Money Management

Should you be concerned about your finances? 

Worrying about personal finance issues is not very fun. Unfortunately, many Americans are concerned about a wide variety of money matters right now. And finance guru Dave Ramsey thinks they’re right to feel this way.

In fact, Ramsey recently indicated that “there’s a lot for Americans to worry about when it comes to their money,” listing factors such as high prices due to surging inflation as well as low rates of savings among many people across the country.

The big question, though, is whether Ramsey is right and you should be worried about the future of your financial stability now.

Is financial anxiety justified?

Unfortunately, Ramsey is right — there are very valid reasons for concern when it comes to your financial situation now.

For one thing, many experts indicate the country is in a recession already, or will soon be in one. Recessions create an increased risk of unemployment as the economy slows down and company’s cut corners.

Americans are also saving less this year. In fact, after adjusting for inflation, the personal savings rate is down 61% compared with pre-pandemic levels and down 88% from the 2022 peak when many people were saving a fortune.

High inflation has also caused the price of goods and services to go up — and it’s not clear exactly when or if costs will come back down to a more manageable level. And, Ramsey also pointed out that there’s reason to be concerned about the housing market as well. “With the real estate market’s surging prices and mortgage interest rates rising, there is also a lot of uncertainty,” he explained.

With items costing more, less money in savings, uncertainty in the housing market, and the possibility of the economy — and your finances — worsening, Ramsey is absolutely justified in warning that Americans have a lot on their plates right now.

How can you stop worrying about your finances?

With so many valid fears, worrying about money may seem like something you can’t get away from. But, the reality is, if you can put some safeguards in place to protect your finances, you may not have to be as concerned about the issues causing so much concern.

First and foremost, you’ll want to make sure you have an emergency fund that can cover several months of living expenses. This can help you avoid fears about how you’d pay for essentials if your income is cut — and can help protect you from disaster by ensuring you don’t face foreclosure or other dire outcomes in this situation.

You’ll also want to make sure you have solid investments you’re confident in so you won’t need to be concerned about a downturn in the stock market. You’ll know that while you may temporarily lose money, you should recoup your losses during an inevitable recovery that always follows a downturn.

You should also avoid buying a house you can’t afford, and make sure to live within your budget and make adjustments as necessary to deal with inflation. If you can do these things, then while your peers may continue to feel the worries Ramsey describes, you can have the peace of mind that comes with knowing you’re prepared.

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Don’t just accept a low savings account balance as your fate. 

Having money in a savings account can be very important. It can protect you from credit card debt in case unexpected costs crop up. And it can ensure you have money to pay the bills in case of a temporary income interruption.

Unfortunately, many Americans have too little saved. If you are one of them, you can take steps to improve your situation so you have the security you deserve. These tips will help.

Americans are falling short on the savings front

According to The State Of Personal Finance In America 2022, a study conducted by Ramsey Solutions, there’s a clear shortfall in personal savings among millions of Americans.

The survey revealed that 36% of all Americans have absolutely no savings at all, and another 19% have less than $1,000 saved. Just 45% of all Americans have $1,000 or more in savings.

These were the savings account balances as of the third quarter of 2022. They reflect the fact that while Americans were able to build up more savings during the COVID-19 pandemic, account balances have substantially declined thanks to inflation causing the price of necessities to rise.

Unfortunately, with so many Americans having so little saved, it’s not surprising that the same survey revealed 18% of Americans ended up taking on more consumer debt since June of 2022 and 25% are relying on credit cards to pay the bills more than ever.

How can you increase your savings?

Ideally, you should have three to six months of expenses saved in a high-yield savings account to help you cover costs if you get sick or lose your job or if something else unexpected happens. For the millions of Americans with less than $1,000 saved, they aren’t even close to that milestone.

Not having savings can leave you at serious risk of financial disaster, so it’s important to prioritize putting some money in the bank — even if that means you may have to pause on paying extra toward debt or accomplishing other financial goals like investing.

You shouldn’t necessarily pause on extra debt paydown for the entire time it would take to save up several months of living expenses, but should aim to get at least a $1,000 mini emergency fund saved up before doing anything else.

