Nearly Half of Americans Feel Stuck in Their Financial Situations. If That’s You, Try These 7 Steps
Stuck. Stalled. At a standstill. That’s how nearly half of Americans feel when it comes to their financial situations, according to a new survey from Prudential.
It’s not just the global pandemic and accompanying economic fallout that’s giving way to this sense of financial inertia. The number of people surveyed who had a pessimistic view of their financial future is 47 percent, which is actually down from 49 percent in 2017. Still, the economic uncertainty spurred by the coronavirus did decrease the portion of respondents who were “financially confident” to 36 percent, down from 40 percent in 2019.
So, what can you do if you feel like you’re in a personal finance purgatory? We asked the experts. Here are seven tips to help you get out of a money rut once and for all and work toward improving your financial situation.
Develop your financial identity
Often people transition into adulthood without having fully gained a sense of their financial identity, explains Keisha Blair, an economist and author of “Holistic Wealth: 32 Life Lessons to Help You Find Purpose, Prosperity and Happiness”. Maybe you inherited a parent’s approach to spending or are influenced by a partner’s outlook on finances—especially if you’ve made major joint purchases, like a house.
To gain a sense of control, ask yourself what your personal financial mission statement would look like.
“One way to improve your financial situation is to have your own financial identity,” Blair says. “In other words, ‘What things will I save on?’ ‘What things will I invest in?’ That way we are not easily swayed into spending money that doesn’t align with our missions and objectives in life.”
Start an emergency fund
Knowing you’ll have money in case of an emergency can give you some major financial confidence. Start by funneling a small amount of money into an emergency fund, and you’ll gain some momentum to make larger deposits in the future. “The last few months have shown us all that having several months of expenses saved can make a huge difference, but starting with just one month is a great first step,” says Elizabeth Westendorf, a financial planner with Atwood Financial Planning. To help, you can set up automatic transfers to your savings account.
Find a community
In times of difficulty, a community has the power to lift us up and keep us going, says Amanda Clayman, a financial therapist and Prudential’s financial wellness advocate. Even though we may not be together physically during this pandemic, we can support each other’s needs and hopes virtually, she says.
“When it comes to envisioning our ability to make and save money, finding a community of individuals who share those goals is empowering and validating,” Clayman says. “Seek out family and friends who strive for the same type of success and get creative in strengthening those bonds virtually.”
Negotiate a higher pay
Don’t be shy when it comes to asking for a raise. While it’s normal to be anxious or nervous about the conversation (especially in these unprecedented times), it’s one of the fastest ways to improve your income and overall financial situation in a short amount of time,” says millennial money expert Kimberly Hamilton, Certified Financial Education Instructor and the founder of Beworth Finance. To do so, she suggests setting the stage with your supervisor months in advance by finding out what key performance indicators would make a difference to your organization. When it’s time to make your pitch, be prepared with research to justify your request, Hamilton says.
Start investing or try increasing your 401k contribution
While it may not feel like a big difference, investing even as a little as $50 extra a month to your 401K can amount to over $23,000 over 20 years, including a more than $11,000 return on your investment (assuming a 6 percent rate of return), Hamilton says. Knowing that can improve your future financial outlook.
Having trouble finding $50? “Try negotiating your utility bills, have a no-spend week, or monetize a hobby. The trick is to be consistent so your investment can grow over time,” Hamilton suggests.
Try a 50-30-20 approach to your budget
Knowledge is power, so when you start tracking your income and spending, you can begin feeling more empowered about your financial situation. Kimberly Palmer, a personal finance expert with NerdWallet, suggests taking the 50-30-20 budget approach. Fifty percent of your take-home pay goes toward your needs, 30 percent toward wants, and 20 percent toward debt payments and savings. “If you can redirect previous spending on things like takeout into savings then it can help give you more financial flexibility to withstand dips in income or expense increases,” Palmer says.
Re-think your approach to credit cards
U.S. households carrying credit card debt from month to month pay an average of $1,162 in interest, according to a NerdWallet analysis. Credit cards can be a major barrier to financial security, so if you don’t tend to manage yours well, it’s time to stop using them, says Nathan Hamilton, director and industry analyst, The Ascent by The Motley Fool. “As a general rule, you should only charge expenses you can pay in full by the time your bill is due,” Hamilton says. “If you can’t follow that rule, stop using credit cards to avoid costly interest that can push you into a deep financial hole.”
However, it’s possible to build savings while chipping away at your credit card debt. Of course, everyone’s financial situation is different, so some of these tips may be easier said than done. (I.e. if you’re among the many who are unemployed during these trying economic times, you can’t ask for a raise). But, having a plan in place and starting with some small steps can help you regain some confidence in your financial situation.
“The key is to bend, not break, in response to external changes and find strength in your adaptability,” says Clayman.