Did you know that over a third (34%) of Americans have no savings? Not a penny in their savings account.
The news doesn’t get brighter from there. Another 35% admit to having less than $1,000 in savings; that’s not enough to even cover a month’s rent or mortgage payment, much less keep food on the table, if they lose their job.
And to keep our northern friends from feeling too smug, Canadians are no better at saving money, either.
“Maybe all their money is invested in stocks?” you ask hopefully. It’s a nice thought, but unfortunately not true. Only about half of Americans own any stocks whatsoever. Ten years ago that figure was nearly two-thirds.
“What about retirement savings?” Also ugly. The median retirement nest egg in the U.S. is only $5,000. It’d be hard to live for two months on $5,000, much less for 20-30 years.
Don’t want these stats to reflect your finances? Good, I don’t either.
If you want to break the cycle of average, here are seven tactics to go from zero to financial hero in no time.
1. Base Your Monthly Budget on 4 Weeks’ Income
Answer honestly: is your monthly budget based on a year’s income divided by 12?
I hate to break it to you, but in a given month, you don’t earn 4.33 weeks’ income. In most months, you earn four weeks’ income. Occasionally, you earn six weeks’ income.
You can count on four weeks’ income in any given month. Specifically, you can count on four weeks’ after-tax income. That’s what you have to work with. No more.
And in those occasional months when you earn a bonus paycheck? It should go straight to your savings account. Do not pass Go, do not collect $200, do not go on a shopping spree.
2. Want Better Financial Fitness? Start an All-Cash Diet
No, you don’t need to take a pair of scissors to your credit cards. But you do need to leave them at home, tucked away in a drawer somewhere.
Set a spending allowance for the month, including food, clothing, gas for your car and entertainment. From now on, you can only spend cash – no cards!
On the first of the month, visit the ATM and pull out your monthly spending budget. Then take it home, and split it into weekly chunks. Leave most of it in the drawer next to your credit cards, and only put one week’s worth of cash in your wallet.
That’s what you can spend for the week. Total. Including groceries.
You’ll think a lot harder about every dollar you spend, when it’s denoted in physical bills in your wallet. You’ll also subconsciously track what your spending – something your mind doesn’t do when you just swipe plastic.
3. Cash Diet Too Extreme? Become a Debitarian
Do you have a separate savings account set up, in addition to your checking account?
Every time you get paid, on payday, set automatic transfers to move money from your checking account to your savings account. This should leave in your checking account only the money you’ve budgeted for spending, plus mandatory expenses like your rent or mortgage.