While it may seem difficult to save more during a time when prices are so high, there are some steps you can take to help make it happen:

Go through your budget carefully and cut expenses dramatically on a temporary basis. While you may not want to make big sacrifices forever, you can cut out a lot of discretionary spending for a short period of time to save your $1,000 mini emergency fund to get you started.Look for fixed costs you can cut. If you move to a cheaper apartment, get a less expensive car, or cancel monthly subscriptions, this can free up money to save. These changes can be easier to sustain since you only have to make them one time.Ask for cash gifts. With the holidays coming up, ask friends and loved ones for cash or cash equivalent gifts (like gas or grocery store gift cards) instead of more stuff. You can deposit this money directly into savings.Consider getting a side gig. If you can pick up even a few extra work hours per week, you can put that money right into savings.

By putting in some extra effort and taking a close look at your financial life, hopefully you can build your account balance up to a level you feel comfortable with that also provides the security you deserve.

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Do you feel the same? 

When you picture the wealthiest person you know, what does their lifestyle look like? Do they live in a large house? Do they drive a fancy sports car? Or do they simply seem financially content — meaning, they have plenty of money in savings and don’t stress out every time they’re hit with an unplanned bill?

The reality is the word “wealthy” is tough to define. It’s easy to argue that someone who earns $500,000 a year is wealthy. But if that same person spends all of their salary, does that count?

And then let’s think about living costs. Someone earning $500,000 a year might live in a part of the country where a tiny apartment costs $3,500 a month in rent, and where the average two-bedroom starter home costs $1.2 million.

All told, there’s really no easy way to put a number on what it means to be wealthy. But new data reveals what Americans have to say about that.

What does wealth mean to you?

In a recent survey by Edelman Financial Engines, 57% of respondents said they’d feel wealthy if they had $1 million in the bank. But for many people, that’s not enough.

Among those with $500,000 and $3 million in assets, 53% said it would take over $3 million in the bank for them to feel wealthy, and 33% said it would take over $5 million. Given that these are amounts some people will never even come close to amassing in their lifetimes, it may be hard to wrap your head around these answers.

But that actually leads to a really important point about wealth. As inclined as we may be to try to put a specific number on wealth, the reality is that it’s probably more so a mindset than anything else.

You might have $300,000 in assets and feel more than content with your life, while someone with $1.3 million in assets isn’t happy with their home or lifestyle. Plus, sometimes, the more money people have, the more financial stress they open themselves up to.

People with a lot of money tend to buy more expensive things, like homes and cars. Those things can then be very costly to maintain. So often, people who start out with wealth end up losing wealth because they don’t force themselves to spend judiciously.

Focus on your personal goals

You may have the goal of one day being wealthy. But rather than force yourself to buy into the idea that it will take $1 million to get there, figure out a number that works for you — one that might buy you the lifestyle you want and the peace of mind you deserve.

If you save $300,000, that may be enough to put a down payment on a nice home, have enough money to do the activities you enjoy, and have ample savings so you don’t have to worry about your incoming bills. For someone else, $300,000 may not be enough. But that’s okay.

Americans on a whole might feel that it takes $1 million to be wealthy. But if you land on a different number, whether it’s higher or lower, go with it, and make that the number you work toward.

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Southwest’s recent meltdown should serve as a warning for all travelers. 

If you’ve seen the news at all in recent days, chances are good you know that Southwest Airlines had a major meltdown. The airline canceled more than 2,500 flights over the course of around a week after cities with two of the airline’s biggest hubs were hit by winter storms and the airline saw a surge of workers call out sick due to illness.

Since this catastrophe occurred over the holidays during one of the busiest travel times of the year, many passengers were left stranded — some without their luggage and many with no easy options to get to their destination.

While Southwest’s meltdown was unprecedented and is being investigated by the Biden administration, it’s part of a long series of travel mishaps that have happened in recent months as airlines struggle to cope with labor issues and getting back up to full capacity after travel slowdowns prompted by COVID-19.

If you want to make sure you’re prepared for the next major airline meltdown, these four steps could be just the ticket to help ensure you don’t end up with your travel plans in disarray.

1. Invest in trip interruption and/or trip delay coverage

Trip interruption and/or trip delay insurance can be invaluable when things don’t go as expected. These types of insurance policies can pay for food during a delay or can help you cover other costs if a trip is interrupted or canceled.

You can buy these coverages separately, but many good travel credit cards offer them as membership perks. If you don’t have a travel card, it’s worth looking for one that provides these benefits so you can get important protection in place without spending extra money every time you go on vacation.

