Getting Your Household Cash Flow Back Under Control

Developing a better budgeting process may be the biggest step toward that goal.

Where does your money go? If you find yourself asking that question from time to time, it may relate to cash flow within your household. Having a cash flow management system may be instrumental in restoring some financial control.

It is harder for a middle-class household to maintain financial control these days. If you find yourself too often living on margin (i.e., charging everything) and too infrequently with adequate cash in hand, you aren’t the only household feeling that way. Some major economic trends really have made it more challenging for households with mid-five-figure incomes. By many economic standards, today’s middle class has it harder than the middle class of generations past. Some telling statistics point to this…

*In 81% of U.S. counties, the median income is lower today than it was in 1999. Even though we are in a recovery, much of the job growth in the past few years has occurred within the service and retail sectors. (The average full-time U.S. retail worker earns less than $25,000 annually.)

*Between 1989 and 2014, the American economy grew by 83% (adjusting for inflation) with no real wage growth for middle-class households.

*In the early 1960s, General Motors was America’s largest employer. Its average full-time worker at that time earned the (inflation-adjusted) equivalent of $50 an hour, plus benefits. Wal-Mart now has America’s largest workforce; it pays its average sales associate less than $10 per hour, sometimes without benefits. 1,2

Essentially, the middle class must manage to do more with less – less inflation-adjusted income, that is. The need for budgeting is as essential as ever.

Much has been written about the growing “wealth gap” in the U.S., and that gap is very real. Less covered, but just as real, is an Achilles-heel financial habit injuring middle-class stability: a growing reliance on expensive money. As Money-Zine.com noted not long ago, U.S. consumer debt amounted to 7.3% of average household income in 1980 but 13.4% of average household income in 2013. 3

So how can you make life more affordable? Budgeting is an important step. It promotes reliance on cash instead of plastic. It defines expenses, underlining where your money goes (and where it shouldn’t be going). It clears up what is hazy about your finances. It demonstrates that you can be in command of your money, rather than letting your money command you.

Budget for that vacation. Save up for it by spending much less on the “optionals”: coffee, cable, eating out, memberships, movies, outfits.

Buy the right kind of car & do your cash flow a favor. Many middle-class families yearn to buy a new car (a depreciating asset) or lease a new car (because they want to be seen driving a better car than they can actually afford). The better option is to buy a lightly used car and drive it for several years, maybe even a decade. Unglamorous? Maybe, but it should leave you less indebted. It may be a factor that can help you to…

Plan to set some cash aside for an emergency fund. According to a recent Bankrate survey, about a quarter of U.S. households lack one. Imagine how much better you would feel knowing you have the equivalent of a few months of salary in reserve in case of a crisis. Again, you can budget to build it – a little at a time, if necessary. The key is to recognize that a crisis will come someday; none of us are fully shielded from the whims of fate. 3

Don’t risk living without medical & dental coverage. You probably have both, but some middle-class households don’t. According to the Department of Health & Human Services, 108 million Americans lack dental insurance. Workers for even the largest firms may find premiums, out-of- pocket costs and coinsurance excessive. This isn’t something you can go without. If your employer gives you the option of buying your own insurance, it could be a cheaper solution. At any rate, some serious household financial changes may need to occur so that you are adequately insured. 3

Budgeting for the future is also important. A recent Gallup poll found that about 20% of Americans have no retirement savings. You have to wonder: how many of these people might have accumulated a nest egg over the years by steadily directing just $50 or $100 a month into a retirement plan? Budgeting just a little at a time toward that very important priority could promote profound growth of retirement savings thanks to investment yields and tax deferral. 3

Turning to the financial professional you know and trust for input may help you to develop a better budgeting process – and beyond the present, the saving and investing you do today and tomorrow may help you to one day become the (multi-)millionaire next door.

Citations.

1 – http://washingtonpost.com/sf/business/2014/12/12/why-americas-middle-class-is-lost

2 – http://tinyurl.com/knr3e78

3 – http://wallstcheatsheet.com/personal-finance/7-things-the-middle-class-cant-afford-anymore.html/?a=viewall

Do you have money questions

Delayed Gratification Today, For A Better Retirement Tomorrow

A little “delayed gratification” may help you retire more comfortably.

