Whether you’re talking about the environment, energy, or food, sustainability has become a hot topic. But for all this talk about creating a sustainable society, people rarely apply the concept to household budgeting. We have somehow forgotten its place in fiscal management.
If you cringe at the notion of studying your financials, you are not alone. Most people would rather publicly speak in their underwear to a crowd of thousands than sit down and hammer out a budget. As a result, an emergency expense of $500 or more would send nearly two-thirds of American households directly into debt.
Why the lack of wiggle room in our finances? We tend to focus heavily on income while largely ignoring expenses. Our incomes might increase or decrease, but we rarely adjust our expenditures accordingly. This can become a dangerous cycle, particularly during an economic recession or depression.
Consider American household spending between 1996 and 2014. Despite the economic downturn of the late 2000s, household spending grew to $36,800 a year. Unfortunately for many families, wages fell by 13 percent between 2004 and 2014. Did we make changes? Not really. We seemed to forget that what goes out should match what comes in.
An unbalanced budget is a recipe for disaster instead of a formula for sustainability. If personal finances were a garden, most of us would struggle to grow a tomato plant — let alone enjoy a bountiful harvest.
Diving Deep into American Spending Habits
Every day, we spend money on everything from housing and vehicle payments to clothing and groceries. This perpetual outlay of cash adds up, especially for mid-career level people who spend an average of $1,510 monthly on all basic expenses — not including luxuries such as heading to a concert, buying a gift “just because,” or trying a trendy tapas restaurant.
These upside-down budgets are frustrating, but the problem is understandable when considering human nature. We are willing to consider the expected expenditures coming our way, including costs associated with food, utilities, and automobiles — owning and operating a vehicle can cost a shocking $8,700 annually. But what about the unexpected expenditures? We give those the old heave-ho because they’re tough to consider. This ignorance can lead to devastation when the unexpected becomes a reality.
Something as commonplace as a lost job is nearly impossible to predict. Considering the U.S. Bureau of Labor Statistics reports the average length of unemployment is more than 20 weeks, that little pink slip could spell doom for families living paycheck to paycheck.
Another unpleasant expense that will surface eventually is death. A traditional funeral costs more than $7,000, forcing many families to pony up some pennies even if life insurance covers a portion. Too heavy to consider? At least admit that you might need unplanned medical care at some point without money to cover the expense — a situation more than half of American adults have encountered at some point.
Before you run for the hills, remember that financial responsibility is not some pie-in-the-sky concept. Anyone can become a budget master by developing a few sustainable habits.
1. Begin a Savings Slush Fund.
Why risk an unexpected bill wiping you out or sending you into the arms of high-interest lenders? Set aside whatever you can afford every month until you have several hundred dollars in a bank account. Keep adding to that fund whenever you can, and resist the temptation to use this money for anything but emergencies.
You might also consider using credit cards as a safety net in case you deplete your slush fund. Instead of taking the first offer that comes along, spend time researching credit cards that offer you perks such as lower interest rates, flexible payment schedules, and plentiful rewards.
2. Reduce the ‘Fat’ in Your Spending.
Think like a woodworker — whittle away at your spending. For one week, write down everything you spend. After seven days of carefully monitoring your spending habits, focus on the areas where you have room for improvement. For instance, did you forget about an upcoming birthday party and end up spending more money because of last-minute shopping? Did you spend money visiting McDonald’s because you didn’t stock up on breakfast foods during your last grocery trip?
When you spot these bad habits, don’t feel guilty or play the blame game. Consider it an opportunity to learn from your mistakes. In the future, you might try clipping coupons and scheduling out your expenses to create a more balanced cash flow.
3. Build a Beefy Budget Buffer
Start setting aside emergency funds as soon as possible, even if you don’t have a ton of extra cash on hand. You should aim to have enough to cover your living expenses for six to nine months, but don’t feel like you need to hit that goal overnight.
Gradually add to your stockpile. When you receive a tax refund, put all of most of it into this emergency fund. You won’t even miss your holiday bonus money if you drop it into this bucket immediately upon receipt. This money will give you peace of mind in case of emergency, taking the load off as you seek new employment or recover from an injury.
It’s time to stop thinking of your paycheck as gone before it hits your checking account. With a few adjustments, you can create a sustainable budget that helps you keep more money in your pocket. In addition to helping you sleep easier at night, a push for financial stability will ensure you never need to wonder how you’re going to cover that next intended — or unintended — expense.
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