When it's a matter of cutting out a few lattes or trips to the mall, saving money can be relatively easy -- maybe not fun, but certainly not excruciating. But when you're facing a choice between paying the electric bill and buying health insurance, advice on saving money can seem like a sick joke.
How people really live
Even in the richest country in the world, many people barely keep their heads above water. Consider just a few statistics:
- Half of American households live on less than $46,326 a year, the median household income figure for 2005, according to the U.S. Census Bureau. That inflation-adjusted number hasn't seen a substantial increase since 1999. One out of five households lives on less than $20,000.
- 22 percent of U.S. respondents in an ACNielsen study of consumers worldwide said they had no spare cash left after paying for basic expenses.
- Some 37 million people live below the federal poverty line, according to the Census Bureau.
- Nearly 47 million have no health insurance, the Census Bureau reports, and medical bills are a factor in half of all consumer bankruptcies, according to research by Harvard University professor Elizabeth Warren. Those who do have insurance often pay a big price: Two of five adults (43 percent) who bought health insurance on their own spent more than 10 percent of their incomes on premiums and family out-of-pocket medical expenses, according to the Commonwealth Fund, which describes itself as a private nonpartisan foundation that supports independent research on health and social issues. When an employer provided the coverage, one of four (24 percent) of those insured spent more than 10 percent.
I want to provide some food for thought for those of you who have okay incomes and have cut expenses every way you can imagine, but are still floundering. I have no idea what your solutions might ultimately be. But I've watched people with tiny incomes get their financial act together, save money and make progress toward their goals. I've also seen people with substantial incomes fail to do any of the above.
The difference: their attitudes and their choices. You do have a choice about whether to save, and your attitude can make all the difference.
Take another look at those 'fixed' expenses
It's pretty tough to sustain a reasonable spending plan if you've let your basic living expenses swell to more than 50 percent of your after-tax income.
If your basic expenses are too high, you just don't have enough money left over for savings, debt pay-down and "wants," which include stuff like clothes, gifts, vacations and the occasional dinner out, according to Harvard's Warren, co-author of the personal finance book All Your Worth.
Any solution is likely to be tough. Cheaper insurance might mean switching doctors or pediatricians. A lower car payment might mean selling the current car and settling for a beater -- or might not be possible at all if you owe more on your car than it's worth. Finding less expensive digs means moving and could mean a roommate, neither of which is all that appealing.
No part of your spending should be considered off-limits for possible cuts, though, if you really want your finances to work.
In some cases, Warren notes, spending more than 50 percent on basics temporarily isn't a problem, such as when you're unemployed or adjusting to a new baby. But long term, you'll want to get as close to that 50 percent mark as you can if you want a sustainable budget.
Look for ways to boost your income
If you've really cut expenses as far as you're willing to go and you're still not keeping up, your only solution is to make more money.
Talk to people who've gotten out of debt, and many of them did both. They trimmed their budgets, but they also asked for raises, found new jobs, moonlighted, started sideline businesses, sold stuff on eBay, held yard sales. Their older children got after-school jobs; if one of the parents had been staying at home, he or she went back to work.
You'll want to avoid any "solution" that's likely to cost more money than it generates, like the typical multilevel marketing scheme or work-from-home scams. Making real money tends to involve real effort, but it can be done.
- by Liz Pulliam Weston, MSN.com
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