Money Management

The growing debt crisis in America is due to multiple factors. 

It’s no secret that Americans owe more money than ever before. According to the Federal Reserve, total consumer debt has reached its highest level ever, hitting $16.9 trillion in the fourth quarter of 2022. And while some consumers are able to pay off their debts on time and in full, many are falling behind on payments. Amid high inflation, stagnant wages, and other factors, 32% of Americans say they are struggling to pay their bills.

Total debt reaches all-time highs

In the final quarter of 2022, household debt surged by $394 billion, amounting to a staggering $16.9 trillion, as reported in the latest Quarterly Report on Household Debt and Credit. The increase included credit card balances soaring by $61 billion, reaching a new high of $986 billion, surpassing pre-pandemic levels.

Additionally, mortgage balances swelled to $11.92 trillion and auto loans climbed to $1.55 trillion. The Fed’s latest report also found that the delinquency of virtually every loan type increased. The percentage of seriously delinquent loans, past 90 days, have grown significantly, with the delinquency rate for credit card borrowers surpassing pre-pandemic norms.

Rising costs of living

The cost of living has skyrocketed in the wake of the pandemic, but most Americans’ wages have not kept pace with inflation. This means that many people are unable to make ends meet without relying on credit cards or taking out loans — which can quickly lead to overwhelming debt levels if not managed carefully. To make matters worse, high interest rates mean that even small amounts of debt can quickly become unmanageable if left unpaid for too long.

According to a recent study by LendingTree, 1 out of 3 (32%) Americans have paid a bill late in the past six months and 3 out of 5 (61%) say it’s because they didn’t have enough money to cover the costs. This number has increased dramatically, with 40% of Americans saying they are less able to afford their bills than a year ago.

Stagnant wages

Wages have been stagnant since the early 1970s, making it harder for people to keep up with their debt payments. While some companies have increased wages recently in response to a tighter labor market, many workers still find themselves struggling to make ends meet each month. While wages have grown since the start of COVID-19, they have not grown as much as in the past. Unfortunately, this wage stagnation has led many people into a cycle of debt that is difficult to escape from.

What to do if you are behind on payments

Dealing with being behind on loan or credit card payments can be stressful and complicated. The best way to handle the situation is to contact your lender as soon as possible. It may be able to work out a payment plan that is tailored to your individual needs. It’s important to note that lenders may even reduce or waive late fees in special cases, so it doesn’t hurt to find out what options are available to you. The worst thing you can do is ignore the problem.

Additionally, taking advantage of financial counseling services or debt management programs can help you create a budget and make good on repayments over time. With a bit of extra effort today, you can get back on track with your payments, preserving your credit score and future borrowing possibilities down the line.

The growing debt crisis in America is hitting younger borrowers hard. Despite the fact that overall debt delinquency is below pre-pandemic levels, the number of people who have transitioned into delinquency has accelerated rapidly. Rising costs of living, stagnant wages, and higher interest rates are all contributing factors for why many are falling behind on their debt payments.

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Worried about aliens or ghosts? Take out an insurance policy! 

We all know the basics of insurance. The more common types include car, homeowners, and life insurance, but there are some insurance policies that you may have never heard of. We have rounded up the top seven unique policies available — some of which may be more useful than others.

1. Body part insurance

Many celebrities insure their body parts for large amounts of money in case something were to happen to them that would prevent them from performing their job. For example, model Heidi Klum has reportedly insured her legs for $2.2 million dollars. While most people don’t require body part insurance, it may make sense for certain celebrities.

Rolling Stones’ guitarist Keith Richards’s hand: $1.6 millionSinger Bruce Springsteen’s voice: $6 millionSinger Dolly Parton’s chest: $600,000Singer Mariah Carey’s voice and legs: $35 millionNFL player Troy Polamalu’s hair: $1 millionSoccer great Cristiano Ronaldo’s legs: $144 millionJames Bond star Daniel Craig’s entire body: $9.5 million

2. Death by laughter insurance

Lloyd’s of London has taken the concept of “killing it on stage” quite literally. Seeking to safeguard against the unlikely scenario of audience members dying of laughter, a comedy troupe purchased an insurance policy in case any of its audience members died of laughter while watching one of their shows.

