Financial security: It’s a concept foreign to millions of Americans. The thought that you have enough money to pay your rent, phone bill, and put food on the table is a pipe dream for a lot of people. Although you might have a job and enough cash flow to make ends meet, feeling true financial security is a long way off in most households.
The average American is working on thin margins. If you take a peek in the typical American bank account, you’re going to find around $4,400. Although some people might rejoice at the thought of having a comma in their account, that $4,400 isn’t really enough to provide peace of mind. Consider that there are rent or mortgage payments always creeping up, debt payments on credit cards or student loans, and the fact you need to pay for transportation and meals.
Suddenly, that financial cushion is looking pretty thin. How much financial padding would it take to provide a real security blanket? New data from money management service Banktivity provide us with some answers.
Let’s take a quick look at how poorly Americans are faring these days.
Defining ‘financial security’
What do we mean when we use the phrase “financial security”? Essentially, you have enough money to cover your basic expenses for the foreseeable future. Most financial advisers would say you need an emergency fund to cover between six and 12 months with no income. So, if you lost your job, you’d have a year or so to get yourself together and find a new stream of income.
This, of course, is difficult for many households to piece together. Given that millions of Americans are living paycheck to paycheck, squirreling away even a small percentage into savings every pay period can be difficult. But it can be done. And it’s the first step toward attaining financial security.
Next: The exact alarming numbers that Banktivity’s team uncovered.
Americans, by the numbers
According to Banktivity’s data, 2 out of every 3 Americans are living paycheck to paycheck. As such, the following shouldn’t come as much of a surprise:
- 58% would struggle to pay a surprise $500 bill.
- 68% lack substantial savings.
- Despite these figures, 33% felt that they were “financially savvy.”
- The average American wastes $140 per month.
These figures might be at odds with other research out there, but from them we can conclude a majority of Americans are struggling. The data show one thing we’ve already covered, and that’s the top way Americans are wasting their money is through spending on food. That means there are opportunities to save more, on a positive note.
Next: The exact amount the average American needs to feel financially secure.
What it takes: About $80,000
The key figure Banktivity’s team uncovered was the exact dollar amount needed to grant financial security. That number? $80,594.
This is what it would take to allow the average American to sleep at night and not worry about surviving in the event of a job loss or some other disruptive life event. That $80,000 figure can seem insurmountable to many Americans, who, as we know, are struggling with just making it to the weekend.
Next: This becomes even more clear when you look at the actual shape of a typical American’s finances.
The reality of the average American’s finances
We already discussed what the average American has in their bank account, which is around $4,400. But what about savings, investments, and retirement accounts? These numbers can help us put together a complete mosaic of the typical person’s financial fitness and see just how realistic attaining that magic $80,000 number is. Here’s what we’ve found:
- We’ll start with what’s in the average bank account, which is $4,400.
- For retirement, Americans have a median amount of $69,000 saved.
- Average household debt? $132,000.
- The average Social Security check (if applicable): $1,250 per month
These numbers might not make you feel any more confident, but they’re a starting point.
Next: From here, we can map out a way to building your savings and reaching financial security.
Building a roadmap
Even if you have managed to save a bunch of money for retirement and have four digits in your checking and savings accounts, hitting the $80,000 threshold can be a stretch. Remember, these are averages, and that might not necessarily be descriptive of a typical American family’s financial health. Many people, for example, might scoff at that $69,000 retirement savings figure — especially given that a lot of people can’t even pay all their bills each month.
But the steps to building wealth are out there. There are two ways to improve your financial standing: Increase your income by getting a raise or new job, and reduce spending. If you’ve cut your spending to the bone, you can always start fishing for a raise, promotion, or better-paying job.
From there, it’s a matter of building up an emergency savings fund, starting to save for retirement, and ultimately throwing money into investments. Yes, this is overly simplistic, but it’s a basic framework to work with.
Next: And as with anything, it starts with small steps.
When it comes to building your savings, the first step can be as small as you want. If you can only stash away $10 — be it under your mattress or transferred into your savings account — that’s a start. Also, begin looking for ways to increase that amount, and make it a goal to start saving weekly, monthly, or whenever you get your paycheck. Can you save a few bucks with a cheaper lunch option? Take that saved money, and augment your contribution.
There are opportunities to cut spending all around you if you can get creative. All the while, starting engaging in some Genghis Khan-like career tactics to increase your income. You might be in a dead-end job, but that doesn’t mean you have to stay there. Ask for a raise or promotion, or start applying at other places. Eventually, something will break your way. When it does, you should (hopefully) have at least a little bit of money saved up.
Next: Here’s what to do when you get a raise.
When you get a raise, don’t increase your spending
It might seem natural to start spending a little more after a promotion. Maybe you start eyeing a larger apartment or some high-end gadgets. The problem is a more expensive lifestyle could jeopardize your saving behavior. Think of a pay raise as an effortless way to speed up your savings. Keep living modestly, and put any extra income, whether it’s from a raise or an extra freelance gig, straight into your savings account.
Many advisers claim saving 10% to 15% of your income is sufficient no matter what tax bracket you’re in, but some personal finance writers advocate for saving as much as half of your income if you can. A more radical approach to saving could mean an early retirement or at least reaching your savings goal in a fraction of the time you expected.
The key is to be happy with what you already have, enjoy living simply, and look forward to the rewards of a disciplined money-saving mindset.
Next: Why do you really spend money?
Learn why you spend
It will be easier to save when you get to the bottom of why you spend. For example, do you buy a lot of clothes because you want to impress someone? Or are you always spending money on eating out because you haven’t set aside enough time to cook at home? If you’re more focused on impressing others or you haven’t established financial discipline, it’s time to work on getting a handle on these bad habits.
Next: Make it a game.
Make a game out of saving money
Saving money doesn’t have to be a chore. Make a game out of it, so you can stay motivated. You can even have a few friends join in on the fun. One idea is to try the 52-Week Money Challenge. This is a challenge that requires you to save a certain amount of money each week during the year.
One personal finance expert who encourages this method is Tiffany “The Budgetnista” Aliche. “The challenge works like this: Each week you deposit the number of that week of the year into a savings account. During the first week of the new year, you would deposit $1; the second week, $2; etc. By the end of the year, you will have saved almost $1,400!” Aliche said on her blog.
Next: Keep educating yourself.
Keep educating yourself
Keep learning as much as you can about how to manage your finances. If you want to be a money success, it’s important for you to keep feeding on new financial information every day. Pick up a personal finance book, go to money seminars, and read money blogs. The more you learn about money and how it works, the more you will commit to making savings a priority.
Next: Celebrate your successes!
Keep pushing forward by giving yourself a pat on the back when you reach a goal. Every time you reach a savings milestone (for example, $500), celebrate. Reward yourself by watching an extra episode of your favorite TV show or allowing yourself to enjoy an extra slice of cake. Find ways to celebrate without spending money. You don’t want to celebrate so much that you get yourself right back into debt.
Additional reporting by Sheiresa Ngo.