5 Money Moves Americans Should Be Making … but Aren’t

Libby Kane

american financesIf you follow the news, you’ve probably read a lot about the state of American finances.

Between the 1% getting richer, the cost of college rising over 500% in the past 30 years, and even the tooth fairy leaving more under the pillow, it can feel like everyone must be swimming in cash.

But according to the U.S. Financial Diaries, that isn’t the case. The Diaries—a research project conducted by New York University’s Financial Access Initiative, the Center for Financial Services Innovation and consulting firm Bankable Frontier Associates—tracks low and moderate-income families over the course of a year to get a detailed picture of how they handle their money.

The families profiled in the Diaries—from the Bangladeshi immigrants whose impressive education credentials don’t translate to the U.S. to the dual-income foster parents living in Mississippi—are doing the best they can, but there are lessons we can all learn from them about financial basics we could be doing better.

In reading about their experiences, you’ll not only appreciate all you do have but glean tips for ways you could improve your own financial well-being.

Read on to find out which steps to financial security these Americans aren’t takingand many of us may not be, either.

1. Creating (and Sticking to) a Budget

The Adrians*, a Mississippi couple in their early thirties, have a wildly fluctuating income. It depends on whether they’re currently acting in their role as foster parents: When they aren’t, they rely on income from her part-time job in a preschool and his full-time hotel job, and when they are, they’re given an average or $1,400 per month from the foster care system. That money isn’t guaranteed, though—even when they get these checks, they’re sometimes for less than $500. Consequently, although they’re aware of what needs to be paid when, they often have trouble making payments—such as utility payments—on time and have to “catch up” when their bills are past due.

Operating without a consistent and comprehensive budget hardly makes this family unique. A 2012 LearnVest survey found that only about 40% of respondents had a monthly budget. Worse, less than half were aware of how much money they had available for monthly spending. Spending more than you earn is a problem that stretches across all incomes—in fact, a 2013 FINRA survey found that 19% of Americans regularly spend more than their income. 

RELATED: How Normal Are Your Finances?

How to Do It Better: When most people hear the word “budget,” they equate it with a spending “diet.” But a budget is simply a plan for where your money will go—not a restriction on how much you’re allowed to spend. Without a budget, it may be hard to anticipate your expenses and make sure there’s enough money allocated to cover them.

A budget is one of the very first steps toward financial security, says LearnVest Planning Services CFP ® Elizabeth Sklaver. “Without a budget, it’s really difficult to move on to things like paying off debt or saving for your financial goals. You should know how much you have coming in and where pretty much every dollar needs to go. Guesswork adds a lot of unnecessary financial stress.”

The first step in creating a budget is to monitor your spending and see where those dollars are going, which you can do automatically in the free LearnVest Money Center. If you’ve already done that, check out your next steps in our simple guide to budgeting. And if—like the Adrians—you have an irregular income, we have a guide for you too.

  • Lisa Raymond

    This is a very good article for those just beginning to take care of their financial health. Several experts have said that we need to spend more money to bring the economy around. I disagree. I think that if even half the at risk households in America can do these baby steps, the economy will be on a firmer foundation and THEN consumers can start spending again, hopefully within their means, and we will see a more permanent economic rebound.

  • Abi

    This is a helpful article for the most part, but I was hoping the “How to do it better” part under “Establishing An Emergency Fund” would actually address how to do it. I am one of the many who lives paycheck to paycheck. I also have debt. I would love if you wrote an article about how to balance everything – rent, bills, paying off debt, add to savings, AND still build an emergency fund. Obviously an emergency fund is important to have in case the floor drops out from under you, but it’s also important to not fall behind on bills and get into further debt. I’ve always had trouble figuring out what to place priority on or how to distribute it properly. Would love some guidance! Thanks. -

    • T.S.

      I agree…when you’re trying to stretch your money to meet all the bills, working multiple jobs, and have cut back to the bare necessities, how do you fit in an emergency fund as well?

      • JH

        First, write out a budget of how much your take home is monthly. Then write out your monthly required minimum expenses. (Food, lights, water, rent) After that, (take home-expenses) = how much you have to pay down debts and save. Dave Ramsey’s baby steps are the best for the order. Step 1 save a $1000 emergency fund. Step 2 pay off all debt smallest to largest dollar amount. Step 3 3-6 mos emergency fund. Step 4 15% for retirement. After that it’s save for your kids education then pay off your house. Last step is build wealth and give!!

  • CrankyFranky

    I always find this fascinating – most people have never done a budget and just say the idea is ‘boring’ – but will regale you at length about how hard it is to earn money and how they can’t ever save anything … !

    having carefully tracked and analyzed my spending for decades I have spreadsheets galore with my cash-flow figures and am ready to retire comfortably knowing what I spend and what I have, and my historical returns on investment

    so whenever I ask students who has done a budget I get maybe 10% max who have – most just shrug, yet many people will tell you they’ve got no money left and don’t know where it goes – hello ?

    Carry a pocket notepad (there may be an app for that) for a week or two, record everything you spend, then simply sit down and analyze what you’ve spend, and typically you will find all the unconscious consumption (Starbucks anyone?) and unnecessary waste

    When you see the weekly totals, you will go – whoa, I don’t need to be spending that e.g. your $4 a day coffee x 250 days a year = $1000 overseas airfare. Which would you enjoy more ? I make my coffee at home for less than 20 cents – you choose …