Fifty years ago, our parents and grandparents could afford a large 4-bedroom townhouse in the suburbs without attending college, all while raising four kids and working on a moderate income. Today, even graduates from the most elite universities in the U.S. need to spend a lifetime to accomplish similar goals. The conventional approach to saving and investing money does not work anymore.
The way America saves and invests money now needs a complete overhaul. This blog discusses how the average American can start their financial independence journey on the right foot.
You need to get a hold of your finances first
Research shows that the average student loan debt in the U.S. stands at $28,950 in 2022. Moreover, the tuition fee has also increased multifold over the last 30 years. For public four-year colleges the tuition costs grew from $4,160 to $10,740 and for private nonprofit institutions it grew from $19,360 to $38,070.Student loan debt is just one of the several components of increasing financial pressure. According to Experian, the average American household also carries a credit card debt of $5,525 in 2021.
So, before you start saving those precious $$, you must understand your debt, assets, and income correctly. Use an excel sheet to break down your expenses into the following categories:
- Rent/Mortgage
- Household Expenses
- Groceries and Food Expenses
- Outstanding Credit Card Debts
- Outstanding Student Loans
- Lifestyle Expenses
Evaluate your lifestyle for at least two months and look for places where you can eliminate unnecessary expenses. A secure financial future starts with sound financial education and planning.
Before setting up those lofty investment targets, set up an emergency fund
The COVID pandemic taught us that even the most well-defined savings strategy fails under unforeseen circumstances. With a record number of job losses, the world witnessed a massive change in the way people perceive job security. Ideally, even before you start saving for the long term, you should prepare for a short-term pandemic-like situation again. Set a goal to keep at least six months of your basic living expenses stashed away as easily accessible funds. Having an emergency fund will help you stay afloat without a job and take the necessary risks for when you want to change careers.
Manage your risk-to-reward ratios
Encourage individuals within your network to start saving successfully with reliable investment strategies. Money that does not work for you loses value with rising inflation rates. Sound investment strategies should complement savings goals. However, the definition of “a sound strategy” is exceptionally dynamic today due to market volatility and new investment instruments. Investing in new ways like cryptocurrency to save successfully should no longer be off the table.
Do your own research
Individuals and families that rely on “tips” to invest are bound to fail one way or the other. You must conduct your own independent research to secure your retirement savings against another pandemic or inflation. Listening to the investment gurus on YouTube who gamble their entire net worth on cryptocurrency is not advisable. Nor is the investment strategy of the old-school boomer generation that invested only in government bonds. It is time for you to do your own research, calculate your risk appetite, and invest smartly.
Some places America saves money today
Becoming self-sufficient
Financial education starts at home. Educate your kids and friends to save money by investing in a healthier and minimalistic lifestyle. Learn how to cook basic meals, use public transport, and pledge to save for that one fancy vacation a year. It is high time that America realizes that the influencer lifestyle on social media is not real and sustainable.
Leveraging low-interest loan opportunities
During the COVID pandemic, the Fed reduced its loan interest rates considerably. It even suspended loan payments and stopped collections on defaulted loans. If you managed to keep a stable job during this period, you should focus on leveraging this opportunity to get a long-term, fixed-rate low-interest loan. You should also contribute surplus money from side hustles directly towards your principal payments. If you are unfamiliar with the latest news in finance, you can always rely on the extensive library of articles on the Consumer Federation of America website.
Investing in cryptocurrencies
A small portion of your total designation of savings should go towards risky but high-reward investment opportunities too. The world of cryptocurrency is growing at a rapid pace. So, careful and strategic investment in crypto may yield great results over time.
Stock Market with blue-chip (well established and large) companies
Lastly, although the stock market is super volatile, investing in certain blue-chip high-growth companies is always a good idea. When choosing a company for investment, don’t just look at its current growth but also the potential for growth in the near future.
The world of finance is currently undergoing a revolution. Schedule a quick call with us if you intend on starting a new business to leverage the volatility and need help with ACH or credit card payments processing.
Date originally published: April 24, 2022