Baby boomers are known for wanting more out of life – and for living life on their own terms. They also get a bad rap as a generation weaned on instant gratification – wanting it all now, wanting to have it both ways.
It is neither wise nor truthful to paint a generation with a broad brush. What we do know in 2016 is that more Americans than ever are poised to retire. In fact, 10,000 Americans will turn 65 each day during the, last 6 years and for the next 12 years.1 Will their retirements match their expectations?
Are boomers in for a collective shock? Many boomers are used to affluence and expect creature comforts in retirement. Yet many may not understand how much money retirement will require. A 2010 study from the non-profit Employee Benefit Research Institute estimates that about half of “early” boomers (those aged 56-62) will face a retirement shortfall – someday, they will have inadequate income to pay medical costs and core retirement expenses. EBRI also estimates that 43.7% of “late” boomers (those aged 46-55) are likely to exhaust their retirement savings as well.2

Investing aside, what about the way we spend? EBRI research director Jack VanDerhei told TheStreet.com that beyond federal policy decisions, “[what is] even more important is to identify which of those households still have time to modify their behavior to achieve retirement security, and how they need to proceed.” 2

What is a need and what is a luxury? Now here is where it gets interesting. In a new survey of more than 1,000 boomers conducted by MainStay Investments, more than half the respondents identified “pet care” and “an internet connection” and “shopping for birthdays and special occasions” as basic needs. Almost half checked off “weekend getaways” and “professional hair cutting/coloring” as basic needs. Perhaps the definition of a “basic need” is expanding. Or perhaps we have gotten so used to these perks that we can’t imagine living without them (and not spending money on them).3
Boomers are necessarily growing more pragmatic. The MainStay survey results hint at a shift in their financial outlook. The survey found that 76% of boomers were willing to work longer and save more in pursuit of more retirement comfort.3
Additionally, 40% of those surveyed said they will have to delay retirement in order to afford their desired lifestyle – and 47% said they would be willing to live in a smaller house to have more of the above luxuries/needs. A whopping 84% of respondents indicated they would be willing to allocate a portion of their assets so that they might have consistent lifelong income. However, just 52% of them were in contact with a financial consultant.3
We can learn from our elders. Look at the sacrifices made by the “greatest generation”. World War II demanded so much from Americans, not only in the theatres of combat but at home. For several years, new cars weren’t manufactured, travel was discouraged, and food, clothing and gasoline were rationed. The entire economy was rearranged, and more than 40 million Americans had to start paying federal income tax.4
This generation certainly understood delayed gratification. Yet with all that economic and political upheaval, its members collectively enjoyed the most comfortable retirement in American history (and perhaps the history of the world).
Will we pay for today’s lifestyle tomorrow? Financially, that is a risk we face. Many of us have not saved enough for retirement, and the financial markets have been especially volatile of late. So it only figures that spending less and saving more today could help us out tomorrow. Who knows – if some extra effort is put in now, we may end up with enough money to “live it up” later.
Citations
1 – http://www.sacbee.com/2010/08/29/2990176/baby-boomers-signal-shift-in-what.html
2 – http://www.thestreet.com/story/10806795/even-wealthy-face-retirement-shortfall.html
3 – http://www.reeerisa.com/news/fe_daily.aspx?StoryId={66D70228-CEFE-4782-9058-F2F2DAB68DD1}
4 – http://www.nationalww2museum.org/education/for-students/america-goes-to-war.html

Boomer Couple in Front of Their Beach House

Women and Financial Power

Too many women lack the confidence necessary to take control of their financial lives. Women fear making investments, managing their finances, planning and monitoring their spending, managing investments, and increasing their wealth.

Why aren’t women more confident with their finances?

The answer is that women are stopping themselves from being assertive. Many women leave their financial lives to their husbands, boyfriends or parents, and because of this way of thinking, they lack financial power. Financial empowerment must come from within. Women must seize it with fervor, reflecting an unshakable determination to take control of their financial lives. You must tell yourself that you can become empowered, and that you will not let outdated notions of gender hinder your success. Keep “EMPOWER” in your mind as an acronym representing these concepts:

Education is critical
Motivation inspired by your values
Protection against risk
Ownership of your future
Work — claiming what is yours requires effort
Emotions should be kept out of decisions
Responsibility to yourself

Do you use any acronyms to motivate you with your finances? I’d love to learn about yours! Please let us know what you think by posting your comments on our Financially Savvy Women Fanpage.

Gibbons, EmpowHer! Why more women are taking the financial lead

Debt and Your Financial Health

Boomer women glowing
Most people believe that any debt is detrimental to their financial health. However, some types of debt aren’t bad – a mortgage, college loans, or business loans. These types of loans appreciate in value in your future. Bad debt is money that you owe for things that you no longer benefit from; try to eliminate these debts.

There are ways to change your financial situation. Use a spending chart to record how you are using your money. Write down everything you spend and where your money goes to. To reduce debt, look at your nonessential expenses and decide which ones you can remove. Limiting the way you use your credit card can help with your spending.

You can avoid the legal consequences of bad debt by resolving your debt before it becomes overwhelming. Start planning now. Repaying the debts you have accrued will not happen overnight. However, if you control your spending and attain professional help, you will resolve your financial problems over time.

(Morris, A Woman’s Guide to Personal Finance)