We as Americans can be too focused on how we look today without balancing out the needs of tomorrow. A chart by the Organization for Economic Co-operation and Development shows that the average household savings rate is 4% which is lower than other many other countries.
Making changes can help you overcome problems and begin to save money while living a more genuine life.
Risks of Low Emergency Savings
If you are drowning in bills and debt, you might consider adjusting your habits to encourage higher levels of savings. You never know when an emergency occurs such as an unexpected hospital bill, car issues, accident or bill might show up. If you have less than a 1K in your bank account you could be setting yourself up for financial failure when all other avenues are exhausted.
Understand Your Spending
Before you can really understand how to proceed in creating a savings plan, you should have a reasonable idea on what you are spending every month. Some of these expenses such as mortgage/rent are stationary while others are more flexible. If you are spending $6 on lattes each day, then this adds up to $180 a month that can go into your piggy bank.
Stop Comparing Yourself
A big part of our spending is associated with comparing ourselves to others. If they have a nice car, and we don't, we might feel as though we are not successful. The problem is you don't know if they are losing their house, have no savings, or are stressed out from their spending. Focus on yourself and forget what your friends and neighbors have.
Be Aware of Subconscious Motivation
You will also need to understand what motivates your spending. Purchases are not always based in what we need but in deeper subconscious emotions. This is one reason some people become addicted to spending and eventually find themselves deep in a financial hole. Ensure that what you are buying brings you long lasting satisfaction (i.e. gym) or something you need (i.e. food).
Make Conscious Choices Over Your Spending
Once you understand waste in your spending and what motivates your spending you can make long lasting changes. Cut out those items that are not essential or not worth their cost. This is an individual choice as life must still have flavor, but it is likely you are spending money on things you don't need or only bring short spurts of satisfaction.
Pay Down Costly Debt First
Focus on getting rid of debt that is eating up your current income like high credit card interest or bills that can be paid off quickly. Suffer paying these things off in the short run so you don't keep getting plagued by them in the long run. Move from the most costly debt to longer-term debt so that you are continually lowering your debt-income ratio.
Create Long-Term Savings
Start taking money that you have saved from implanted fiscal changes and put that into your long-term savings. Give yourself a solid 5k of short-term emergency money and then move to investing in long-term interest bearing accounts like CD, mutual funds, etc... The more money you put into these growth accounts, the more wealth you will create into the future.
Adjust Your Lifestyle
Finally, adjust your lifestyle to match your financial needs. Reverting to previous habits won't do you much good in the long run. Solidify the changes by finding new ways to enjoy yourself instead of eating out a few times a week or buying items you don't need. Consider focusing ways to create greater freedom from financial worries and perhaps start a side business.
Can be reprinted with link and citation/attribution.
Abel, M. (January 23, 2015). Report Shows Americans Need Help Avoiding Financial Ruin. Academic-Capital. Retrieved http://www.academic-capital.net/2016/01/report-shows-americans-need-help-on.html
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