According to the United States Census Bureau the median household income in the United States for 2021 was $70,784. Yet only 43% of Americans according to Bankrate’s 2023 annual emergency savings report say they could afford a $1,000 dollar emergency without having to reduce other spending or reaching for debt. A shocking 25% percent of Americans say they would use a credit card to cover a large emergency expense. I think what is even more shocking than that is that according to NerdWallet’s 2023 Consumer Budgeting Report 74% of Americans say they have a monthly budget. Where is the disconnect between those who are budgeting yet do not seem to be saving money. I believe that it comes down to how we are prioritizing our savings.
- Prioritize Short And Long Term Savings
- Have A Line Item In Your Budget For Savings
- Spend Less Than You Make
- Avoid Lifestyle Creep
- Avoid Debt
Prioritize Short And Long Term Savings
The first step we should take is to differentiate long term versus short term savings. Our long term savings is money that we are setting aside usually in an investment account for retirement. This is money that we usually cannot touch without penalty until retirement age. While it is vitally important to make sure we are adequately saving for the days we cannot or choose not to work anymore. We want to be careful considering our retirement savings as our “savings”. If all of your wealth is tied up in a house and retirement fund this could lead you to being caught off guard when an emergency occurs. Having a healthy emergency fund that is easily accessible if an emergency arrives is just as important as a healthy retirement fund. Without this you can easily find yourself reaching for debt anytime an unplanned expense arises.
Have A Line Item In Your Budget For Savings
You should have a line item in your budget for savings every month. Saving money is a lifelong skill you need to master. A budget is all about writing down your priorities and we should be prioritizing savings. Our savings is not what is left after we spend all of our money for the month because the reality is there won’t be anything left. We should be allocating money for savings after all of our necessities are covered.
Spend Less Than You Make
We have all heard it a thousand times in our life yet most people ignore the advice. We hear it and immediately think that is obvious, but then why do most people not do it? Budget. Again this sounds just as simple and people claim they do it, but then why are people not able to save money if they are budgeting. A budget is only good if you follow it and if you find yourself struggling to stick to your budget then you may need to rethink how you are budgeting. A budget is all about conscious decision making. If some coworkers want to get together after work but your “Restaurant” or “Fun” category is empty then you need to make some decisions.You either decline to go out or you decide this is important to you and then you need to decide which other category those dollars are coming from. There is no wrong answer here because it is about your priorities, so you get to decide. By making the conscious decision to pull dollars from another category you are sticking to your budget by not overspending.
Avoid Lifestyle Creep
Another common expression we have all heard but somehow still struggle with. It is hard to not fall into this trap especially in your 20s and early 30s. You are finally done with school and working in your career. You are making great strides, you may be getting promotions, annual raises, or even a bonus here and there. The temptation is real to get the new car, house, or maybe take some extravagant vacations. There is nothing wrong with any of these things if you properly plan for them. If we constantly raise our lifestyle to meet our income then we will always live paycheck to paycheck.
Avoid Debt
As we have already stated, a budget is nothing more than us writing down our priorities. Well that is based on the assumption that we have autonomy and are the ones who get to make the decisions. When we owe people or companies money we no longer have the complete decision making power. We have allowed others to have a say in how we spend our money. Wracking up piles of credit card debt or giant monthly auto loan payments steal your ability to win with money and to live your life based on your priorities.
The best way to prioritize your savings goal is to have a plan for all of your money. You are in control of where you spend your money, and you get to decide what your priorities are. Keep that control by avoiding large monthly loan payments and piles of consumer debt. You work hard for your money, so have a plan to make the most of those dollars.
