client who wanted me to talk her off the ledge. She recently paid her car off in full. That officially made her completely debt-free. She said she’s never had a brand new car. Now she wants one. She sacrificed and paid the price to become debt-free. She has more disposable income than she’s ever had before. I asked her to tell me her top three financial goals. She said become a homeowner, help her daughter finish college, and become a billionaire. I responded, “To have a goal to become a billionaire implies that you’re already a millionaire. Are you?” She started laughing and said, “No.”
“Think about this,” I said to her. “Purchasing a car isn’t even one of your top three financial goals. Let me ask you a question, does purchasing this car and taking on the car payment help you purchase your new home, put your child through college or become a millionaire?” She said no. “You have a nice, reliable car that’s paid for. You currently have nothing saved for your down payment on your home. You want to prevent your daughter from running up massive student loan debt. Where do you think the money that you’re thinking about paying on a car note can be best used?” She replied, “Putting it in my savings account for my house and daughter’s college.”
That’s right, if you save money today, your money will save you headaches, stress, and massive debt tomorrow. More importantly, saving money will help you stabilize your life and help you achieve your financial goals.
(Damon Carr, Money Coach, can be reached at 412-216-1013 or visit his website at www.damonmoneycoach.com)