Advice For Struggling Families

We all know that Americans don’t have much in savings, but it’s really more a problem with rising expenses than lack of savings. As this Marketwatch article shows, poor people do save, but they consume those savings in short order:

Robert understands the need to save for the long term, but he puts only $25 into his employer-provided retirement account each month. He knows that won’t be enough, but he also knows he’s supposed to save something and that’s what he can do. But his lack of retirement saving for later is hardly because he is overspending now.

Instead, he is contributing toward food and rent and saving for needs coming up soon — renting his own place. For that, he saved several thousand dollars, an impressive share of his annual income. That saving activity won’t show up in surveys about how much “emergency” or retirement savings people have. It won’t show up anywhere at all once Robert finds an apartment because he will hand the money he’s accumulated over to his landlord and his “balance” will go right back down. And then he’ll start saving all over again for a different need.

The strategies some people are using to save are similar to what I recommend in my book. In other words, they employ mental tricks to hide money away so that they are not tempted to consume. Hilariously, they also call these tricks “hacks”.

The financial services industry can help, too. Many families we met developed workarounds that made their savings strategies more effective. For Robert, it was giving his savings to his mom to hold. He said she was “like Fort Knox,” so he knew he would have to stick to his budget. Another Diaries participant stashed her savings in a credit union an hour away, and cut up her ATM card, so that she would only withdraw for “really, really needs.” A third preferred to save by stocking her pantry rather than filling her bank account. Financial providers can learn from these kinds of hacks. They can adjust their products to make it easier for people to save and harder for them to spend.

In reality, there’s not much for these families to do other than to increase income. Practically this can mean:

  1. Advancing up the ranks at one’s job
  2. Finding a second job (the gig economy is perfect for this)
  3. Maximizing resources through the sharing economy
  4. Going back to school for a degree that pays
  5. Starting a business (even low-capital tech entrepreneurism is possible)

At the same time, while they’ve already cut spending substantially, there’s more they can do to reduce everyday life expenses. Consider:

  1. Buying the old model of electronics rather than the latest and greatest
  2. Buying clothes from the consignment store
  3. Shacking up with extra roommates or living with family
  4. Going without a car, TV, and cable
  5. Cook at home instead of eating out
  6. Go for free or low cost entertainment (the article describes one person getting free concert tickets from giveaways and raffles). Especially with more time and less money, lining up for raffles and giveaways become viable.

Details of how to do this and much more are included in my book.

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