We all want to be a financial success and there is good reason for that. Although there are things in life that makes us happy without necessarily having to spend, life gets to be a whole lot more comfortable if your basic needs are met.
But what does it take to not be a financial failure? We aspire to have huge sums of money in our account and have the best material possessions. Is this the right way to achieve financial success or are we just setting up ourselves to be a failure?
Why the American consumer spending can lead to debt
On February 2013, Business Insider published an article that claimed how half of the American families are living on the edge of financial ruin. They cited a report from the Corporation for Enterprise Development that stated how 132.1 million people admitted to not having any savings. Whether it is for emergencies or even plans to finance future goals, they are not prepared to survive these. It should also be noted that these households are not necessarily in poverty. They have jobs and are regularly employed. But if their income is suddenly depleted, study shows that these consumers will not last 3 months.
But where exactly does the income of consumers go? The US Department of Commerce, through the Bureau of Economic Analysis, released a list of household expenditures of the average American family. Here are the highlights of the report:
The highest portion of the overall expenses go to household expenses (services). It rises and falls in 2013 with 63.66% in Q1, 63.8% in Q2 and 63.53% in Q3.
The top category in the household expense goes to housing and utility expenses at 18.05% in Q3 of 2013.
The second category is in health care at 16.61% in Q3 of 2013.
Non durable goods like food, clothing, gas and other spending done on similar items comprises 22.88% of the overall spending in Q3 of 2013.
7.36% of their income is spent on insurance and other financial services.
Based on all these, it is evident that consumers spend a lot in their home payments and health care. Since medical costs are quite high these days, this is understandable. But we just noticed how consumers are spending on both health care and insurances. It is unclear if the insurance include health care costs but the cost of going to the doctor to treat common and serious illnesses is quite high. Imagine if this is not coming from you emergency fund. You could really be forced to take on debt to finance your health care needs.
So far, the expenses are all at par with what we perceive to be necessities – shelter, food and health care. But aren’t you wondering what makes experts believe that the country is slowly going towards financial failure?
5 mindsets that will lead to a financial crisis
Growing up in a consumerist society brought about a couple of mindsets that are deceiving us. Consumerism as a way of life means you aim to possess the best of everything and you want it in excess of what you really need. But considering the limited resources that we have and the fact that majority of the population is under the poverty line, this remains to be a dream. If we force it, we end up putting ourselves deep in debt. And we all know that too much debt is one of the signs that you are a financial failure.
There are many habits that you need to break free from and here are 5 of the most important (in our opinion at least).
Not being satisfied with what you need.
This is consumerism at its finest. Extravagance and excessive. We have this mindset of wanting more than what we really need and not being satisfied even if that is what we already have. This keeps us unhappy and always wanting to acquire more. The thing is, even if this is something that you can afford at the moment, sooner or later, you will get used to wanting the excesses and it will get ahead of your income. Our wants usually start small but as we go on, it gets bigger and much more expensive than when you started. For instance, we all have mobile phones but when the smartphone emerged, we all wanted that as well. When the tablet was released, we wanted that too. Soon, we had the mobile phone, smartphone and the tablet. Instead of just settling with the smartphone, a lot of us went ahead and acquired all three.
Being quick to upgrade our lifestyle as we earn more.
While there is nothing wrong with rewarding yourself since you have worked so hard for it, this mindset fuels our inner consumerist desires. We are quick to find ways to spend the extra income that we are now earning- upgrading to a lifestyle that is usually more expensive to maintain. Here’s the thing, if you have debt payments or saving goals to fulfill, it does not make sense for you upgrade your lifestyle. Make sure that you have adequate money in your emergency fund, satisfied saving goals and no debt obligations. That is the only time that your lifestyle upgrade will not lead to your eventual financial failure.
Waiting for a higher income before saving.
If you follow the first two mindsets and this one too, you will never have enough to save. And we all know what happens when you do not have any savings and the unexpected happens. Regardless of how much you are earning, dedicate a percentage of that to go to your savings immediately. If you think that you want to prioritize expenses like your debt payments, even a small savings amount will suffice. As long as you are consistent in putting money into it, your savings will grow. And you will be surprised that you can actually make money by saving money. Just try and you will never regret it.
Failing to prepare for emergencies.
One of the reasons why you have to save is to prepare for emergencies. If you are not prepared, that can bury you in debt. Do not make the mistake of assuming that you are invincible and that nothing bad will happen to you. If that is what happens, then you lose nothing because you can use your emergency fund for something else.
Not maximizing your abilities.
The last one is not really something that consumerism taught us but it can be one of the reasons to keep you from growing your personal wealth. If people are commenting about how great you are at work, that may be a sign that you are fit to get a raise. Do not hesitate to get what you think is what you rightfully deserve. The next chance that you get, talk to your superior or your employer. Let them know that you have acquired more skills over the years and that you feel that you deserve an income increase. As long as you are not arrogant about it, they may relent. But you’ll never know unless you ask. Your confidence is one of the things that will lead you to financial success.
Treating consumerism and the habits that are leading us to financial failure is a must and it can be cured by two things: a budget and smart spending. Obviously, you need to change your perspective about what you have to possess. That is where smart spending comes into play. And to make it more effective, you need a budget so you get to understand how much you are really capable of buying. That gives you the information that will help you make smarter spending decisions.