One rainy morning during our summer vacation, my family landed in an isolated lakeside New Hampshire town. My kids delighted at the sight of a small bumper car track just opening for the day. Given how deserted the place was, I suspected the operator was equally excited to see us. To prove it, he rewarded us with ride after ride around the track.
After enduring jolt after unexpected jolt, I began to reflect that the economic recession we have been experiencing is not unlike that seemingly endless bumper car ride. Every time we hear the end is in sight, another “bump” takes us by surprise.
This recession and its bumpy recovery have been particularly jolting because so many people have been impacted. While the headlines tell devastating stories of those who have lost jobs or homes, the often untold story reveals the relentless effect the recession has had on average families.
With wages and benefits stagnant, and food, energy and medical costs rising, millions struggle just to make ends meet. Many homeowners find themselves locked into a home they simultaneously can’t afford to keep and can’t afford to sell. And, for those nearing retirement, the loss in value on their investments spells tough choices about the future.
These factors create very fragile economic conditions. A little careless household spending quickly can lead to a full-blown financial crisis. That is clearly the case for thousands of people here in Howard County. Requests for services at many local nonprofits and human services agencies have skyrocketed since the recession began.
Thankfully, in many cases, a little financial literacy can go a long way toward preparing for future bumps in the road. And that dose of financial literacy isn’t as tough to swallow as many think.
The key to economic stability doesn’t lie in “being good with numbers” or doing a lot of math. Really, the key to financial success lies in being aware of your finances, having goals you are committed to and practicing healthy financial habits.
Tools Are Available
According to a 2011 study of financial literacy by Harris Interactive, 56% of people don’t have a budget, and 22% don’t know how much money they spend each month. This is like dieting without knowing that gravy has more calories than grapefruit. You cannot stave off a looming crisis or start growing your assets to reach financial success if you don’t know how much you earn and spend every month. It’s a must.
There are several of ways to do this, so pick one that works for your lifestyle. If you are comfortable on the computer and love lots of data, try mint.com. You can electronically connect the site (it claims bank-level security) to your bank and credit accounts. The program automatically pulls the data each time you log on so you can see just where your money is going.
If you’re more of a pen and paper type, just collect your receipts every time you make a purchase and jot a note about how the money was spent. Having a great paper trail will arm you with information about how you spend your money.
Next, get serious about setting your financial goals and tailoring your spending to achieve success. Think of this as your opportunity to create a personal roadmap toward financial security. Whether you are saving long-term for a home or retirement, or saving in the near term for a car or vacation, setting a goal and devising a plan to attain it is critical.
At the same time, you must evaluate whether your spending habits are adding to your success or taking away from it. So many people claim they are committed to becoming debt free or saving for their child’s education, but complain that they never have any money at the end of the month to put toward their goal.
‘Needs’ vs. ‘Wants’
As you develop your personal roadmap to financial success, review your expenses and challenge yourself to label every dollar as a “need” or a “want.” Be ruthless.
If you have a goal to pay down debt, get ready to make some tough choices. Recognize that you don’t “need” to carry a cell phone with a pricey data plan. If you are behind in retirement saving, paying for cable and high-speed Internet should go.
And, if nothing else, having an emergency fund is a priority for everyone. Many people are just one illness or car repair away from financial crisis. An emergency fund of six to nine months’ worth of expenses can prevent that disaster.
Lastly, if you are still having trouble staying on track with your goals, put your money where your mouth is and try StickK at www.stickk.com. You’ll make a financial commitment to stay on track with your goals and set up a support network to help you achieve success.
The reality is, your financial life is a little like a bumper car ride. There will always be another jolt when you least expect it. But by practicing positive financial habits, monitoring where your money is going and ensuring that your spending is building your assets and supporting your goals, you will enjoy the ride so much more.
Michelle Glassburn is president of makingCHANGE, a nonprofit organization dedicated to improving financial literacy. She can be reached at glassburnm@makingchangecenter.org or at 443-718-9350.
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You have taken a very mundane topic and made it captivating! Love your writing style! Oh, and the content was great too!