Making Good Money – What’s The Problem?
Does this sound familiar. You make good money, working in a good job with great benefits. You’re doing a lot of good financial things like saving a little bit, taking advantage of your employer’s 401K plan and for the most part, managing your spending pretty well.. You’re trying to get ahead and be financially free to pursue our dreams and goals. But you have one nagging financial issue: No matter what you do, you can’t get away from being broke all the time! That’s right, by the time you pay yourself (save) and pay others, you have no money left over. Sometimes for long periods of time. What is going on?
If you are like the majority of Americans, you have a money leaking problem. Throughout the month, money goes to seemingly small and often forgettable places and after a while, it starts to add up. Resulting in a leak of discretionary spending money. To the tune of about 22% of discretionary spending money per Fidelity. So, for every $500 a month of money for eating out, buying clothes, entertainment and general spending money, you leak about $110 going to things we can’t remember.
In addition, many of us have several other kinds of leaks: Like forgotten commitments, poor planning decisions and bad habit expenses. So where is all the money going? Why am I consistently broke?
Where Is All The Money Going?
It is easy to convince ourselves that we can earn ourselves out of any financial issues, but if we don’t have our expenditures under control, we will always be facing periods of being broke, or worse, increasing debt. Here are five major areas that contribute to our “broke-ness” and the solutions to overcome them:
Being Blind To Reoccurring Expenses
It is so easy today to sign up or order reoccurring expenses like subscriptions, memberships and automated deliveries. These include gym memberships, magazine subscriptions, mobile app subscriptions, amazon automatic monthly deliveries and monthly shoe or clothing subscriptions. These are easy to do, many times with only one click. And we commonly forget about them. Over time, these things can really add up…and break the bank. Think about it, an unused gym membership is $36/month, a monthly shoe subscription is $40/month, three forgotten mobile app subscriptions and two magazine subscriptions total $19/month and automatic coffee delivery is $19/month. All told, this example is over $110/month and it can be significantly worse in a hurry. The question is: Do we really appreciate and get the benefit from all these subscriptions? Most of us don’t over time, but we forget to cancel them when they are no longer desired. The solution: Review all reoccurring expenses on your credit card regularly, at least annually, and remove any obsolete or outdated subscriptions or memberships.
No Emergency Fund
Does this sound familiar: Everything is going well, and then, wham, an emergency comes your way, like a major car repair, home repair or a large medical expense. And you have no emergency fund. So what do we do? We put the expense on our credit card and now we have a large debt payment each month that eats up our discretionary spending money. Think about it, a $5000 expense on the card results is a reoccurring minimum debt payment of $200 for more than 11 years! This is a quick way to eat up your monthly spending money…and for a very long time! The solution: Maintain a 3-6 month of expenses emergency fund for moments just like these. And replenish the account when you use it. Lifeway reported that we have a 78% chance of incurring an emergency in any 10 year period. So it is not a matter of if, but a matter of when we have an emergency. Are we prepared for it?
Buying New Cars
A new car is awesome! They run great, they are a great status symbol that you are successful and they have that new car smell. The problem is that a new car loses 60-70% of its value after just three years of ownership. New cars are a fast depreciating asset. In fact, Edmunds reports that the average new car price in 2015 was $31,252. That means that after three years of use, you have lost over $20,000 in car value (at 65% depreciation). So that $31,000 car is now worth less than $12,000. In addition, the average loan payment for a new car is $243/month more expensive than the average used car loan payment in 2015. So you pay more for a new car each month and you lose a ton of depreciation on that car. Doesn’t sound like a good financial investment. The solution: Purchase reliable used cars where the payments and depreciation are much lower, on the order of $243/month lower.
Carrying Credit Card Debt
Get this. The average American household carries over $15,300 of credit card debt (Nerdwallet). The monthly payment on that debt is over $385/month. Of that $385, only $138/month goes toward your principle repayment. Another way to say that is you pay $247 each month (the interest) for the right to use someone else’s money. Ouch! What is more, Crown Ministries recommends that the average credit card paid each month not to exceed 5% of disposable income, or not more than $122 for the average American family. The result: we are shelling out over $160/month more than recommended in credit card payments which squeezes our budgets and lessens our chance to save money for future purchases. The solution: Do whatever it takes to kill your credit card debt, resolve NOT to carry anymore credit card debt by paying off in full your credit card balance each month.
No Budget/Being Blind To Leaky Spending
As we stated at the beginning of this article, spending leakage is prevalent, especially when we don’t use a budget to allocate our expenses. That $110/month of leakage mentioned above is real and when combined with the other leaks mentioned above, they can add up to going a large portion of the month with no cash or spending money. The solution is simple: Make a budget, write it down and check it against actual spending regularly so do don’t develop leaks. In that budget should be a portion of money to meet your discretionary spending needs.
Adding It Up
Combining the five issues listed above comes out to over $900/month in spending for the average American household that doesn’t need to be there. That $900 could be better used in your budget, I am sure of it. That $900 could go a long way towards not only spending money for the month but also saving for current needs and future dreams. With a better plan (budget) and a better approach (buying used cars and funding an emergency fund) we can eliminate the need for credit card debt to meet our monthly spending needs.
Financial Freedom – Putting It All Together
What this all up adds up to is that we all need to be pursuing financial freedom to ensure we have enough money to meet our needs. With that as our goal, the proper attitude and some basic financial plans in place like a budget and savings plan, you have the components of living financially free and never broke. Free to pursue your dreams. Free to be generous. Freedom from worry and anxiety. If you want to learn more information about financial freedom, you can get more information on our Facebook page or on Twitter.