According to Center for Financial Services Innovation poll that took place in May 2017 half of the American citizens spend more than earn. In the focus-group among 18-25 year-olds its portion exceeds 50%.
President of CFSI Jennifer Tescher noted that half of the Americans lives without a financial safety net and definitely approaches the poverty line.
Without doubt these dangerous conditions get people stressed. Nearly 100% of financially insolvent borrowers admit that they are under great stress. Nervous tension has gradual effect on health multiplying with constant work pressure, so many of borrowers complain of health problems.
Just think, 50% means that either you or your fellow person has rough financial problems. Your friends, relatives, co-workers are under threat.Are you?
Let us understand why we are prone to overspending
First things first: we spend much on things we don’t need. It is so obvious that it already has become boring. But the fact remains, thus, simply do the unpleasant thing and reduce your spending.
Second things second: poll results show that something more structural than individual spendings comes into the scope. Gradually large amounts are spent on housing (utilities, transportation to workplace, groceries). From year to year this expenditures grow while paychecks remain the same.
The third major factor is volatile income. Workers whose paycheck varies each day, week or month can’t adapt to a changing situation fast enough, so they are under larger risk of overspending. According to Jonathan Morduch, Managing Director of the Financial Access Initiative agency, American families deal with income volatility five months out of twelve. Income dispersion tends to be 25% over three months. Meaning that this month you earn $2,000, the following $2,500 and the next one only $1,500.
And last but not least: in their attempt to cover a financial gap many Americans rely for payday loans. Like a magician payday lender gives you money out of nowhere and asks for seemingly nothing in return. But interest rates for those credits are monstrously high, they can reach up to 390%. So if you take $1,000 for a month you will have to return $1,395. That’s why your financial gap will grow instead of becoming smaller.
So how can we avoid financial traps?
Recently new helpful financial tools appeared, among them are Activehours and Even. The first one allows you getting some of your paycheck money ahead of payday. So you don’t need to go to a lender. The other works like this: it evens out your earnings for a certain period, for example, a year. You just need to fix a period and an average earning amount and the program will freeze surplus money in high periods and unfreeze them in lower periods.
But all mentioned means should not be considered salvation; they can just help you with your efforts to live within the means. First try to reduce your own expenditures and then try other measures.