In January 2017 Bankrate did it’s annual Money Pulse Survey. The survey found that only 41% of Americans had $500 to use in the event of an emergency. This is pretty staggering for the “wealthiest nation on the planet”.
If you’ve read any of my prior posts such as The Monthly Payment Trap – Fun With Numbers, or Compound Interest, He Who Doesn’t Understand it Pays it. Then you may have some idea how purchasing decisions aid in destroying the wealth of U.S. households. The 2017 second quarter Household Debt and Credit report found that American households have over $12 trillion in consumer debt…. Considering there are a little more than 300 million people in this county, another pretty unbelievable number.
These two surveys together paint a pretty dismal picture. The net worth of American households is seriously in the red. The U.S. economy is primarily based on consumer spending, our consumer spending culture has created the appearance of wealth and abundance. However, based on the above 2 surveys, this wealth has been created in large part with consumer debt. I believe that our economy is nearing an inflection point, 300 million Americans can not sustain this staggering growth in deficit spending much longer.
The problem with the U.S. population having no savings, and a lot of consumer debt is WHEN the economy slows down and families have no flexibility with their finances, then people start defaulting on there debts. This reduces the U.S. consumers ability to spend not just currently but longer term. This is how a small economic road bump turns into another big long term recession.
In my opinion this ever expanding gab between personal savings and consumer debt is our next looming financial crisis. But, there are ways to insulate yourself, you just have to close your gap by doing the following:
- Create and maintain a budget, need help? Read my 3 part series starting with Jump your mental hurdle for a comprehensive budget template, or How to Build a Simple Budget for Budget Beginners for the simplified approach.
- Payoff your debts, read Eliminate Your Debt, Create a Snowball. to learn how.
- Make better financial choices, don’t spend to much on depreciable assets, to better understand what I mean read, Improve Your Net Worth, Spend Wisely
- Stop adding to your credit card debt, read The Monthly Payment Trap – Fun With Numbers
If you do the above 4 things you’ll begin walking toward financial freedom instead of digging you financial grave.