Can this disorder be reversed with sound money management practices and a solid financial plan?
Economists say the financial crisis is over but the remnants linger for majority of Americans. The headlines and reports have been less than healthy – Americans aren’t saving for emergencies, Americans are still turning to lending alternatives, more than half of Americans struggle financially, close to half struggle to put food on the table, keep a roof over their head and keep up with the bills – all symptoms of poor financial health.
Now in a study of 7,000 Americans, the Center for Financial Services Innovation found:
- 57 percent of American adults struggle financially
- 43 percent of households struggle to keep up with their bills and credit payments
- 74 percent have a savings account but over 50 percent do not have a planned savings habit
- 43 percent of respondents do not have a budget
- 77 percent use prepaid cards to help them control their spending and over half say they use them to help with budgeting
“This study provides useful new insights about how consumers manage their financial lives,” Courtney Kelso, VP, Product Strategy, Management, and Delivery, Enterprise Growth for American Express says. “One of the most interesting findings is that people can improve their financial health even if their income doesn’t change.”
While it isn’t surprising that families are struggling to get by, it’s interesting that even with seemingly healthy financial habits like using prepaid cards to avoid overspending, so many are still struggling to meet their financial obligations. It means that a key aspect that benefits one’s financial well-being is lacking. Could it be the all-encompassing and often-dreaded budget?
“For over 20 years we’ve provided financial education and debt help to people who are striving to get out of debt, and one of our key teachings is the importance of budgeting regardless of income, helping Americans connect the dot between their income level and debt load, prioritizing what’s important and what’s not,” Consolidated Credit’s Director of Education and Public Relations April Lewis-Parks says.
“If Americans employ these basic yet essential principles, it may or may not result in immeasurable wealth, but it will lessen their financial stress measurably. It is not the amount of money that one has that constitutes financial healthiness; it is having a plan to manage their money be it 50 or $5,000 that will lead to a healthy financial outlook.”
A closer examination of the study found more than 50 percent of respondents are not confident in meeting their long term goals and becoming financially secure; people who plan ahead for large, irregular expenses are 10 times more likely to be in a healthy segment and those who have a planned savings habit are 4 times more likely to be in a healthy segment than those who do not.
These findings are in line with Park’s belief that a financial plan and financial education can boost confidence and help them recover.
The prescriptions for financial health
“If we are going to meaningfully and measurably address financial health in this country, we have to start with a deep understanding of consumer preferences, behaviors, and pain points,” Jennifer Tescher, President & CEO, CFSI says. “This study reveals significant opportunities for policymakers, nonprofit organizations, and financial service providers to create real solutions and empower millions of Americans to live healthy financial lives.”
It is evident that our behaviors surrounding money and our attitudes towards money are keys to preventing bouts of financial stress. To improve, Parks prescribes the following:
- Budget – A budget is designed to track, manage and evaluate where your money is going. Craft one with urgency if you do not already have one. Doing so will help you control your spending, cut unnecessary expenses and teach you how to become disciplined in spending your money.
- Save – Find ways to increase your savings and assets. It is required that you save at least 10 percent of your income and have at least $1,000 in emergency savings. Endeavor to reach that goal and always save more when you can. Include saving for emergencies that way when an unexpected expense arise you will not feel the need to break the bank, pull out the credit cards or turn to alternative lenders for cash.
- Spend your money wisely – Cut out impulse buying. Unplanned purchases can bleed your wallet leaving you with buyer’s remorse and your wallet and budget in dire financial crisis. Always budget, create shopping lists and stick to them.
- Avoid debt – Seek freedom from debt or at least have your debt under control. This one is easier said than done but if debt is inevitable and you are already suffering, pay the highest interest rate debt first and the rest will follow suit.
- Set goals – remember they must be S.M.A.R.T.
- Specific –The goals that you set must be very specific and clear. It is the What, Why and How. Be sure to define each in detail.
- Measurable – As time goes by you should be able to measure your progress.
- Achievable – ensure that the goals you set are attainable. If they are too far out of reach you might get overwhelmed and quit.
- Realistic – set goals that are achievable not too difficult that it makes it almost impossible to achieve and not too easy that little to no effort is required.
- Time-bound – set a time frame for which you want to achieve these goals and work hard towards meeting your deadline.
To begin your recovery or journey to a healthy financial life, use these free calculators. Calculate your debt to income ratio, how much you would need to save to attain your goals and keep you from debt. You may also use our free financial health tools in our Debt Learning center as part of your regimen to avert or otherwise cope with whatever life throws at you. If you’d prefer to talk to someone dial for free or fill out this form to request help through the web. One of our certified credit counselors will be happy to assist.