3. Facial hair insurance

Lloyd’s of London has issued some unique policies. In 1992, a Santa Claus who took his job seriously insured his iconic white beard, and Australian cricket superstar Merv Hughes reportedly insured his legendary mustache for a whopping $360,000.

4. Ghost and poltergeist insurance

Are you afraid of ghosts? Although it may sound strange, this type of policy actually exists! Ghost insurance covers any damage caused by paranormal activity (such as hauntings) and helps protect your property if something were to happen due to supernatural occurrences. The hotel owner of the Royal Falcon Hotel in Lowestoft, England, insured his staff and customers against death and disability caused by ghosts, after seeing a ghost on the property.

5. Alien abduction insurance

Believe it or not, alien abduction insurance is available if you are afraid of waking up being prodded by extraterrestrials. This type of policy provides coverage in case an individual is abducted by aliens and held captive against their will. While some companies sell them as a gag, some insurers are serious about their policies and have even paid out claims!

6. Cold feet insurance

Worried about being left at the altar? Cold Feet Insurance provides couples with financial protection if one partner backs out at the last minute before the wedding. It typically covers costs associated with canceling wedding plans such as venue fees, catering costs, dress/tuxedo rentals, etc. Couples can rest assured that they won’t be left high and dry if one partner suddenly decides they don’t want to go through with the marriage after all.

7. Lottery insurance

If you’re lucky enough to win a lottery jackpot — congratulations! Many offices have a lottery pool where everyone splits the proceeds should they hit the jackpot. A lottery insurance policy covers the business from financial loss of having to replace its employees if the office pool wins the lottery and they all hand in their two-week notice the next day. This occurred in the U.K., where seven office workers quit their jobs after winning $6 million each.

While some of these insurance policies may seem far-fetched, they actually exist because people wanted to protect themselves against something very unique and were willing to pay for it. Even if you don’t face the risk of a ghost disrupting your workday, you likely have gaps in your insurance coverage that could leave you exposed to financial hardships. Take a closer look at your policies and see where you might need some additional support — you might be surprised at what you find.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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It certainly reads like conflicting information. 

The last time stimulus checks hit Americans’ bank accounts, the labor market was struggling on the heels of the pandemic. It was March of 2021, and back then, many people were still in COVID-19 lockdown mode. And since vaccines weren’t widely available at that point, many workers couldn’t return to their jobs, even if they wanted to work.

At this point, it’s been around two years since federal stimulus checks were issued. And by now, many people have probably given up on the idea of receiving another one.

Given that the labor market is so strong, it’s hard to make the case for stimulus aid. But is the labor market really as solid as the data seems to suggest?

Conflicting information

In February, the U.S. economy added more than 300,000 jobs, and the national unemployment rate sat at 3.6%. By contrast, in March of 2021, when stimulus checks were last issued, the national jobless rate was 6%.

Now that month also saw more than 900,000 jobs get added to the economy, which is three times the number added in February. But let’s also remember that back then, the economy wasn’t really adding jobs so much as recovering the jobs it had shed in short order within the previous year. So it’s more important to focus on that 6% unemployment rate than the number of jobs added.

Getting back to February’s numbers, it’s pretty clear that a 3.6% unemployment rate is not going to lend to stimulus checks. But it’s hard to take comfort in that number when every time you read the news, you learn that another large company is laying off staff.

On March 20, Amazon announced that it would be cutting 9,000 jobs. That’s on top of the 18,000 positions it said it would eliminate earlier on in the year. Meanwhile, just a few days later, professional services firm Accenture announced plans to slash 19,000 jobs worldwide. And the week before that, Facebook said it would cut 10,000 jobs following its mass layoff round the previous fall.

All of these layoff announcements are clearly unsettling. And they may be an indication that the most recent jobless rate doesn’t tell the whole story.

Should Americans gear up for another stimulus check?

