Tuesday, February 24, 2015

Indebtedness Threatens Millions of Americans .. Managing Our Personal Financial Lives

We have too much debt as a nation and as individuals, and it's having a large impact on our ability to manage our personal financial lives in a common sense unthreatened manner.

Unlike the government's borrowings, however, the negative effects of individuals' excessive indebtedness are much worse due to several factors: (1) individuals can't legally print money; (2) individuals can't tax other individuals; (3) individuals don't have unencumbered assets (government lands and buildings, as examples) that can be sold to raise money; and (4) when individuals default on debt obligations, bankruptcy awaits.

Yes, government has too much debt and spends too much money, but it's an entirely different and much more dangerous game when played by individual citizens. For a current look at how bad it is today, let's look at some cold hard facts.

1 in 3 Americans on verge of financial ruin has this to say about the financial plight of too many Americans:

" . . . 37% of Americans have credit card debt that equals or exceeds their emergency savings. “These numbers mean that three out of every eight Americans are teetering on the edge of financial disaster” — thanks to the fact that many of these folks might be hard-pressed to pay for an emergency should one arise, says Greg McBride,’s chief financial analyst. “Not only do most of them not have enough savings, they’ve all used up some portion of their available credit — they are running out of options.”

That’s particularly problematic considering that emergencies happen more often than you might think. A 2014 survey by American Express found that half of all Americans had experienced an unforeseen expense in the past year — some of which could be considered an emergency. Indeed, 44% of those who had an unforeseen expense(s) had one for health care and 46% for car trouble — two items that for many Americans are must-pay items, as you need a car to get to work and your health expenses are usually not optional.

Also see: 5 expenses you don’t plan for but should

Age % who say credit card debt is greater than emergency savings

For consumers, the ideal situation is to have no credit card debt and at least six months of savings in an emergency fund (more if you have dependents), experts say. But the reality is that most of us don’t have even close to that (just 58% of Americans have more emergency savings than credit card debt, the Bankrate survey revealed).

The good news: If you have no emergency savings, or more debt than savings, experts say you can remedy that situation. Some recommend paying off your credit card debt first (focus on paying as much as you can on the highest-interest-rate debt and the minimums on all others) and then building up savings, but others say you should try to do both at once."

Summing Up

When in a hole, the first thing to do is stop digging.

And when our credit card balances exceed our savings balances, we're in a financial hole --- and then the little hole often ends up being a big one as bad habits become entrenched.

So let's do the common sense thing and stop following the crowd by ceasing all efforts to keep up with the excessively indebted Joneses.

Let's stop digging and start saving.

That's my take, and I hope it's yours, too.

Thanks. Bob.

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