The U.S. economy continues to perform well, but that doesn’t mean households aren’t in financial turmoil. Overall U.S household climbed above $13 trillion in Q1 2018, a figure that continues to increase. And not only are Americans in more debt than ever, but they also have razor-thin savings to add to their stress. Per CNBC, 55 million Americans have no emergency fund whatsoever.
Cash-strapped or not, use these six tips to stop living on the edge and start building a cushion.
Prioritize High-Interest Debt
The only thing worse than being cash-strapped is being cash-strapped with high-interest debt. Average monthly credit card interest rates hover around 15 percent, but they can easily be as high as 25 percent for debtors with subpar credit scores. These interest rates, combined with large revolving debt, can consume a debtor’s budget. Before progress can be made, high-interest debt needs to disappear. You can try one of the popular debt snowball, avalanche, or hybrid snowflake techniques to see what works best for you.
Set Incremental Goals
It’s hard to get anywhere if you don’t know where you’re headed. That’s why goals aren’t something strictly for type-A personalities. Short- and long-term goals are roadmaps to navigate the small and endless day-to-day decisions we make. When it comes to building that essential savings cushion, we need to know how much we’d need to cover a long unemployment stretch, a car breakdown, or a sudden health bill. Setting—and—following through on goals may even influence other areas of your life positively. Personal finance thought leader Andrew Housser has even cited the importance that both short-term and long-term goals have played in him founding and serving as the CEO of Freedom Financial Network.
Use Your Tax Money
Every paycheck, a substantial chunk of our paycheck goes to taxes, but depending on what we claim, some of that money could be coming back. When you can’t find extra room in your income to build a cushion, look for your annual tax refund. Or you can claim a higher number on your taxes to have less of your paycheck withheld. Either way works, but if you’re claiming a higher number, be sure to save enough money to cover your inevitable tax bill. Plenty of other ways exist to save money on your tax bill, so leave no stone unturned when filing. It might even be cost-effective to hire a CPA to file for you.
Learn to Love Free Hobbies
There’s nothing wrong with treating ourselves. We earned it right? Except, when there’s little-to-no money left over for necessary expenses and the cushion is thin. Costs would need to be trimmed across the board. Luckily, there are free activities in every community or city. And regardless of your hobbies, there’s probably an event or meetup geared toward what you enjoy. Learning to love free hobbies provides needed mental stimulation and doesn’t work against your savings goals.
Simplify (and Automate) Your Meals
Sharing a meal with good company is one of the indisputable joys of life. But when we get used to eating out, we get used to siphoning money from our paycheck. One could argue that by eating meals out, especially at affordable places, that money is being saved due to the opportunity cost of not having to cook. Those same people haven’t purchased a crock pot at a thrift store for $10. From there, insert meat, vegetables and a starch (with seasonings and sauce) and—walla!—enjoy.
Understand Your Problem Areas; Spend More Time with Financially Wise Company
No matter how frugal we consider ourselves, we all have that thing we like to spend money on. Whether it’s a hobby or a social lifestyle that dictates unhealthy spending, surrounding oneself with more financially responsible company provides first-hand exposure to economic discipline. If your friends aren’t spending frivolously, maybe we won’t either. When we see others exercise moderation toward something, it’ll cause us to notice our not-so-moderate consumer tendencies.
No magic number equates to a solid emergency fund. A good rule of thumb is three-to-six months of living expenses, usually to cover a long period of unemployment. However, every person’s situation and needs are different. What matters more than a specific monetary amount is committing to specific actions today that positively impact your tomorrow.