This is a biggie! You don’t *need *the latest and greatest phone with the top-end service contract. You don’t *need *a vehicle with all the bells and whistles. You don’t *need *to subscribe to every streaming service out there. You don’t *need *season tickets to your favorite sports team or front row tickets to your favorite band. You don’t *need *to see a barista every day.
And on and on and on.
I get the feeling that to some folks, saying “I can’t afford it” is seen as a moral failing. :smack:
Oh, yeah, phones - when my old flip/stupidphone died I finally upgraded to a smart phone, but a lower end one (Samsung Galaxy J3). I was told I’d regret it, it was underwhelming, obsolete… but really, it does everything I need a phone to do (and then some) without breaking my budget. Why pay for something you don’t use?
When I started doing a little financially better I did “splurge” on two streaming services, but that’s my limit - if I sign on to another one of the others gets mothballed. If you stop using a subscription of any sort then end it.
I’m not perfectly frugal - I’m sure there’s still fat I could cut from my lifestyle - but you don’t have to pare things down to the bone. Good enough is good enough. Bills are paid, able to save some money, have enough to pay for minor emergencies or short-term income interruptions.
If you say “I can’t afford that” now, you tend not to have to say it as much when you retire.
I have a friend who told me I couldn’t afford NOT to open up a HELOC, because it was so cheap. He now lives in an apartment.
And
The point of having money is to buy what you want. I want peace of mind, so I spend my money on that. And thru the magic of compound interest, I get more peace of mind every year.
The Lovely and Talented Mrs. Shodan watches a lot of true crime shows, where women off their husbands for their money. They never get away with it, but they always make obvious mistakes. My wife doesn’t make obvious mistakes, so if she decides to become a rich widow, she will probably get away with it.
Thats not always true. Even in large cities in the midwest and south (except maybe chicago), housing and rent tends to be fairly affordable in many places.
According to the above article and other sources I checked that seemed to agree with the percentages, less than a quarter of Americans can be considered “financially stable”.
To some degree, I would say that a lot of people don’t have emergency savings because they are not financially stable, not that they are financially unstable because they don’t have emergency savings. IYSWIM.
Living paycheck to paycheck is a symptom as much as a cause. From your cite -
IOW sometimes if you can’t live on what you are making, more isn’t going to help.
I think in most cases, financial instability is due to personal choices rather than circumstances. If someone doesn’t keep enough savings to weather emergency expenses, very often that’s because the person had chosen to spend that money on something they wanted rather than they needed. At a minimum, a person should have about a month of income in savings they dip into for emergency expenses. That may be painful to save up, but that pain is an indication of how much the person needs to have savings in place.
For example, there are news stories about the massive increase in food bank usage due to CV19. In these stories, many of the cars pulling up to the food bank are relatively new and moderately expensive cars. It’s not unusual to see cars in the $30-50,000 range. If someone driving a late-model car has to resort to the food bank after a few weeks of being out of work, it’s an indication that they spent money on the car that they should have instead put into savings. If instead they had a $10-15,000 car and did most of their own repairs, they could have enough money in savings to avoid having to go to the food bank.
Had to laugh, remembering my dad saying “Well, this is perfectly suitable,* as a starter home.”* We’d scraped up to be able to afford a house that… was smaller than the apartment we’d moved from. We loved it, but he’d still tell us about a nicer home he’d seen in a classier neighborhood that’d be perfect for us.
Over thirty years later and we’re still in the humble little house. Bonus: we didn’t have to downsize when the kids moved out (well, actually, we *couldn’t, *unless there’s a Port-O-Potty on the market).
A quick Googling shows that the general advice is to have three to six months’ worth of emergency funds stashed away. For people who have been sidelined by the COVID lockdowns, three months’ worth would have been enough to get then through this without needing to visit a food bank or beg for mercy on rent/mortgage/car payments.
