When it comes to saving, too many Americans are caught between a rock and a hard place: They feel like they can’t save when they're paying off debt and they can’t avoid debt when they aren’t making enough money to support themselves and their families. Only 55% of Americans have more emergency savings than credit card debt, according to a survey released by Bankrate. And apparently, the problem isn’t getting any better.
“Consumers may be deleveraging, but the proportion of people with more emergency savings than credit card debt hasn’t changed much,” said Greg McBride, Bankrate’s senior financial analyst, in a statement. “Given the poll’s 3.5% margin of error, one can make the argument that consumers haven’t moved the needle at all over the past 24 months.”
Bankrate also announced the results of its Financial Security Index – an indicator of how Americans feel about their personal finances compared to a year ago. The index dropped to 96.8 in February, down from 98.6 in January. According to Bankrate, the drop essentially cancels out any improvement that previously occurred in December. The way it works is the index measures how financially secure people are, based on how they felt a year ago. So a reading of 100 means consumers’ feelings about their financial security haven’t changed, while anything below 100 means they feel less financially secure. Bankrate’s index has been below 100 for 25 of the 27 months that it’s been measured.
A variety of factors contribute to how financially secure people feel. When asked about job security, savings, debt and their overall financial situation, people said they feel worse about all of it. Debt is a major contributing factor, but while debt can typically be controlled on a monthly or other scheduled basis, the lack of savings is what really catches up to people in the case of an emergency. Without any savings at all, you give up all control and any sense of financial freedom, which HLN Money Expert Clark Howard says is the most important factor when it comes to personal finance.
So the problem is people just aren’t saving, but in order to fix the problem, Americans must figure out why they aren’t saving and how they can begin saving. And it all starts with spending.
“The good news is that having a problem with both spending and savings is actually just one problem: spending,” said Gail Cunningham, spokesperson for the National Federation for Credit Counseling (NFCC), in a statement. “The bad news is that overspending is often tied to deep-rooted behavior, making it very difficult to change.”
In order to start saving, Americans must recognize that they’re overspending. Monthly spending among American consumers hit a four-year high this past December, according to Gallup, and the NFCC warns this is a bad time to start spending more, because many paychecks are now smaller due to the increase in the Social Security payroll tax.
Clark says in order to reach financial stability, and ultimately financial freedom, you must be smart about your spending and you must save on a consistent basis. And to do that successfully, you have to know every detail of your personal finances and spending habits. Clark says you should treat saving as expense, just like rent and other monthly bills.
“Spending and saving should be able to peacefully coexist in a budget,” said Cunningham. “Success lies in balancing these two seemingly competing forces.”
Here’s your incentive to start saving: America Saves Week, which is coordinated by America Saves and the American Savings Education Council. The initiative was started in 2007 as an annual opportunity for organizations to encourage good savings habits and a chance for individuals to assess their own financial status.
The NFCC offers a list of signals associated with overspending and warns that consumers who identify with any of these signs should seek financial help.
- Purchases hidden from others.
- Bills paid late or ignored.
- Checking accounts routinely overdrawn.
- Credit essential to maintain current lifestyle level.
- Unwilling to review how money is spent.
- Unaware of how much money is owed.
- Items routinely purchased and then returned.
- Shopping used as a solution for emotional stress.
- Unwilling to set financial goals.
- Afraid to check credit report and score.
If you aren’t sure if you’re in financial trouble, check out the NFCC’s guide to determine whether or not you are a candidate for credit counseling.
Even if you think there’s nowhere left in the budget for you to save, there probably is. Check out the NFCC’s practical tips for Americans who have trouble saving.