A recent study1, undertaken by the National Endowment for Financial Education (NEFE) and published by Credit.com2, indicates that Americans are worried about money despite improvements in the economic outlook. Stock markets are up at the moment, unemployment has dropped, and inflation is low, yet consumers remain worried about their finances.
The NEFE online survey of 2,132 adults in the U.S. indicates the extent of concerns over the economy. Nearly 40% of those surveyed indicated that paying down expensive credit card debt was a top priority for the coming year. Paying down uncollateralized debt can free up more household income for other things – everything from maxing out your IRA or 401(k) account contributions, to preparing for medical emergencies that aren’t covered by health insurance.
Transportation expenses ranked high on the “worry meter,” with 35% of individuals and families worried about the costs of getting from here to there. Car payments, a new car purchase, vehicle maintenance and, of course, the cost of gasoline are on the minds of nearly four out of 10 Americans. Transportation costs continue to rise, taking a bigger and bigger bite out of the family budget.
Home expenses are a concern for 35% of respondents who worry about paying for home maintenance and big-ticket items like major appliances. Home repairs can be expensive, and a single, major breakdown of a home’s infrastructure can cause serious budget problems, even for families that are prepared for the unexpected.
And what about the cost of medical care? One-quarter of Americans worry about medical expenses, according to the survey. Bloomberg News®3 indicates that medical expenses will continue to rise faster than the overall inflation rate. The result? More and more people are dropping their health care coverage. And that’s a big worry for many families.
So, what does the National Endowment for Financial Education recommend to ease your worried mind? Here are some suggestions provided by NEFE that you can put in place during 2013.
Determine what motivates your buying decisions. If you carry a heavy debt load, NEFE recommends that you take a look at your spending motivations, and take steps to eliminate unnecessary expenditures. Do you go shopping when you feel down? Do you shop just to pass the time? Do you make purchases you later regret? Understanding the motivations behind your spending may help you change spending habits for the better. No more “shop ‘til you drop.”
Organize your financial life. Do you balance your checkbook every month? Do you keep careful records of your investment statements? Do you have a household budget that you can live with? Does your budget allow you to save money for the future? It’s wise to track your finances on a regular basis – weekly, monthly or quarterly – to determine where the money goes. Organizing your financial information can simplify tracking expenses and indicate opportunities to cut expenses and save for emergencies, or for a brighter future.
NEFE recommends that we all “shop smarter.” Take advantage of sales. Buy off season. Buy big-ticket items at the end of the month when retail quotas are calculated and stores, car dealerships and other retailers are eager to improve sales and meet their sales projections for the month.
Think before you make a big-ticket purchase. Do you really need a new car? Will that car payment bust your household budget, or lower quality of life for the family in the months and years ahead? Weigh the consequences of every purchase to determine that the item is, indeed, a necessity.
Review your debt load. NEFE recommends that you review all of your outstanding debt to find ways to lower debt-carrying expenses. For instance, credit card debt is usually more expensive than home mortgage debt because credit card debt is uncollateralized; i.e., there’s nothing to back up credit card debt except your promise to pay it back. On the other hand, collateralized debt is backed by a real asset – property, a car, or some other physical asset that can be used to protect the lender in cases of default.
Organize a debt reduction payment schedule, and stick to it to reduce those financial headaches that can worry many of us. Pay down expensive debt as quickly as possible before turning to lower-cost, collateralized debt like a car loan or home mortgage.
Another benefit to paying off debt can be an improved credit report. Credit reports can now be used for a variety of purposes – from determining an individual’s credit worthiness to finding better interest rates on a big loan, like a second mortgage or a home credit line.
What about your retirement? It may be decades away, or it may be this year, but at some point, you’ll retire to enjoy your Golden Years. You’ll enjoy them more if you start saving for the future today. Saving in an IRA, 401(k), simplified employee pension (SEP) fund, or some other tax-sheltered investment can provide a better future for yourself and your family. Set savings goals for the coming year and invest in a better tomorrow for your family.
Finally, NEFE recommends that you develop a spending plan. Do you know where the money goes each month? Do you have a budget for the household? Do you stick to that budget?
Take control of your personal finances. Determine where the money comes from and where it goes each month to identify opportunities to cut unnecessary expenses, to save more, and to worry less about your financial future.
The information provided is offered for general informational purposes only and should not be construed as tax, legal or business advice. Consult with an attorney or other professional concerning your own needs and circumstances.
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