While the jobs market may be showing signs of weakness as evidenced by widespread layoffs, the reality is that current labor market and economic conditions do not support a near-term round of stimulus checks. This isn’t to say that lawmakers won’t turn to stimulus aid if conditions deteriorate. But unless they deteriorate rapidly and drastically, there probably won’t be a stimulus round in 2023.

Those struggling with higher living costs may need to rely on measures like cutting expenses, dipping into savings, and taking on second jobs to make ends meet. While inflation has been cooling, it’s still very high, historically speaking. The Federal Reserve is doing its part to bring inflation levels down, but it could be quite some time until living costs retreat to a more palatable level.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Maurie Backman has positions in Amazon.com. The Motley Fool has positions in and recommends Amazon.com. The Motley Fool has a disclosure policy.

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The quick answer? A lot of good things. 

There’s a reason many people who aren’t particularly great at saving money manage to build up nice balances in their 401(k) plans. The way these plans work is that employees have their contributions deducted from their paychecks automatically, so they don’t end up missing the money they’re putting in.

But it’s not just 401(k) plan contributions you can automate. If you’re looking to grow your savings account balance, you can put that process on autopilot. The same holds true for funding your IRA account. And if you’ve struggled to meet your savings goals in the past, then it definitely pays to look at automating the process.

A whole lot of upside

When you automate your savings, you arrange for a certain amount of money to land in a designated account at preset intervals. Now that can look different depending on what you set up.

You might, for example, decide that $100 will leave your checking account and land in your savings account on the first day of every month. Or, you might decide to move $250 a month from your checking account to your IRA on the 30th of every month.

Either way, when you automate your savings, you effectively reduce your likelihood of not meeting your goals. That’s because the process of getting your money moved over happens without your intervention. And also, when you’re left with less money in your checking account to spend, you just naturally start to spend less. So all told, it’s a win-win.

Which accounts should you automate?

It can be very difficult to stay motivated on the retirement savings front when you’re young. After all, if that milestone is 30 to 40 years away, it’s hard to overcome the temptation to spend $200 here on a night out or $300 there on a concert, which may be coming up next week, to save for a period of life that’s decades away.

If you’ve yet to make good progress on funding your IRA, then that’s an account to consider automating. You’ll need personal savings to avoid financial stress in retirement, and the sooner you start building some, the better.

Meanwhile, you may want to set up automatic contributions to a savings account as well if you don’t have enough money socked away to cover at least three full months of bills. A recent SecureSave survey found that 67% of Americans could not cover an unplanned $400 expense with money in savings. If you’re in a similar boat, you should absolutely automate transfers into your savings account.

Automating your savings could make the process seamless, and it might even help ensure that you don’t end up spending money you’re not supposed to. So assess your progress on your financial goals and use that to determine which accounts of yours are in need of some automatic contributions.

Remember, you can absolutely write a check to your IRA or transfer money into your savings account during periods when your spending shrinks. But if you want the peace of mind of knowing your savings are being steadily funded, then automating the process is really the way to go.

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It’s one expense you can’t easily control. 

When you buy a home, you take on a lot more than just a mortgage loan. You also sign up for the many expenses that go along with one, like homeowners insurance premiums, maintenance, repairs, and property taxes.

Property taxes can be a huge expense, though. In some cases, you might actually spend more on your property taxes than your mortgage itself.

Worse yet, property taxes have the potential to rise. In fact, real estate expert Graham Stephan insists that “property taxes only go up with time.” That’s something you need to know as a home buyer — and prepare for accordingly.

Pad your budget and don’t go overboard

Maybe you can afford a $300,000 home in your neighborhood that comes with a $4,000 annual property tax bill. But what if your property taxes increase to $4,500 next year, and $5,000 a few years after that?

Homes are assessed on an annual basis in some parts of the country. And property taxes are calculated by taking a home’s assessed value and multiplying it by its local tax rate. So if your home gains value, your property taxes could become more expensive.

Keep in mind that your home might simply gain value over time because real estate tends to gain value in general. But your home might also see its assessed value increase following improvements you make. These could include things like adding a deck, finishing the basement, or renovating the kitchen.

