Money problems hit a wide array of people in different financial situations. Without proper financial education, having too much money or too little money can be similarly devastating. Charles Bukowski famously said, “There are only two things wrong with money: too little or too much.” If you have a litany of money struggles, they likely stem from a lack of financial education. This is not something that you have to feel self-conscious about as long as you are aware of your own misgivings about money. After all, almost two thirds of American adults can’t pass a financial literacy test. Many Americans, whether they make over six figures or live on a modest salary, are woefully unprepared financially and in a deep hole of debt. How can you climb out of a hole without a rope? Proper financial education is the only life line out of fiscal quicksand.

Let’s examine the effects of improper financial education and how it affects you when you have too little money to protect your future and your legacy.

A Realistic Picture Of Living Off Too Little

Millions of Americans are living paycheck to paycheck, with nothing in the bank to cover major emergencies like a sudden medical expense or costly car repair. Nearly 8 out of 10 american workers are living paycheck to paycheck and these aren’t just people working minimum wage jobs either. There are 1 in 10 workers that make over $100,000 annually that are still living paycheck to paycheck without any savings structure. Living without that safety net is hard on people, causing stress, sleep loss, and health complications. That’s not helpful if you have nothing saved to manage medical expenses and you certainly can’t afford to be suddenly unemployed. Living paycheck to paycheck puts millions of people about 1 major emergency away from disaster. How did this happen to so many Americans?

The problem is that most people aren’t even aware of how much they are spending and how they are spending their hard earned money. If they have a little in a savings account or 401k, they don’t want to think about it. And most of us cringe when a neighbor or co-worker asks about our financial plan and banking choice. Why? We have been socially conditioned to bank one way and one way only without any thought to why we do it. For most people, they are told to bank and save one way for their whole life or taught nothing at all, which they never question or change. They just keep living inside the paycheck to paycheck debt cycle.

Knowledge Is Power

What this all comes down to is a lack of financial education. Some states are starting to require that schools train high schoolers to be more financially literate but that’s only a limited number of students. Those programs certainly don’t help those of us that have already finished school. People that don’t have savings are often forced to use credit cards in order to stretch between paychecks and keep food on the table, racking up high interest debt. Many living this way have student loans that aren’t being paid back, allowing the interest on student loans to grow exorbitantly. It’s a vicious cycle in which a person sinks deeper and deeper into a financial rut. In order to step out of the perpetual cycle of debt, something must be done!

Financial Literacy Matters

One of the most important practices that a person can learn is financial literacy. A strong financial education sets you up for the future you want and prepares you for the emergencies that are bound to happen. Stewardship of money is one of the most important skills you can pass on. In order to break that cycle, you need an advocate that can guide you on the path you can follow to stop living burdened under the weight of debt that most Americans carry around. At Factum Financial, we make savings rockstars out of people that want to reduce their debt and start saving in a meaningful way.

Change Is Easier Than It Seems

Basically no one can afford to live paycheck to paycheck. If your paychecks are a bit thinner than your neighbors, you really need to be prepared for emergencies because it’s likely that a single paycheck from someone living on too little could effectively cover a sudden emergency. There are baseline practices that you can apply to your savings plan in order to be more financially solvent.These include:

  • An Emergency Fund – An emergency fund is absolutely the first step in any financial education plan. You need to make sure that you have some cash on hand in case something major suddenly happens that you need to cover. Experts recommend at least $1000 dollars to cover any expenses.
  • Track Your Spending – People often don’t want to track their spending because you really have to consider the things you spend your money on. You have to look at the want-to-have purchases and the need-to-have purchases and make sure your needs are served and your wants are not treated as necessities.
  • Down Size – Lavish homes or extravagant purchases like new vehicles can be a major drain on your personal income and savings. If you can turn an expensive downtown apartment into an opportunity to save money by moving to a more economical area or downgrading that newer vehicle to a quality used vehicle, you can save dollars to put towards other things. Downsize to succeed.
  • Live Within Your Means – This one is super important. You cannot afford to live outside of your income. Often people spend what’s in their account on non-essential items like expensive meals out on the town or hobbies that they can’t truly afford. Don’t follow their example.
  • Pay Off Debt – After you have established an emergency fund, you have to pay off debt. The average family carries at least $16,000 dollars in credit card debt alone. At an APR of 16.47%, that debt costs a family that pays it off traditionally about $16,000 in interest, effectively doubling the debt over time. You can’t afford to do that with your money!

These are the basic components of a plan to break the vicious cycle of living on too little and being forced to live paycheck to paycheck. A quality financial education is going to include all of these as factors for success. However, there are structures in place that can help you break the debt cycle, but also retain and protect your wealth for the future.

Banking Done Differently

If you’re in a debt cycle that you need to break, watching hundreds of dollars drain from your account each month with nothing really to survive on or show for it, you need a solution that gives you the opportunity to pay down debt and earn income at the same time. How are you going to accomplish this? Apply the Infinite Banking Concept to your savings plan. Consider this: If you were banking on yourself through a specifically designed whole life insurance policy and you needed a sudden cash loan, you don’t have to turn up to a bank and beg for a loan that they might not approve. Instead, you can use the cash value in your policy to pay debt or sudden expenses and then recapture the losses from that debt to continue building value. You actually get to “pay yourself” while paying off debt, instead of paying high interest rates to lenders with nothing to show when you’re done. Why would you ever use a bank lender again if you could be your own banker? You wouldn’t need to. That’s true financial freedom.

At Factum Financial, we are proponents of financial education. We want to see individuals, families, and small businesses experiencing the freedom that comes from being your own banker and using the Infinite Banking Concept to break free from conventional financial wisdom. Our wealth strategists will guide you on the journey to your financial future. Contact us today for more information.

For more insight from Factum Financial, read the previous blog.