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The National Foundation for Credit Counseling (NFCC) has released the results of its annual financial literacy survey. The findings are not that surprising, showing that most Americans carry credit card debt, many are concerned about their savings in general and retirement savings in particular, and a significant minority don’t manage to pay all their bills on time. Let’s take a look at some of the top concerns and what you can do if you share them.
Not Having Enough Retirement Savings
This was a common concern, even before the COVID-19 pandemic, but the impact of the pandemic on the stock market, and consequently on 401(k)s and other retirement accounts, has many Americans even more concerned. While seeing the numbers in your retirement accounts go down is never fun, it really shouldn’t be a major worry for those of us a long way from retirement. The stock market has plenty of time to rally, and crash, and rally again before many of us hit retirement age.
If you’re closer to retirement, there may seem more to worry about, but it’s important to remember that the dip in markets caused by the pandemic hit everyone, and most retirement accounts fared better than other stock market-based investments, mainly because retirement accounts include bonds as well as stocks, which are of course, more stable, and haven’t lost anywhere near as much value as stocks during the pandemic and the following worldwide volatility.
It can be comforting to go back to basics and work out exactly how much you really need for retirement. Many people need less than they think, meaning you could be losing sleep unnecessarily. If you’re young and not really planning for retirement right now, maybe you should start. It can be an important part of developing discipline around your personal finances, at any age.
Not Having Enough ‘Rainy Day’ Savings
70% of respondents to the NFCC survey reported having some regular savings outside of their retirement savings accounts, but 12% cited insufficient ‘rainy day’ savings as an area of concern. This generally means easily accessible savings that could be used in an emergency. Recent events have brought it home to people that emergencies do happen and do have a significant impact on finances.
Building up an emergency fund is vital, and many financial experts agree it’s even OK to prioritize paying into your emergency fund over repaying debt. This is because having no savings at all means that an emergency will necessitate going into more debt, and often expensive debt, such as credit cards or short term “payday” loans. If your emergency fund has been depleted by recent events, or you didn’t have one in the first place, it’s time to start slowly building it or rebuilding it.
This is an area of concern for many people. 62% of adults in the U.S. reported that they are carrying credit card debt, and 43% say their household is carrying credit card debt from month to month, which is up 16% from the previous year. Perhaps unsurprisingly, over half of Americans reported finding it difficult to minimize debt because of unexpected emergencies or income reduction.
If you’re carrying debt, there are a few ways you can approach paying it down. The important thing is to pick a debt repayment strategy that works for you after taking a close look at your overall budget. Be as aggressive as you can in paying down debt, while still remaining realistic. I prefer the avalanche method for paying off debt, where you work on eliminating the debt with the highest interest rate first, but you can also use the snowball method, which involves eliminating your smallest debt first, then working your way up. Get details of both methods here.
Buying a Home
Owning a home may be part and parcel of the American dream, but over half of the adults in the U.S. report that they are affected by various barriers to homeownership. They cite rising house prices (19%), existing debt (13%), and a lack of available funds for a down payment and/or closing costs (also 13%).
If this is one of your concerns, first assess if you really need to buy a home. Homeownership is a popular dream, but it’s not the best or most logical choice for everyone. Depending on your circumstances, you could be better off renting at this point in your life. If you’re struggling to find a down payment, you need to look at your overall situation and decide what your priorities are. You may be better off paying down debt first or waiting until other circumstances change so you have lower outgoings and/or a higher amount coming in.
Needing Financial Advice
A massive 78% of those surveyed said they could benefit from financial advice from a professional. This is potentially a good sign. For many of us, the first step to improving our finances is seeking help. Financial professionals come in many different forms and the cost of consulting one ranges from very expensive to completely free. Check out our guide to financial professionals if you’re not sure who does what or how much it costs.
I’m a freelance writer specializing in online business, personal finance, travel and lifestyle. I also work as a content creator for hire, helping brands and businesses tell their stories, grow their audiences, and reach their ideal customers. I’ve lived, worked and studied in six countries, across three continents. Stop by my blog TheSavvySolopreneur.net to learn how to run your own (very) small business on your own terms. You can also connect with me at my website KarenBanes.com or follow me on Medium.com.
Disclaimer: The information in this article is not intended to encourage any lifestyle changes without careful consideration and consultation with a qualified professional. This article is for reference purposes only, is generic in nature, is not intended as individual advice and is not financial or legal advice.