Keep in mind that any money you save now has forty years or so to grow, so contribute as much as you can to retirement accounts while you are still young, and keep contributing. Easier said than done, particularly when some cool toy or gadget is out there or your friends are all taking a vacation someplace and retirement seems so far off. But compounding is a really powerful thing.
I had to Google what those are and I have a decent amount of money, virtually all invested in index mutual funds. What you are suggesting seems beyond most people’s level of sophistication.
I’m going to gently suggest thinking long and hard about this.
By living with your parents you will develop habits based on that situation, and may find it difficult to make the transition to an independent life. There will always be “something next” that becomes a hurdle. (I have seen this happen many times with my own family. Their kids start out with plans to live at home for a while, to save money. Then time marches on and they become part of the “failure to launch” crowd.)
Better to consider living on your own to develop the habits of taking care of yourself and your own finances.
One of our daughters lived with us for about two years after her first Masters degree (while working full time and pursuing her second Masters). It was a joy having her around. She saved a lot of money and I don’t believe she developed any bad habits (except an inability to empty the dishwasher) She saved quite a bit of money too. So, my only point, every young person is different. I would agree that it wouldn’t be a good idea for everyone.
On the other hand, as a *strategic *decision, if I was out of work at this point I just might visit a food bank for groceries and save my money for rent and other bills, extending my savings as far into the future as possible, because this might go on for longer than just a few months. But that’s me.
Having kids younger than working age can make saving any money harder (and at working age it only becomes easier if they are working, not if they’re staying home consuming more than they’re contributing).
It’s also possible to be hit with multiple catastrophes at once - three months worth of money doesn’t always last three months. Sometimes you can make it last longer, sometimes it goes faster.
Also - most people don’t take into account the cost of COBRA when they lose their health insurance. My “six months” does not include that, because I simply do not have enough to pay it AND keep a roof over my head. If I lose my job I lose my health insurance - which at this particular time I can probably get away with being in mostly good health. Someone with a chronic condition requiring daily medication may be in a far worse situation.
As an example: At my current lifestyle I can get by on $1200/month (I actually earn more than that, which is why I have savings and one or two small luxuries). It would be very tight, but I can do that. BUT - someone just like me but with Type II diabetes probably has to add $500/month to that (based on a quick google of costs - it might require more than that). So they need $1700/month. Which means I only need to save about $7,200 for six months worth of costs, but my “twin” with diabetes will need $10,200 to do the same. If you’re on the lower end of the economic ladder that can be an enormous difference.
Ah, but you say - you SHOULD pay your COBRA! Health insurance is very important! Yes, yes it is. But last time I lost my job with insurance the COBRA payments would have been over $1,000 a month. I’d almost have to double my nest egg to nearly $14,000… which is daunting AND if I don’t get another job by the end of that time period I’m still without insurance… and broke. It only makes sense if my monthly medical bills exceed the cost of COBRA. Last time around, it actually made more sense for us to live on savings until our resources dropped enough to qualify for state Medicaid… but then you’re looking at programs that penalize you for savings money, whose resources thresholds haven’t changed in decades. But let’s not get lost in the social safety net (or lack of it) rabbithole.
I will note that when my spouse was dying and I took an unpaid extended leave from work I did have to pay some of the cost of the health insurance and other benefits I receive from work, and having savings enabled me to do just that without worry, as well as pay rent and bills, without worrying about where the money was going to come from or about destitution. It’s an example of how even a little bit in the bank (in that case, about two months worth of money) can make a huge difference even for disastrous circumstances.
While I can see that situation happening sometimes, I’ve known several people (myself included) who lived at home for a few years after college. it allowed us to do things like buy our way out of debt, purchase a more reliable car and save for home down payments. Its not always bad. But to your credit I also know people who just spent everything they made on vacations and clothes too. But most were in the first group.
Plus we’re in an age of 25%+ unemployment. Even people who hustle looking for work may find nothing or, at best, find temporary low wage work in grocery stores or warehouses. Lots of people are going to have to live with family for a while until the economy starts to recover.