That’s why it’s important to assume that your property tax bill will increase in time — and to plan for it. In this example, you might decide to limit yourself to a $275,000 home instead of one that costs $300,000 so you’re spending less on a mortgage and have more room to allow for an uptick in property taxes.

Know that you have the right to appeal

Property taxes have a tendency to rise over time, but that doesn’t automatically mean you’re always going to have to absorb those increases. You’re allowed to appeal your property taxes each year, and when you do, what you’re actually appealing is the assessed value of your home.

If you can prove that your home has been assigned a higher value than it’s actually worth, then it gives you a leg to stand on in the context of a property tax appeal. So let’s say you haven’t made improvements to your home since buying it, but your neighbors have all finished their basements over the past couple of years. If you see that your home is assessed at a value of $325,000, as are theirs, but yours is missing that finished basement and is otherwise comparable, it gives you an argument to make.

An even better argument is to find homes that are very similar to yours in your neighborhood that recently sold at a lower price than your assessment. If a very comparable home around the corner sells for $305,000 when yours is assessed at $325,000, you can use that lower sale price to argue down your assessment — and pay less in property taxes.

All told, though, your property taxes could increase a lot in the course of paying off your mortgage. That’s an expense you’ll want to plan for — especially since you can’t assume you’ll win your appeals.

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Here’s what experts say you should have in the bank, and what you should do if you’ve fallen behind. 

How much should you have saved by 30? There’s no perfect answer to this question, and there are several different types of savings. But here are two rules of thumb that are commonly used by financial planners.

For retirement, you should have savings equal to one year’s salary in retirement accounts such as 401(k) and IRAs. Now, investments can fluctuate in value significantly over time, so take this with a grain of salt, especially in down stock markets (like we’re experiencing now).

For emergency savings, you should aim to have six months’ worth of your expenses saved in a readily accessible savings account.

So, let’s say that you earn $80,000 per year and that your monthly expenses are about $4,000. This means that you can consider your savings to be on track if you have at least $80,000 in retirement savings plus $24,000 in additional savings.

Of course, every situation is different, and if you haven’t reached one or both of these, it doesn’t necessarily mean that you are financially unhealthy. But if you are far away from either of these figures, you may want to take steps to boost your savings in the coming years, and we’ll get to some of those in a bit.

Savings milestones by age

First off, the six months’ worth of expenses in emergency savings isn’t an age-specific rule. It is the general recommendation for throughout your adult life. However, even if you have a six-month emergency fund, it’s important to occasionally reassess, as “six months’ worth of expenses” can be very different in your 30s than it is in your 40s, 50s, and so on.

For retirement savings, financial planners’ exact recommendations can vary, but here are some common guidelines to aim for:

What if you’ve fallen behind?

If your retirement savings or emergency fund isn’t quite where it needs to be, the obvious solution is to increase your rate of savings until you get back on track. But there are some steps you can take to make this easier.

If you have a 401(k) or other retirement plan at work, increase your contribution rate by a percentage point or two. Experts generally suggest that you should save 10% of your income for retirement, not including any employer contributions.

If you save for retirement in an IRA account, or you need to boost your emergency savings, one of the most effective things you can do is to automate the process. Try setting up a recurring transfer into your savings every time you get paid.

Finally, if you’re struggling to find ways to save money or you feel as if you can’t boost your savings, it might be a good idea to talk to an experienced financial planner. They can help you with budgeting as well as give you a personalized idea of how much you’ll need to save for retirement and emergencies.

The bottom line on savings

It’s important to emphasize that these are just guidelines and aren’t meant to be one-size-fits-all rules. For example, if you have assets that aren’t in your savings and investment accounts — let’s say you own an investment property, for example — this should definitely be taken into consideration. And there are other considerations when it comes to the retirement savings you need. Will you have a pension or other fixed income source after you retire? Do you plan to live a relatively frugal life after retirement, or do you want to pursue expensive activities like frequent travel?

The point is to use these guidelines as a starting point, but to adjust the amounts higher or lower to better reflect your unique situation. And if you aren’t quite where you need to be, now is a great time to take steps to get your savings plan on track.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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