You can gain financial control, but if you’re worried about your financial situation, you’re far from alone. According to a survey released by the Federal Reserve, 47% of American consumers report that they would not be able to offer $400 for emergencies without borrowing or selling something. This half of the country lives in a constant state of financial peril.
If we can’t come up with $400, that means we’re probably not saving for retirement and we’re in a pretty precarious financial position — no matter how much income you make each month.
Don’t feel guilty: it’s not your fault
While some of us overspend on luxury homes, vacations, luxury vehicles, and lattes, many people owe their plight to a series of unfortunate events along with income that is not enough to cover their daily living expenses.
When you’re barely making ends meet, something like a trip to the emergency room or an unexpected car repair can send you into the red at any moment and thwart your good intentions of putting money into an IRA, 401(k), or other retirement account. If we can’t pay for the everyday disasters in life, we’re going to have a really hard time saving and paying for retirement. Social Security probably won’t cover your expenses. You need to know how to prepare for your golden years.
Blaming the stock market, the housing crisis, the job market, the student loan crisis, or one of a million other forces beyond our control will do nothing to solve the problem.
Worrying about money can be overwhelming, but you can take financial control with four straightforward steps.
1. Start gaining control by creating an emergency fund
The first step to gaining financial control is to collect an emergency fund. An emergency fund enables you to avoid falling deeper into a financial hole when the unexpected happens. (And the one thing you can expect is that the unexpected will always happen.)
In his book “Total Money Makeover,” personal finance expert Dave Ramsey recommends saving $1,000 as the first step toward achieving financial management. I know what you’re thinking: If I can’t have $400, how am I going to save $1,000? The answer: Do whatever it takes. Sell some stuff on Craigslist, do odd jobs, call your cable company to negotiate a lower bill, and put your monthly savings into your emergency fund.
An emergency fund won’t be created overnight, but with some hard work and creativity, you can make it happen.
- You may want to start by setting a deadline and brainstorming ideas for fundraising.
- Next, create a separate bank account for the emergency fund—maybe even open an account at another bank so it isn’t so tempting to dig in.
- Finally, once you’ve saved your $1,000, consider what really constitutes an emergency. An emergency isn’t really a good sale for new patio furniture or a vacation.
Your emergency fund is for those times you have a flat tire or an unexpected bill. It’s an insurance policy against having to take out a credit card when necessary. Don’t touch it unless you absolutely must. If you’ve used up some money, go back to solid saving again so you can replenish your emergency credit.
You may find that once you learn how to save money in an emergency fund, you’ll feel more in control and able to start saving for retirement. Want more inspiration on how to save money? Dave Ramsey offers saving tips and tells you how much you’ll need to retire comfortably.
2. Evaluate your budget each month and cut expenses
If you want financial control, you need to know how much you are spending and on what.
You likely have a lot of competing financial obligations. Much of what you spend is legitimate and worthwhile spending. However, if you work for a few years and get a raise during that time, you will likely have room to economize and save more in the future.
It’s called lifestyle creep. When you were younger, you probably made less money and were able to make ends meet and live on less. As your earnings have increased over the years, so have your expenses. Perhaps without realizing it, we start incorporating little treats into our daily routine. A Netflix subscription, more lunches out, a fancier gym membership, magazine subscriptions, or hiring someone to take care of the yard work for you. These little indulgences pile up and before we know it, we’re living off our paycheck and missing out on some big savings opportunities.
Look at your bank and credit card statements and take a look at where your money goes each month. Call your cell phone company and cable company to negotiate lower plans. Cancel any subscriptions you are not using. Start eating at home instead of going out to dinner when you have a full fridge but don’t feel like cooking.
Turn your creepy lifestyle upside down by gradually increasing your savings rather than your spending. Increase your 401(k) contribution by 1% and set up automatic transfers to your savings account. Then set a calendar reminder to do it again in six months.
3. Get out of debt
If a large number of middle-class Americans are struggling financially, credit cards are a big part of that problem. Only about 35% of credit card users are convenient users who pay off their balance each month and only use credit cards to generate bonus points and rewards, not because they need to borrow.
For the rest, the situation is very bleak. Overall, the national average card debt among cardholders with unpaid balances in December 2022 was $7,279. Includes debt from bank cards and credit cards to individuals.
Before you blame these numbers on irresponsible young consumers, the stats also show that millennials and individuals over the age of 74 have the least credit card debt. The biggest spenders are the tenth generation. Credit card debt has become a national epidemic as Americans pay so many fees and penalties that we may never get rid of them.
If you really want financial control, it’s time to get serious about paying off credit cards. Stop using credit cards as an additional source of income when you want to buy something you can’t afford. Two effective ways to pay off debt are debt snowballing and debt collapse. Choose the one that appeals to you and get started.
4. Gain financial control by learning to say no
In his article for The Atlantic, The Secret Shame of Middle East Americans, author Neil Gabler explains the series of financial missteps and misfortunes that led him to be included in the half of Americans who couldn’t get $400 in an emergency.
Declining pay scales in the press, bad luck in real estate, and suing to re-book a worker prominently in advance. But one of the decisions he made was clearly within his control. He briefly mentions having no retirement savings because he emptied his 401(k) to pay for his youngest daughter’s wedding.
What happened to you saying no? Motivational speakers encourage us to say “yes” to life. Take risks, follow your dreams, meet new people. But “yes” doesn’t always work, especially when it means sacrificing our financial future.
If you want to know how to save money, just say no to things that cost a lot. You don’t have to say no to everything, but you can’t say yes to everything. Learn to prioritize and make tough choices.
Every parent wants to give their children the best of everything, but there comes a time when saying no is the only rational choice. No, I cannot sign a loan. No, I can’t pay for four years of college at an elite university. No, I can’t foot the bill for your dream wedding.
Whether it’s our children or anyone else, if saying “yes” means sacrificing your financial stability or retirement savings, the answer has to be no.
Save money and you may eliminate a major source of stress
For many Americans, living in financial danger is a major source of stress. If you find yourself included in a portion of the 47%, start taking small, sustainable steps to take control of your finances. The financial benefits of dealing with the problem will improve not only your bottom line, but your mood as well.
Need more ideas on how to save money? Here are some tricks and tips to save more.
