I spend almost all of my time focused on helping people to get out of debt. But today I wanted to take a moment and focus on what to do once that crisis has passed and I’ve added a new section about life after debt to my free guides on dealing with debt.
Let’s talk about the power and necessity of getting your life back on track quickly after you deal with a financial stumbling.
When faced with problem debt people really have two choices to make. They can either deal with it slowly in an extended repayment program like credit counseling, debt settlement, or a chapter 13 bankruptcy or they can deal with it quickly with a chapter 7 bankruptcy and settling debt if they have cash on hand.
Dealing with it quickly makes the most sense to protecting yourself moving forward. You’ll see why.
A slow solution will take about five years. And in all that time people are typically just making it month to month and feeling like the sacrifice and trouble are serving a higher purpose. But what they fail to see is that that time and very typically the marginal monthly budgets leaves them exposed to the two greatest financial problems facing everyone.
In my mind, without a doubt, the two greatest financial pits of death are not having cash on hand in a savings account and not enough retirement savings.
People can be all high and mighty as they want about the virtues and morality of paying back all their debt but when you are broke and hungry eating virtue is tasteless and leaves you hungry.
The New Norm: Broke Ass Americans
Recent studies have found that nearly half of Americans do not have enough savings to cover basic expenses if they were to lose some income. But these people are not the poor, they are also the middle and upper middle class.
Over 30 percent of all households have no saving at all.
Nearly half of Americans say they could not come up with $2,000 in 30 days.
The survey asked a simple question, “If you were to face a $2,000 unexpected expense in the next month, how would you get the funds you need?” In the U.S., 24.9% of respondents reported being certainly able, 25.1% probably able, 22.2% probably unable and 27.9% certainly unable.
When asked, most people facing a financial crisis would use multiple methods ranging from dipping into savings, asking for help from family and friends, using loans or credits cards, taking out payday loans or selling possessions. None of that is a smart financial strategy.
So imagine you are in a five year payment program and run into an unexpected car repair or a leaky roof and need to lay your hands on $2,000 cash. Do you think most people would be able to or are they over committed to paying off old debt and not laying a safer financial foundation for the future?
To prevent yourself from being part of that broke ass half of America you MUST make your plan to deal with debt or life quickly after debt, include a regular savings strategy. There is no two ways about it.
If you are not saving money each month now in a regular old boring savings account you must. And it should be at least $100 a month or more. Even saving a minimum cushion of $2,000 would require you to put away $166 a month and not touch it. And even having $2,000 in savings is marginal protection.
There are three easy ways to save money, if you can afford to.
- Ask Your Employer – Some employers will allow you to split your automatic deposits. Ask to have $200 a month taken out of your check and deposited into a savings account.
- Setup Your Own Automatic Deposit – Using your online banking tools, many banks allow you to setup an automatic transfer on a scheduled date to your savings account. Schedule $50 a week to come out of your checking account and tuck it away in savings.
- Manual Deposits – If you have the consistent discipline of a professional budgeter you can transfer the money yourself into your savings account. This is probably the least reliable approach.
Think about your saving account as your “F*@% You!” money. If you ever find yourself in a job you hate and need to make a change, the bigger your savings account, the more flexibility you have and you can tell your boss to buzz off and weather a job transition.
Without savings you are more likely to be trapped and unprepared for a financial emergency.
Accidents happen, illness happens, unexpected life events happen, and without making savings a top priority you will be faced with having to turn to credit and put yourself either right back in debt or further in debt. Neither option is something you want to intentionally do to yourself.
The choice is yours. Does it make more sense to try and fix the financial past even if it means you have to give up and intentionally avoid your financial safety net?
And Then There’s Retirement
I’m not being an alarmist but someone needs to ride through the streets on horseback screaming “Retirement is coming. Retirement is coming.”
If you are 50 or over and have not started saving sufficiently for retirement, you are in deep shit.
Saving for retirement must become an absolute priority for you rather than focusing on repaying old debt.
Your ability to save for retirement is literally likely to be the difference between deciding to eat and pay utilities or be old and picking out the least roach infested place to live in.
If you are just out of college you can embark on a slower investment strategy and save consistently over time and build a huge nest egg.
With fewer people having company pensions, the money to feed and care for you when you can no longer work has got to come from some place.
There is continued talk of reducing Social Security benefits out of need or necessity. That is going to hit people over 50 really hard if they are not saving themselves.
People make classic mistakes like draining the IRA, 401(k), 403(b) or other retirement savings when faced with a financial emergency. They drain the money they will absolutely need when they can’t earn money anymore because they reacted and poor financial decisions today in dealing with their debt.
So if you’ve drained your retirement accounts or are not contributing. Start right now. Please!
Things you should do today for retirement.
- Check to See if Your Employer Offers Matching Funds – If your employer offers matching funds for money you save in your retirement account and you are not taking advantage of that, you are crazy. That’s free money someone wants to give you that you are turning your back on. You should absolutely be contributing up to the maximum amount they will match.
- Look at What Your Funds Are Invested In – Knowing what to invest your mutual funds in can be daunting. But a great answer is to look at the stock market index mutual funds available to you in your plan. One I looked at yesterday has returned almost 11 percent annually since its inception decades ago. You’ll generally win more betting on the stock market as a whole than betting on individual stocks.
- Call a Mutual Fund Company – Saving tax free for retirement does not have to be a daunting as you might believe. There are great mutual fund companies out there who can provide some amazing help to make the process simple. For example, American Century, Charles Schwab, Fidelity, TRowePrice, Vanguard, and many others.
I can go on and on and tell you study after study that are screaming about the retirement crisis looming ahead. You can believe me, be in denial or just call me mistaken. But it really doesn’t matter what I say or what you think. By not making retirement savings a priority you are taking action to get the retirement future you don’t want.
Nobody ever saves too much for retirement.
So
Quite simply, once the financial crisis is behind you, as quickly as possible, you MUST set your sights on making savings and retirement a priority for you in your otherwise tight monthly budget. Not doing that leaves you both at financial risk for another disaster and sets you up for a life when you are old that you do not want.
You are not alone. I'm here to help. There is no need to suffer in silence. We can get through this. Tomorrow can be better than today. Don't give up.
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