As you may or may not know, American’s personal finances are in sad shape. The outrageous spending of the government is being mirrored in households across the country, making it hard for many families to live comfortably. Below are some staggering statistics about the state of citizens’ money in the United States, and what you can do to make a change in these numbers.
Personal finance professional Tim Chen found from three nationally accredited sources in research for his online publication NerdWallet that more than $155,000 of that debt is attributed to the mortgage, and almost $16,000 is due to credit card debt. Everyone needs shelter, that is a basic human right; but living beyond your means is an urge that can be harnessed.
Jennifer Calonia of U.S. News and World Report noted that American’s seem to have an issue with “keeping up with the Joneses,” which deepens the financial burden you already have from your necessities like housing. Instead, he recommends setting aside a certain amount of discretionary money each pay period and sticking to that budget.
“If you haven't already, open a separate online savings account for your monthly discretionary spending allowance. This should only be a small percentage of your monthly income, like $100 per month, so you don't feel deprived of spending, but aren't going overboard,” Calonia said.
When you get the urge to splurge on that new iPhone, settle down and remember that your neighbor — the one with all the fancy gadgets — he likely just put his family in a harder financial spot just to nab one. Patience is a virtue, especially when it comes to saving and spending.
Of the remaining household debt, once you remove the mortgage from the equation, more than 67 percent of the debt is attributed to student loans, according to The Project on Student Debt, a research nonprofit. Obviously, it may be too late for you to affect this total, but there are ways to reduce your principal balance faster.
Paying more than your minimum balance each month is a good start, but lenders often apply overpayments to the interest you’ve accrued on the loans over time. You can usually request on your paper payment stub or on the online payment screen where you want the extra payment allotted. If you can’t, send a letter to your lender requesting the overpayment be applied directly and exclusively to your loan principal balance.
The problem of educational debt holding you back is not going away any time soon. Madame Noir magazine found that the price of college tuition has increased 113 percent over the past 40 years. Therefore, just remember, when your children near college age, that beginning higher education at a two-year community college is often cheaper and just as effective in knocking out prerequisite courses.
Automobiles are coming standard with a lot more bells and whistles than they used to, which is great for the driver and not so great for your bank account. Experian Automotive found that the average auto loan is taken out for nearly 30 large, and the terms are getting longer and longer, keeping you on the hook for more time, and therefore, more interest. What’s worse is that auto research site Edmunds reported that a car’s value depreciates nearly $17,000 in its first five years — when loans range up to eight or 10 years, that just turns you upside down.
What you can do is look into refinancing your vehicle to save money over the life of your auto loan. You will want to compare as many different options as possible.
“The goal is to refinance at a lower interest rate, while shortening the length of your auto loan,” Calonia said.
That’s enough to barely pay for one new tire or an emergency plumber for one-and-a-half hours of labor. Furthermore, Madame Noir found that half of American’s rainy day funds contain about $800, which is better but still only enough for half a new auto transmission or one last-minute plane ticket back home. The remaining quarter of Americans likely have much more in savings, or — gulp — none.
The solution here is simple. Remember that account you opened for the “allowance,” as mentioned above? Open another one for emergencies and match the contributions, or split the deposit into the two savings accounts. Make a goal to exponentially increase your contributions every month, year, etc. Just remember when it comes to saving, it’s okay to start small - something is better than nothing. Assess your needs and maybe even seek out extra income if you have the time and energy.
With American consumers more than $11 trillion in debt collectively, becoming more financially independent may seem like an impossible task. However, you can set your own goals on a personal level by recognizing the areas that get you into trouble and working to circumvent them.
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