The following is a staff writer post from MikeS. He is a married father of 2. So, with the cat, he ranks number 5 in the house. He loves numbers and helping people. Please leave any questions or comments below for either Mike or Crystal.
It happened again, I fell for click bait. This time it was from a Forbes article. The title I fell for was “Why You Need to Stop Spending Money Right Now”. The gist of the article is that Americans in general are going back into debt, deeper than they were previously.
Whew, I can keep spending money, as my debt has never been as low as it is right now. 😉 Let’s walk through some of the information in the article and compare how I stack up against the averages.
Total Household Debt
The article begins by discussing the increase in household debt from 2015 to 2016. It uses scary numbers; debt increased $460 billion to $12.6 trillion. Those are large numbers to be sure, but when you do the math, that’s only an increase of 3.8%. We are not exactly talking about a gigantic jump.
Any increase is probably bad given the state of the average Americans finances. For me personally, my debt went down from 2015 to 2016. It wasn’t anything crazy, my best guess would be about a $10,000 decrease between the car loan and the mortgage. It will go down an additional $14,000 this year. It may go up again slightly in 2018 as we are due to replace one of our vehicles. That new debt may be offset by the decrease in the mortgage, but probably not completely.
One of the next statistics discussed is how the average American spends $1.33 for every dollar earned. Now, this one to me is certainly more alarming. That is a sure fire way to dig yourself a nice deep hole. I’m quite familiar with digging holes. When I finally became serious about my finances and started tracking my net worth, it was -$19,000. The year before that, I’m sure it was even worse. So, I get it.
It’s easy to say well, it’s only a little more, I’ll catch up eventually. Truth is, until you start spending less than a $1 for every dollar you earn, your hole will continue to get deeper. Comparing what I save to what I earn, I calculate that I spend $0.92 for every dollar that I earn. Sure that probably could be better, but that doesn’t take into account my company’s 401K match or the money that I set aside in my HSA (health savings account), some of that is saved and carried forward.
I will say that I try to keep my expenses in check as best I can. Things like groceries and the cable bill are ones that I am always trying to either reduce or at least minimize the increase. Over the past 5 years, items that I consider core expenses, like groceries, gas and cable; I have managed to keep them flat in total. That’s helped me to gradually increase my 401K contributions and fully fund my HSA every year.
Ways to Break Out of the Debt Cycle
The article then begins to talk about different ways to help people eliminate debt. They are the same things that we have all heard before, things such as earn more, automate your savings, track your spending, and have insurance to protect yourself from giant emergencies. Even doctor’s can get specialty policies like doctor disability insurance so they can cover their (most likely) larger bills if disabled.
The one thing that I would say someone really needs to break the debt cycle is desire. You have to want to get out, because it is not easy. It takes work and discipline to delay gratification. Years ago I was guilty of buying things that I couldn’t afford. It wasn’t until I committed to breaking out of debt did I finally start seeing a difference. My net worth shows it, -$19,000 at the end of 2008 to roughly $210,000 right now. It can be done, but you have to work at it and you have to want it.
Looks Like I Don’t Have to Stop Spending
The article isn’t really meant for someone like me, someone who is already spending less than they make and someone who tries to avoid debt. It was interesting to compare myself to the averages and I hope to never be back to those averages again. How are your numbers in comparison?
From Crystal: I think we were getting pretty close to the danger zone earlier this year with hubby’s new car loan…even though it’s at 0%, $392 a month was a big jump in our monthly bills. But my $280 monthly car expense (a 0.9% loan we don’t want to pay off early) is disappearing in about 6 months, so we’ll be back to spending about 75-80 cents for every $1 we earn.
FYI: I worked at a dead end cubicle job from 2005-2011 for about $30,000 per year. I went self-employed in July 2011 and make between $70,000-$90,000 through blogging, professional pet sitting, hubby's reffing, and our rental home. If you’d like to start your own site (link to my free step-by-step guide), I highly suggest checking out Bluehost (my referral link with a nice discount for you, PLUS a free custom header banner from me!). Please contact me any time at budgetingfunstuff*at*gmail*dot*com with questions or just to brainstorm! I’d love to help!