Investor Minute
To Lower Your Financial Stress, Give Yourself Some Breathing Room
A friend recently returned from Ireland with a few scary stories. He and his wife had rented a car for a few days to explore some castles. Several of the old fortresses, they were told, were haunted. But ghosts in the towers were not the cause of their hair-raising experiences. It was the country roads between the castles.
In addition to making the mental adjustment to driving on the left, our friend found the roads to be very narrow. Imagine a one-way road in America (with a foot of shoulder on each side) carrying two-way traffic. There’s barely enough room for cars to pass each other and no where near enough room to pull off if something goes wrong.
Large trucks would come barreling at our friends head-on, not slowing or seeming to get over. With no shoulder and often a rustic stone wall right next to the road, it was white knuckles and clenched teeth as the vehicles seemed to miss by inches.
This is the stress that comes from having no margin—no wiggle room in case things don’t go exactly as planned. And unfortunately, it’s an anxiety many people experience because of their finances.
In December of 2022, about 166 million people, or 64.4% of U.S. adults reported having no money left over at the end of the month. This is a year-over-year increase of 9.3 million people, and just below the pandemic-high of 65.7%. High earners were not immune, with more than half of those making $100,000 or more reporting that they, too, were living paycheck to paycheck.
Unfortunately, this has led many people to go deeper into debt. According to the Federal Reserve Bank of New York, in just the fourth quarter of 2022, total household debt increased 2.4%, resulting in a record-high $986 billion in credit card debt.
The recent pace of debt increase is not sustainable. More than likely, many people will be facing ongoing crises with their personal finances.
The solution is mathematically simple: Spend less than you earn. But many people find this difficult to put into practice because it requires them to follow a budget. However, there’s simply no way to keep all of your monthly financial transactions in your head. Let alone track all the long-term necessities a budget makes allowance for.
Living with no financial margin is stressful. One unforeseen car repair or medical bill can seem like a semi truck coming around the corner on a narrow road. A budget can help give you greater clarity that all your money is going where it should. It can even give you permission to plan guilt-free for impractical things like that tropical vacation you’ve always dreamed of.
If you struggle in the area of budgeting, talk to your trusted advisor. He or she has resources and ideas for helping even the most planning-averse get started and stay on track for the long term. Click here to make a free appointment with me.