More money doesn't remove financial stress − budgeting does

Posted by Kevin Nielsen on Nov 30, 2016 9:09:49 AM

frightened-1172122_640.jpgSometimes when you find yourself in a hole, you really should stop digging. Even if shovel after shovel is being handed to you.

Financial stress comes from a lot of different causes, but getting rid of that stress is rarely accomplished by finding more money to throw at the problem.

The UBS Evidence Lab’s September survey found that 41 percent of households are financially stressed. 65 percent of lower income and 36 percent of middle income households were considered stressed. Those households were also showing rising credit card debt.

Those stressed households are more than twice as likely to default on unsecured loans and student loans, but the interesting part of their findings was how the higher income households viewed their predicament.

On average, 18 percent of households said they were likely to default on a loan in the next 12 months. Yet almost 50 percent of higher income households said they were likely to default. Of that group, around 80 percent said their expenses were higher than their income.

Let’s come up for air. No matter how much money you make, mismanaging it can have serious consequences. Almost 40 percent of higher income households have more expenses than they do income.

Now comes the surprising part. Households that were likely to default on a loan had plans to take on even more debt at a higher clip than households not likely to default.

  • 57 percent of likely defaulting households were planning on purchasing a home
  • 27 percent were likely going to buy a car
  • 14 percent were likely going to buy a motorcycle
  • 18 percent were likely going to buy an RV

This is a group where almost 80 percent are already spending more than they earn, and a fair amount of them earn a lot. Next they were asked what would be the cause of them defaulting on a loan payment.

The top four answers were:

  • Reduced income
  • Increased expenses, both normal and for medical reasons
  • Maxing out their credit limit

Now I’m not crazy, but those seem like problems that can be taken care of with planning and a little bit of budgeting.

Save Money

Both reduced income and increased expenses can be covered by having an emergency fund and other savings that can replace a month or three of income. Finding space in your income to save 10 percent before you start doing other things can make building your savings simple as long as you can leave it alone.

Pay Off Credit Cards

If your credit balance is decreasing you won’t have to worry about bumping up against your credit limit and maxing out your cards. Granted, that is exactly what eventually happens when you’re spending more money than you’re bringing in.

Take a look at what you owe and create a plan to pay it off as quickly as you can to save on interest.

Track Purchases

This is one of the many ways you can make sure you aren’t spending money on things you don’t need. Five dollars here and seven dollars there still adds up to $12. If you didn’t really need to spend that $12 you could have put it to good use elsewhere.

Keeping tabs on your spending will help prompt you to ask yourself those questions that lead to making little changes in how and where you spend money.

Be Responsible

Here’s where the hole and the shovel come back into play. If you find yourself in a hole and are thinking that buying another car, motorcycle or RV is the answer -- it isn’t. If you think you’re at risk for defaulting on a loan payment in the next 12 months then get started creating some plan to get your finances right side up.

Fill in your hole and get back on solid ground financially with Mvelopes. You can create, track, compare and adjust your budget as often as you like with all your accounts in one place.

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Topics: Budget