Sorry to interrupt our series on how to save money, but I thought this post was important.
We are experiencing a money crisis here in America!
Let me hit you with some statistics:
- We currently are over $3 Trillion in debt between student loans, auto loans, and credit card debt.
- If you include mortgage debt into the number it’s over $4 Trillion.
- 7 in 10 people have less than $1,000 saved.
- 25% of millennials can pass a basic financial literacy test, but 70% of them say they are good with money.
- The number of consumers 60 years or older with student loans has quadrupled in the last decade.
- Over 60% of Americans carry credit card balances each month
- And almost 40% of Americans have no savings at all!
This is a serious problem. We have more debt than ever and people aren’t saving the money that they need to.
Is it too late? Are we stuck drowning in debt with an inability to save?
There’s a lot you can do to improve this problem and here’s how.
Create a budget
I’ve written a lot about budgets in the past so I will give you the key points here:
- Write down your monthly income.
- Track your spending over the last few months.
- Compare your spending to your income.
- If you are spending more than you make, cut your spending!
- If you are really serious about improving your situation, limit your “fun money” to as little as possible. Put every extra dollar towards saving money and paying off your debt.
For a more detailed look at how to create a budget, click here.
Cutting your expenses is a great way to free up money that can be used for retirement savings or paying off some debt.
A great and effective way to keep your spending to a minimum is cut most of your discretionary spending (fun money).
If you are spending $100 per week or more at the bar or take-out, eliminate that spending and put it towards your savings. Buy all of your food from the grocery store and cook at home.
If you are paying $100+ for cable TV service. Cut that out and use Netflix instead. Better yet, cut them both out and rent books or movies from your local library.
A more “extreme” approach to cutting your expenses would be adopting a frugal lifestyle. To learn more about how to live frugally, click a previous post about it here.
Increase your savings
The amount of money you are currently saving for retirement and emergency fund, is it enough? Most money experts say you should save at least 15% of your take-home pay for retirement, but in my opinion, you save as much as you can.
If you have a lot of expenses and are just making ends meet, you probably can’t save 15%. Save as much as you can. If that’s 3% of your paycheck, good enough. In a few months, after you’ve gotten used to not having that extra 3%, try bumping it up to 4%. Keep that percentage until you get used to it and bump it up again.
If you have minimal expenses and a high-paying job, again, contribute as much as you can. If that’ 25% of your paycheck awesome or if that’s 50% of your pay, even better!
Do what you can to make small incremental increases to your savings rate. Every little bit helps.
Pay off your debt
This point specifically focuses on that very first statistic I listed. You need to get rid of your debt, especially that high-interest debt, as fast as you possibly can.
In reference to credit card debt, there are a few different ways to go about it.
- Balance transfer to a 0% APR credit card
- Debt avalanche payoff method
- Debt snowball pay off method
- Take out a personal loan
Your student loan debt is a little different because you can’t, unfortunately, just roll it into an interest-free account to pay it off.
The first thing you could do is refinance your debt. This is a good approach if you have loans with high-interest and the rate environment is lower now and/or if you have loans spread across different institutions are a looking to consolidate.
Another approach is to work for the government for an extended period of time. After you’ve made on-time payments you can apply to get your loans forgiven, and if accepted, you are no longer responsible for your loan payments.
If you are someone that has an auto loan, the simplest advice I can give you is this: Don’t spend a lot of money on a car. Get a car that is reliable and can get you from Point A to Point B. It’s a depreciating asset and it doesn’t make sense to throw a bunch of money towards an asset like that.
A couple of links for you:
- Article about student loan refinancing on My Millennial Money Guide -> here.
- Debt payoff strategies I wrote in a previous post -> here.
- This last link is dedicated to student loan debt relief. Started by Robert at the College Investor, this program is designed for people with student loans to help them pay off their debt. This is an awesome program so go check it out -> here.
Make more money
This one may be easier said than done, but a great way to pay more towards debt and save more money is to have more money. Do what you can to increase your monthly earnings.
Ask for a raise at work. Take on new projects at work and bust your @$$. Taking the initiative and working hard should be noticed by your boss and could lead to a promotion (and a raise) down the line.
Get a side hustle. A side hustle is very common nowadays, thanks to the gig economy. You can make money doing almost anything thanks to freelancing and the web.
For a solid list of side hustles you can take on to increase your earnings, J Money at Budgets are Sexy has a great set on his site. Check them out here.
This day and age, automation is everything. It reduces the time and energy needed to make payments, contributions, or money transfers.
Having your bills on auto-pay also eliminates the chance that you forget to make a payment, which can hurt your credit score and also leave you with a late payment fee.
Setting your savings to automatically take place at the beginning of each month does two things: It makes sure that your emergency and retirement savings are taken care of right away so you’re not left just contributing what’s left at the end of the month, and it reduces the amount of money you have to frivolously spend on unnecessary things.
It’s one thing to listen to what the money experts tell you to do, but it’s a whole nother thing to actually know and understand what you are doing.
Educate yourself. Read books and blogs, listen to podcasts and watch videos. Consume any piece of content you can get your hands on to improve your understanding of money and increase your financial literacy level.
I have a few items listed on my resources page to help get you started, but I have two more links for you to further your knowledge.
- A list of 8 personal finance books to improve your financial knowledge from Financially Fit and Fab -> here.
- A stellar list of personal finance blogs on Rockstar Finance -> here.
The personal financial situation for the average American is horrendous. We have too much debt and we are not saving enough. Using these tips and by taking advantage of the various links throughout this post, you can improve your financial health and hopefully eliminate or reduce those statistics.
So readers, what are you currently doing to reduce your debt and increase your savings?