Stocks have surged over the last 9 years and unemployment has fallen, but at just 2.4 percent of disposable income, the personal savings rate is the lowest it’s been in over a decade.
Despite rising incomes and investment portfolios, Americans are saving less today than they were during the financial crisis.
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 stresses.
According to a 2015 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.
So 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?
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 laid out in front of you 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 – that is, 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.
Avoid Impulse Buying
In moments of purchase temptation, when you’re mulling over an outfit you want to buy or a trip you want to take, you can check in with your spending tracker to assess whether the expense you’re considering falls within your means and is going to bring you closer to or push you further from what you really want to achieve big picture. 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 a report from the Federal Reserve, 44% of U.S. consumers could not cover an unexpected $400 emergency expense using their existing savings. Contributing to record-high levels of U.S. household debt, totaling $13.15 trillion at the end of 2017.
To avoid record-high debts of your own and stay on track with your personal savings, not only will you need to grow the gap between your income and expenses, you’ll also need to make sure you’re maximizing that difference by purposefully directing it toward your debt reduction and savings account growth.
You can optimize those efforts by implementing valuable tools like debt consolidation with personal loans, that can help you streamline your debt pay off efforts, and strategies like automatic savings contributions, that can help you make saving money a habit. Here are some tips on building that 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 and leveraging the difference between your income and expenses to pay off your debt and grow your savings is what will enable you to build meaningful wealth and sustain your financial health for the long-term, no matter how much money you’re making.