More Month Than Money?
Q With us, there's always more month than there is money. How can we get out of this vicious cycle of spending more than we earn and never saving?
A Your question reminds me of two recent items in the news: First, the Commerce Department reported that the household savings rate was a negative 1.2% in May, the lowest level since the Great Depression and the second time that a negative savings rate has occurred this year.
In another story, and one that showed how even those with higher incomes find it easy to spend beyond their means, it was reported that Elton John has accumulated debts of over $40 million! He was spending at the rate of $400,000 each week on credit cards. While I've seen all types of situations as a result of the counseling I do, I have to admit I haven't run across credit card spending like that!
What's going on?
While there is no simple answer, I believe the problem is based on two primary problems. First, many families today earn a modest wage and, especially if managing their household on one income, truly have a challenge in just being able to meet their basic needs — let alone set aside any savings.
On the other hand, there are large numbers of people who generate very substantial incomes — even if not at the level of Elton John's — who still have difficulty keeping their spending in line with their income. At root, these folks are dealing with a spiritual battle as they search for happiness in material things rather than in a relationship with God.
Success at saving, no matter what your situation, requires an act of the will that is very difficult for most of us. Here are four steps that will help you start on the road to saving:
Step One. Develop an annual budget and track your actual spending according to the budget categories. Meet with your spouse at least once a quarter to compare the two and make adjustments as necessary.
Step Two. Be a comparative shopper. By obtaining bids on major purchases, including cars, appliances, home improvement projects, insurance policies and mortgages, you'll save thousands.
Step Three. Pay cash for major purchases. Psychologically, you'll spend less than you would with credit, because you'll have a greater appreciation for how difficult it was to save the money in the first place. In addition, you'll save thousands on the interest.
Step Four. Watch your entertainment and recreation dollars. Meals out, vacations, movies and cable TV add up quickly. Look for enjoyment in simple pleasures like walks, bike rides and days at the park.
With a little planning and a dose of fortitude, start the good habit of saving, and be on your way to financial freedom.
God love you!
Phil Lenahan is executive director of Catholic Answers.