When I introduce myself as a wealth adviser, people sometimes respond with a quick chuckle and something like, “I’ll call you when I get wealthy.” The fact is, you don’t have to “get wealthy” to need financial services. Most families’ primary concern isn’t how to protect an abundance of assets; it’s how to cover unexpected setbacks and fund retirement.
The Census Bureau recently reported that the median net worth for those under 35 years old is only $4,138 and their home equity is just $2,762. Those between 55 and 64 have a median net worth of only $66,547, with home equity of just $97,951. Their home equity is an illiquid 60% of their total net worth. To summarize, by retirement, the median worker has saved only about $2,080 a year over 30 years, with the rest tied up in the residence.
If you find yourself following this trend, here’s your heads-up. Start now to spend smart, save more and eliminate risk behaviors that can lead to financial and personal failures.
1. Spend smart
Spending smart means selecting a lifestyle that allows you to pay off debt and add to savings, maybe even at the same time, without undue spending anxiety. If your gym membership or your coffee needs are non-negotiable, eliminate or reduce in other areas. But sacrifice you must.
- Stop all impulse buying, delivery programs and TV shopping.
- Use coupons and always buy on sale.
- Never shop for entertainment.
- Drop the gym membership: Go to free classes in your community, or pay as you go.
- Get a prescription card, like GoodRx, and move your scripts to the cheapest provider.
- Make your coffee at home and skip the coffee shop.
- No soft drinks or bottled water; drink tap or filtered.
- Buy supplies in bulk, and buy the grocery store brand.
- Shop consignment and Goodwill.
- Drop cable TV. Subscribe to Netflix, Hulu Live TV, Vudu or similar services that you actually watch.
- Switch to a mobile discount plan; many are under $40 a month.
- Turn off in-game purchasing on all your devices.
- Sell your new car and pay off the loan. Take public transportation instead.
- If you must, buy a good used car, between three and six years old, that you can keep for a decade.
- Always carry auto insurance with collision and comprehensive coverage and roadside assistance.
- Plan and cook three meals a week with leftovers for lunch at work.
- Never take out a paycheck loan.
- If you can’t pay off your credit card each month, stop using them for anything but essentials. Use cash instead.
2. Save more
Contribute at least enough to your 401(k) plan to get full employer matching. Your contribution is tax deferred and the employer match is part of your compensation. Not taking it is like handing back three weeks’ pay each year. Employers typically match between 3% and 6% of employees’ salaries.
If you don’t have an employer 401(k), open an IRA with automatic withholding. You can contribute $5,500 a year pre-tax; about $211 a paycheck.
Transfer 10% of your paycheck to savings automatically. You may have to transfer some back throughout the year, but you’ll think about it first.
3. Eliminate risk behaviors
Half the battle is showing up. Risky behavior will rob you of essential and desirable elements for employment, like reliability, dedication and reputation. Many a lost job resulted from a misdemeanor that led to a suspended license, auto impoundment or even jail time. Consistent employment is essential. Employers prefer to hire people who are currently employed.
- Get seven hours of sleep per night, eat less meat and drink more water.
- Take daily walks or run, cycle or hike.
- No illicit drugs, alcohol, smoking or vaping (they’re very expensive and bad for you).
- Never drink and drive or let a drinker drive you.
- Always drive the speed limit.
- Hang out with equally healthy friends and family.
4. Tackle your debt
If you have too much debt, figure your minimum payments for all the credit card and loan balances and pay 10% more than that each payment until you catch up. If you’re really behind or can’t swing the minimum payments, always pay at least something. Call and ask for a payment plan.
Be wary of consolidating debt, and avoid debt settlement offers. The consolidation rates may be lower than you’re paying, but the loan is extended, so you pay more interest over a longer loan term. Debt settlement companies charge a high initial fee with a promise to negotiate your debts lower later. Some debt settlement companies have been prosecuted for fraud. You can negotiate a payment plan yourself for no fee by just calling the creditor and asking for help. But none of that will work unless you make the agreed-upon payments on time.
If you have student loan debt, you can renegotiate that, too. First, though, you must exhaust the payment reduction and postponement programs through the lender. For federal loan programs, the process includes graduated, extended and income-driven repayment plans, as well as deferment and forbearance options, which are also offered through nearly every major private lender. Once again, you must stick to the agreement and not default.
5. Plan for the unexpected
Sign up for any employer group health, life insurance, disability, casualty loss and long-term care coverages offered. Add vision and dental, if they are good plans. This coverage is essential to replace lost wages and avoid financial troubles.
Occasionally, you should spend on things you like to do, but for every purchase, you should ask yourself three questions:
- Do I really need this?
- Is there a better option?
- Can this wait?
Financial security for most requires a lifestyle overhaul. You should start today.
Timothy Barrett is a senior vice president and trust counsel with Argent Trust Company. Timothy is a graduate of the Louis D. Brandeis School of Law, 2016 Bingham Fellow, a board member of the Metro Louisville Estate Planning Council, and is a member of the Louisville, Kentucky and Indiana Bar Associations, and the University of Kentucky Estate Planning Institute Program Planning Committee.
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