My fellow Americans, we need a financial wake-up call.
More than a third (34%) of Americans have no savings at all — not a nickel. Another 35% have less than $1,000 in savings — not enough to fix major car repairs or to cover a month’s mortgage or rent if they lost their job.
The average savings rate over the last year is under 6%, and if that doesn’t seem so bad, consider that in late 2012, it was 11%. In mid-1975, it was 17%.
Stock ownership has reached record lows, with just over half (52%) of Americans owning any stocks. For context, that number was nearly two-thirds (65%) less than 10 years ago.
Then there’s retirement savings, a sorry state if there ever was one. The median U.S. retirement savings is a mere $5,000.
These facts register somewhere between “scary” and “oh s#!t.”
So how can we as a nation turn this fiscal frown upside down? How can we start saving and investing more, so we’re not all working until we’re 80 or clambering for government handouts in our golden years?
Here are seven ways to break these bad financial habits and cure the disease of the poverty mindset.
7 Ways Americans Can Break Bad Financial Habits
1. Go on a cash diet.
All right, you probably don’t have to physically cut your debit or credit card in half with scissors, but if you don’t, then at least hide your cards away in your bedside drawer. Every two weeks when you get paid, take out a certain amount of cash, and that’s it — that’s what you have to spend.
There’s the obvious perk that you can’t spend more than what’s physically in your wallet. But just as importantly, when you spend cash, your brain processes spending better. You’ll subconsciously keep track of how much you’ve spent and how much you have left in your wallet, which simply doesn’t happen when you’re swiping plastic.
2. Don’t like the cash diet? Segregate your accounts and live on your debit card only.
Credit cards are a tool for advanced consumers (and can even be used to buy real estate — by advanced investors), but are too easy to abuse for average consumers. Keep in mind that credit card companies have different goals than consumers do: Their goal is to get consumers to charge the maximum amount possible that they can still collect on later.
Consumers’ goal with credit cards should be “get rewards but never pay interest.” Alas, it rarely happens that way.
If you’re not saving at a high rate, try this instead. First, leave your credit card in your bedside drawer. Next, set up automatic transfers to take place on your payday every two weeks. As soon as you get paid, money should transfer into your savings account, leaving only your budgeted spending amount in your checking account.
3. Split your paycheck.
Even better, have your payroll split between your checking account (for operating expenses) and your savings account. Your savings literally never touches your checking account in this scenario, making it that much harder to spend.
No muss, no fuss, just spend what’s in your checking account each month and invest what’s in your savings account.
4. Budget based on four weeks’ income.
In the real world, you don’t have a monthly budget of “my annual income divided by 12.” What you have to live on is usually four weeks’ after-tax income — and occasionally a bonus paycheck.
Always transfer your bonus paycheck directly to savings. No discussion, no objections, just do it.
But even more importantly, your monthly budget has to be based on your reliable take-home pay. Four weeks’ pay, not some fraction that exists only on paper.
5. Teach your kids about money (and raise them to be entrepreneurs)!
Poverty isn’t just a lack of money. It’s a mindset and a lack of knowledge. How many people living in the slums can set proper budgets, calculate ROI, or maximize tax benefits?
We as a nation should be teaching these lessons in public schools, but we don’t. That means it’s up to parents and other role models to teach children and teenagers about how to earn, grow, invest, and manage money. It means an ongoing, informative, and open conversation about money. Show your kids how to budget with high savings rates. Show them how to invest in stocks, funds, and real estate. Show them how returns work (and maybe rig their returns to be positive and strong at the beginning, so they see tangible results). Teach them the rules of the investing and tax games, so they’ll know how to win them.
Better yet, raise your kids to be good entrepreneurs, not good employees. After all, do you really want your son to grow up to be a yes man — or your daughter to enter numbers in a spreadsheet all day? In tomorrow’s world, we will all be responsible for creating our own jobs and career paths. It’s already happening today; look no further than the advent of the gig economy and the collapse of the “career job.”
6. Surround yourself with financially capable and driven people.
Indulge me a moment, while I quote at you.
John Lee Dumas of Entrepreneur on Fire always closes his podcasts with, “You are the average of the five people you spend the most time with.”
Brian Tracy, the personal development icon, waxes more colorfully: “You’ll never fly with the eagles if you spend your time scratching with the turkeys.”
If you want to develop (and more importantly, maintain) good financial habits, you need to spend time with similarly disciplined people. My wife, for example, falls into her old bad spending habits whenever she’s out with her friend Caitriona (pronounced “Katrina” — she’s Irish). They go to the mall, slurp down $5 lattes, and cart boxes of frivolous new shoes into the house. It’s like a slow-motion recurring nightmare.
Peer pressure is very real, so rig it to boost yourself up, rather than letting it drag you down.
(Side lesson: Marriage is hard.)
7. Use online budgeting and aggregating tools to measure your progress.
I already belabored this point a few weeks ago, but there are some excellent reasons why real estate investors should track their wealth-building progress with Mint.com or another financial aggregator.
But beyond being able to track all of your wealth in one place and see in real time as your savings and investments grow your net worth, many of these online tools help you build a budget, too. Even more importantly, they help you maintain your budget.
When your spending rises in one category, they send you alerts. When a big unexpected payment is made, they send you alerts. And they’ll also let you know when you’re right on target.
Keeping a budget takes all the help you can get, so take advantage of one of these free online tools.
Is all hope lost? No, of course not. There are some reasons to believe America’s wealth is not all dust in the wind.
While low, the savings rate is higher now than the dismal 4.3% we saw at the end of 2013. Since mid-2014, it’s been hovering in the 5.5-6.2% range. Maybe we’ll see that number rise in 2017, hopefully alongside wages.
The average credit score among Americans actually reached a record high in 2016, at 695. Theoretically, that means Americans are actually paying their bills on time, not borrowing too much against their available credit, and steering clear of judgments and bankruptcies. Of course, it could also mean the credit bureaus have simply been tweaking their algorithms. But hope springs eternal.
None of us can control the economy, the Fed’s interest rates, or the stock market. But we can control our own finances: how much we spend, how much we invest, where we invest. Forget what everyone else is doing, and focus on building your own family’s future.
It’s an incredibly freeing feeling, when you realize that your family will still have food tomorrow no matter what happens because you’ve built enough wealth to weather any storm.
How are your finances doing? What are you struggling with? What have you done to fix your finances that have helped?
Share so that others can learn from your successes and failures!
Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.