- 55% of Americans only have enough saved up to cover one month of lost income.
- How to explain the savings gap in American households.
- Why you can afford to cut out your cell phone & TV bills in half, keep your old car, and stop eating out every week.
As Americans, we are exceptional at so many things. Not only do we have great universities and doctors, and more food and entertainment options than most places on the planet, but we also have freedom of speech, freedom of the press, and a democracy that is (or at least should be) the envy of the world.
Unfortunately, we struggle with one of the most important things: saving money.
Yes, despite living in one of the most prosperous nations the world has ever seen, we – and the country we live in – are overspending and drowning in debt. And the chickens have come home to roost.
How Much Do Americans Have Saved?
Debt issues aside, a serious savings gap plagues the vast majority of American households. According to a recent study, 55% of people had only enough liquid savings to replace one month of lost income. And making matters worse, an astounding 70% of Americans say they face at least one strain on their finances, either due to income, expenditures, or overall financial health.
The savings crisis doesn’t just affect people at the bottom of the income scale, either. Americans at all points on the earnings spectrum experience financial issues of one kind or another.
Explaining The Savings Gap
Of course, it’s easy to blame Americans and our penchant for (enter luxury item here) as the cause of our struggles. But that isn’t necessarily fair. As The Precarious State of Family Balance Sheets notes, American wages have essentially remained stagnant for over a decade, with the total growth in earnings for the average American coming in at just 2% from 1999 to 2009. To put things in perspective, wages grew 22% during the previous two decades (1979–1999).
And while average wages stay flat, our expenses have done the opposite. Remember how earning a six-figure salary no longer means you’re rich? That’s because nearly everything we do costs a whole lot more than it once did. See Exhibit A:
Wages aren’t growing like they should be. And everything costs more than it did just a few years ago. It’s as indisputable as it is frustrating.
How Much Could You Save If You Changed Just One Thing?
But that doesn’t mean we should all lie down and give up! Like it or not, we all have the power to make small changes that can improve our financial lives in the long run. We just have to figure out what to change to make a difference.
As a numbers geek, I love seeing how small, seemingly unimportant changes can drastically alter someone’s bottom line. Cutting back a few dollars here or there may not seem life altering, but it’s the big picture that counts.
And often, your budget woes don’t stem from your house payment or student loan bills; it’s more like a death from a thousand cuts. Sometimes, it’s those little monthly bills that add up like mad – your bi-weekly trips to the mall, your daily coffee runs, or the fact that you trade in your car every three years no matter what.
But, what if you were willing to change just one thing next year? How much would you save? While your results will depend on which expense you cut – and how much it costs – here are a few options to consider:
1. Keep your paid-off car for one more year.
When you consider the fact that car payments completely obfuscate the total cost of a vehicle, they’re pretty darn amazing. In today’s world, no one cares if they ride off the lot with a car that costs $40,000. They just want to know how much they’re paying each month. And worse, when that car is just a few years old, they usually trade it in and start the whole process over.
But, what if you did something crazy and kept your car for a whole year after it was paid off, instead of taking on monthly payments for a brand new one? According to a recent analysis from Experian and commentary from Credit.com, you could save over $5,700 with just this one move, with the average car payment coming in around $483.
Want a $5,700 raise this year? Keep your car, and you can have one. Or take on $500 monthly payments for something new and stay poor. The choice is yours.
2. Cancel your cable bill and switch to Hulu and Netflix instead.
Have you ever thought about how much cash you forfeit to have cable television streaming in your home 24/7? According to Yahoo! Finance, the average cable bill teeters at around $99 per month at the end of 2015. That’s $1,188 per year – a whole lot of cash to fork over for a service that offers little in return.
But, cancel your cable and you’ll find a whole new world of inexpensive, common sense options. With a $60 Roku Box, for example, you can buy access to unlimited television with Hulu and Netflix for just $7.99 per month each. My family did this several years ago, and we’ve been extremely pleased with our $16 per month television setup. You might miss a few extra shows at first, but the savings are well worth it. And you’ll have a whole lot more free time, too.
3. Cut the family cell phone bill in half.
When it comes to the American fascination with smart phones, nothing surprises me anymore. Not only are people willing to fork over nearly $700 for the newest phone, they’re even willing to rent phones for a monthly fee as well.
Not that you asked, but here’s my take on that: If your phone is so expensive you have to lease it, you can’t really afford it. But I digress, because it gets much, much worse. In addition to renting phones, consumers paid more than $120 per month on average for plans with the big carriers – Verizon, AT&T, Sprint, and T-Mobile.
Considering the fact that you can sign up for low-cost providers like Ting, Republic Wireless, or Cricket and pay less than $50 per month for similar coverage, I find that hard to believe.
The bottom line: If you switched from an expensive plan to a discount carrier and cut your bill from $120 to $50 per month, you could save $840 next year.
4. Only go out to eat twice per month.
According to the National Restaurant Association’s recent report on consumer dining preferences, the average American household spent $2,678 at restaurants in 2012. That’s around $223 per month for the privilege of avoiding dirty dishes and getting tofu that is actually crispy and worth eating. And hey, that might be worth it…at least sometimes.
The thing is, most of us probably eat out far more often than we should. In fact, according to data from the U.S. Commerce Department, spending at restaurants actually overtook American spending at grocery stores in March of 2015:
That’s pretty crazy when you think about it, but it also represents a huge opportunity. We all know that dining out is more expensive than eating in, so imagine if you cut your restaurant spending down to just two casual dinners out per month.
Think Applebee’s instead of Ruth’s Chris, folks. With a family meal at $50 each (make the kids drink water!), you could feasibly spend just $100 per month on restaurant dining and easily save at least that much along the way.
5. Yes, You Can Save Money Next Year
In addition to these examples, there are a myriad of ways to save money next year. Yet, when it comes to actually doing it, excuses abound. And I have absolutely heard it all:
“I need a new car with a warranty to commute all the way to work!” (If repair bills on your current car cost less than payments on a new one, you probably don’t.)
“I’m too busy to cook dinner most nights.” (A Crock-Pot is a great solution.)
“I have to have Verizon because it’s the only coverage that works in my area.” (Probably worth confirming to be sure.)
“We neeeeeeeeeeed to have the NFL Sunday Ticket!” (Not if it’s ruining your budget.)
Here’s the thing: You don’t have to cut everything out to save money; you just need to cut where it matters most. Consider prioritizing possible entertainment options and choosing only your favorites. If you want to get ahead, you have to find some way to cut back – then stash that money away for retirement instead.
For most people, it’s all about looking at your monthly spending and figuring out which areas are the least important. Sure, you might die without a subscription to Bravo, but maybe you’re fine forgoing fast food and eating grilled cheese at home. As long as you’re willing to cut somewhere, that’s perfectly okay.
Remember, you can probably afford some things you want, but you don’t have to have everything.
What would you cut to save money next year? What are some ways you have saved big in the past?