Importance of saving
You may hear about the importance of saving money, or at least having enough saved for an emergency, but do you do it? A recent survey by the Federal Reserve Board found that 46 percent of Americans cannot cover a $400 emergency expense. Instead, they put the expense on a credit card, borrow it from family or friends, or not pay it at all. The survey results also found that people’s responses depended on their income, race, and education.
So why can’t so many Americans cover a $400 emergency expense? “Many people are still recovering from the last recession, which hit many very hard,” Dr. Jude Miller Burke, workplace psychologist, executive leadership coach, and author of The Millionaire Mystique: How Working Women Become Wealthy – And How You Can, Too!, tells Varo. “People lost their homes, jobs, and the value of their stocks plummeted. Of course, one of the first things to go was saving money. People were just trying to get from one paycheck to the next and trying to adjust to the new normal. And, for many, salaries have remained the same while inflation has increased the price of groceries, clothes, and rent. It is more difficult to make ends meet in 2017.”
Dr. Miller Burke also has another theory as to why some people have trouble saving money in this day and age. “Social media has also perpetuated an image that everyone has to have the new iPhone, iPad, TV, computer, and the latest shoes, clothes, and cars,” she says. “Movies and television shows have also perpetuated an affluent image, one that would have stood out fifteen years ago as extraordinary, but now has become the norm viewed in our everyday homes. As a group, we have become accustomed to viewing affluent lifestyles and, in general, people have moved more towards immediate gratification.”
Improving financial health
Basically, this means that there’s a lack of accessible education for people (especially Millennials) about how to improve their financial health AND live the life they aspire to. It’s possible, but there’s a lack of sufficient tools or societal mechanisms to instill smart financial habits in people that work for their desired lifestyle. “There is little time spent teaching how people achieve a high level of success,” Dr. Miller Burke says. “The underpinnings of how this is accomplished is not obvious, and finance/budgeting is not taught in high school and many parents have not taught their children about being prudent financially.”
She also suggests:
- Budget for special items for yourself or others way ahead of time
- Pay off your credit cards each month
- Do not shop when your self-discipline is at a low — i.e., when you are tired, emotional, or have been drinking
Saving your emergency fund
All that said, saving money for an emergency doesn’t have to be as intimidating as we may think. Plus, if you automate a certain amount toward your savings account every week, even just $25 — you don’t even have to think about it. “Out of sight, out of mind,” right? In no time, that $25 a week will be $100 a month, and you’ll have your $400 minimum set aside for an emergency expense, and then some.