Americans are saving less today than they were during the financial crisis. After a decade of stock market growth and falling unemployment, the personal savings rate has begun to grow, but it is still lower than it was 50 years ago.
When we think about our money and what would make it easier or less stressful to manage, we tend to think that just having more of it will solve all of our problems.
“If I just had an extra $1,000/month or if I just made $100,000/ year, all of my problems would go away.”
But the reality is, if we don’t know how to stop spending the money we already have, earning more of it isn’t going to magically resolve our financial stress.
According to a recent study, 25% of American families making $150,000 a year or more are living paycheck to paycheck.
In other words, you can be making $10,000 or more each month, but if you’re spending everything you earn, you’re still netting zero.
How can you make sure you control your spending money and don’t get stuck in the cycle of living paycheck to paycheck, especially as your income and assets rise?
1. Live Within Your Means and Track Spending
Start by making a commitment to live within your means. Write down everything you spend, or download an app that will track your daily financial inflows and outflows for you, so you can see exactly where your money is going. Here are some personal finance app examples.
Reviewing your spending and seeing the numbers in black and white can help you confront your own bad money habits. The kinds of habits that perpetuate cycles of financial stress like living paycheck to paycheck, struggling to build savings and digging deeper into debt.
Tracking your spending helps break these cycles by bringing mindfulness to your day-to-day financial habits—helping you identify serious spending issues, like spending more than you make, and allowing you to see whether your actual spending is aligned with your goals and priorities. In other words, it helps you see whether you’re spending money on stuff that you don’t really care about at the expense of the things you do care about.
It’s far easier to make changes and realign your spending with your goals when you can identify exactly what’s keeping you from reaching them. And it’s far easier to stay accountable to those priorities when tracking your financial inflows and outflows is a daily practice.
2. Avoid Impulse Buying
Once you have a tracker set up, you can check it before buying that new outfit or booking a spontaneous getaway. That way you pause to assess whether the expense you’re considering keeps you on budget or will push you further from your big picture financial goals. And, you can still find ways to have fun without spending money.
If overspending has already put you on course to compounding debt and insufficient savings, you’re not alone. According to the Federal Reserve’s annual report on the economic well-being of U.S. households, more than 40 percent of U.S. consumers have difficulty covering an unexpected $400 emergency expense with existing savings. This may have contributed to record-high levels of U.S. household debt, which totals more than $13.15 trillion as people used credit cards and other loans to cover emergencies.
So, pause before you buy and be sure to check your budget.
3. Debt Reduction
To avoid record-high debts of your own and stay on track with your personal savings, you need to grow the gap between your income and expenses. And you also need to make sure you’re maximizing that difference by purposefully directing funds toward your debt reduction and savings account growth.
You can optimize those efforts by implementing valuable tools like debt consolidation with personal loans. A personal loan can help you streamline your debt payoff efforts. Strategies like automatic savings contributions can help make saving money a habit. It’s also important to build your emergency fund while paying off debt.
Remember, you don’t own your income. You only own the part of your income that you keep. A commitment to living within your means, paying off your debt and increasing your savings will enable you to build meaningful wealth and sustain your financial health for the long run, no matter how much money you’re making.