A Third of Americans Have No Savings: Here’s 7 Habits We NEED to Adopt

by | BiggerPockets.com

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.

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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.

frugality

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.

Related: The Foolproof Monthly Budget: How to Save Up Money to Buy Investment Properties

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.

Better yet, live on only two weeks’ income, and invest the other half of it!

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.

Related: Living Frugally vs. Spending on What Matters: How I Achieve a Happy Medium

Peer pressure is very real, so rig it to boost yourself up, rather than letting it drag you down.

(Side lesson: Marriage is hard.)

budget

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.

Silver Linings

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!

About Author

Brian Davis

Brian is a rental investor with 15 income properties, who provides free video training to help everyday people start earning passive income at SnapLandlord.com. He's also the co-founder of SparkRental.com, which provides free services & education for landlords. His rental management is almost completely automated by now, allowing him to travel the world (his current home base: Abu Dhabi).

12 Comments

  1. Steve Vaughan

    Great tips, Brian! I had no idea 69% of us don’t have even a grand in savings. So sad!

    Just brewing your own coffee and brown-bagging your lunch will add up quick. Losing a fancy car payment is even better. These 3 things alone can prevent hundreds a month from leaving your pocket. It won’t forever. In a few years you can be seen again in starbucks with your payment. LOL

    Thanks for a great article!

    • Brian Davis

      Thanks Steve! I completely agree, even small changes can make a huge impact on anyone’s budget. Fortunately even though they don’t teach personal finance in schools, at least it’s easy to find good information about personal finance online, for anyone motivated to do so.

    • shaun lavery

      I’m often shocked at the amount of pride people have to let small things like these prevent them from having savings in the bank. Once the brown-bagging begins and people start to see the “fruit of their labor” then enjoying some of those luxuries become just that.

      I’ve lived my life this way for a very long time. I made a conscious choice when I was young I never wanted to have debtors calling me if I could prevent it. I have stuck by that choice and more than anything, I think the key take-away for these kind of problems are asking yourself can you truly afford to spend your money, your workers on a said item.

  2. Jerry W.

    I agree with Steve that doing even a few small things can add up quickly. One of the major things that my wife and I do is wait to buy our cars after they are about 3 years old. We try to find a nice car about 3 years old with about 10 to 20 thousands miles on it. We drive that car for about another hundred thousand miles, then trade it in on another 3 year old car. We have easily saved over $80K over the last 25 years doing this. By doing this we have also eliminated car payments on our last car. We are currently building a small amount every month towards funds to replace our current car. The goal is to pay cash. I would suggest folks who have problems saving read The Richest Man in Babylon, or some Dave Ramsey books. Maybe both. Thanks for the article Brian. I look forward to the day when my rental investments began paying off mortgages and cash flowing enough to hopefully live off of. Akk but one of our payments are on 15 year notes not 30 year in the hopes of accelerating the payoff period.

  3. Dustin Mellor

    Excellent read. For the last year or so my wife and I have been living off of my salary and saving hers (as well as part of mine). This is a great technique that I’ve heard of other investors using. Our goal is to reduce our expenses and properly budget so she does not have to work freeing her up to raise our newborn girl. We have a decent savings now that we are planning to put into RE investments and hope to one day quit the rat race and be full-time entrepreneurs and RE investors.

    • Brian Davis

      Thanks Dustin, and that’s fantastic that you guys are saving so much. Congratulations on the newest addition to your family! That technique of living off one spouse’s income is a fantastic way to both limit expenses and maximize savings and investments. Fast track to financial independence!

  4. James Rodgers

    I am most excited about raising my kids to be financially intelligent. I grew up thinking that frugality and stashing your money away are the highest financial practices, and while responsibility and saving are indeed vital, I had no thought whatsoever toward financial creativity and investing. Luckily we had only been using consumer credit irresponsibly for about 9 months before I found Rich Dad Poor Dad, and the blinders were removed. It is so much easier to make sacrifices when you can see a great reward. I no longer take friends out to lunch on workdays, but meet them at the park with a lunchbox. It’s such a better setting to connect! And rather than going out to dinner with friends, we have them over and cook. Again, much more intimate and usually about $30 compared to at least $100. Now pursuing assets instead of liabilities, and so excited to raise my children to do even better than me.

  5. Nathan G.

    @Jerry W. hit the nail in the head with auto loans. I drive a 2004 with 185,000 miles on it. I paid cash and will run it into the dirt and buy another one. Meanwhile, so many adults spend 1/4 their monthly income on a car or truck payment so they look good but they struggle to make ends meet and will never get ahead. I have tenants paying more for their vehicle than their rent, some of them nearing retirement age with no savings, no investments, and no plan for the future except social security. Good luck with that!

    My father paid cash for five properties at the age of 70 thinking the cash flow would sustain him and his wife. He had a stroke recently and most of his cash is going towards his care. They can survive, but they are not living well because he based his needs on every-day life and not the worst-case scenario.. We have got to do better!

    • Brian Davis

      I’m sorry to hear about your father Nathan. It’s so true though – people run into trouble financially because they budget for best-case scenarios, not worst-case scenarios. Unexpected expenses pop up all the time, from health problems to family issues to divorces to job loss and beyond.

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