2. Be sure you have lost luggage insurance

Southwest ended up separating many people from their luggage, leaving them without basic essentials. Baggage insurance or lost luggage insurance could help you cover the costs of the necessities if you don’t have your stuff with you due to an airline mix-up.

Again, you can buy a baggage insurance policy from a third party — but you’re likely better off looking for a credit card that offers this coverage as a free perk just for booking and paying for the trip on the credit card.

3. Bring a good travel credit card along

You have certain rights when your trip is canceled or your plane is delayed for a long time due to an issue with an airline. Specifically, you may be entitled to a refund for your travel expenses and potentially for meal and hotel costs incurred due to the delays.

You’ll still have to pay for these costs upfront, though, before trying to pursue a refund. So, be sure to bring a good travel card with you that has some credit available. You can book your hotel room or pay for your meals, get points or rewards for them, and have an easy way to keep track of what you spent when you seek reimbursement.

You also won’t have to drain your wallet to cover these expenses — or be left unable to pay for them if you don’t have enough cash or credit available.

4. Book through a travel portal

Finally, consider booking your trips through a travel portal offered by your credit card issuer, as you may be offered some extra help by your credit card company if you have a problem.

And if you have to book lodging or a new flight on an emergency basis due to unexpected delays or a trip cancellation, you may be able to get special perks — such as early check-in — that could be offered only to people who shop through the portal.

Taking these four steps can help you ensure that if the worst happens with your plans, you have the most protections in place to deal with a bad situation.

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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.Citigroup is an advertising partner of The Ascent, a Motley Fool company. Christy Bieber has positions in Citigroup. The Motley Fool recommends Southwest Airlines. The Motley Fool has a disclosure policy.

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Take advantage of these different but important accounts. 

Many consumers struggled to keep up with bills in 2022, and as such, had little money left over month after month. But the hope is that things will be different in 2023, and that you’ll have money at your disposal beyond what you need to cover your bills. At that point, you’ll want to find the right home for your money. And here are three accounts worth considering.

1. A savings account

The events of the past few years have taught us the hard way that having savings is important. In 2020, many people lost their jobs when the COVID-19 outbreak erupted. And in 2021 and 2022, many consumers had a hard time coping with higher living costs fueled by inflation, especially once government aid ran out.

That’s why it’s so important to have a solid emergency fund — money to cover things like periods of unemployment or unplanned bills. And the best place for your emergency cash reserves is none other than a savings account, where your principal deposits are nice and protected.

How much emergency savings should you aim for? The old convention was to save enough cash to cover three to six months’ worth of bills. In the wake of the pandemic, some experts are now calling for eight to 12 months’ worth of expenses in the bank. Think about the threshold that gives you peace of mind and aim to fill your savings account with enough cash to meet it.

2. An IRA

Ideally, you’ll have some money at your disposal this year beyond what you need for emergencies. At that point, it’s a good idea to invest that money for the future. And if you want to reap some tax benefits along the way, then putting money into an IRA, or individual retirement account, is a good idea.

When you fund a traditional IRA, your contributions go in tax-free. So if, for example, you put $3,000 into a traditional IRA this year, that’s $3,000 of earnings you won’t pay taxes on. Plus, once your money is in your IRA, you’ll have the option to invest it as you see fit. You can choose to invest in individual stocks, or invest in different funds (like ETFs) that make it easier to build a nice, diverse portfolio.

3. A brokerage account

IRAs differ from brokerage accounts in that they’re earmarked specifically for retirement, and they offer tax breaks that brokerage accounts don’t. But brokerage accounts are far more flexible. With an IRA, you’re generally required to leave your money alone until age 59 ½. If you take an earlier withdrawal than that, you’ll face a 10% penalty that won’t come into play with a brokerage account.

Meanwhile, like IRAs, brokerage accounts give you lots of options for putting your money to work. And many brokerage accounts these days allow you to invest on a fractional basis. That means you can purchase partial shares of stock to build a portfolio instead of having to commit to whole shares, which can, in some cases, be very expensive.

Where should you put your money?

Completing your emergency fund should be your first priority in 2023. But from there, it pays to branch out into investing. As such, you may find that it makes sense to put your money into a savings account, an IRA, and a brokerage account this year so you get the best of all worlds.

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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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