Some 40% of those surveyed can’t handle a $400 emergency expense. This recent finding by the Center for Retirement Research at Boston College (CRRC), won’t surprise you.
And it’s no eye opener to suggest that the most vulnerable Americans are either deep in debt or stuck in low-income jobs. What is a something of a revelation is that there’s much that can be done to offset financial distress.
First, let’s break down the findings of the study:
— Low Income and Education Is a Factor. The largest subgroup, consisting of about two thirds of the full group, is “disadvantaged.” These households mainly have very low incomes and a high school degree or less.
— Debt is a Handicap. The “borrowers” are the second largest, representing about a quarter of the full group. Borrowers all have student loan debt and other installment loans, and their median net worth is negative.
— Employment Matters. This subgroup also faces financial risks such as recently losing a job or being denied credit.
— Homeownership can be a burden. The final subgroup, representing only about one tenth of those without $400, consists completely of homeowners with a mortgage –- perhaps suggesting that home ownership costs may be constraining household budgets. A high proportion of these homeowners also have a high school degree or less.
1) Tackle debt first. The key strategy is to pay down the most expensive debt such as credit cards, then tackle longer-term debts such as college loans. Need help getting out of debt? Contact a professional debt counselor. If you have federal students loans, you may be able to lower payments. There are many repayment options.
2) Focus on higher-paying professions. Many of the fastest-growing jobs only require associate degrees, which you can obtain at community colleges, which are much less expensive that four-year-schools.
3) Start an automatic savings plan. Pay yourself first. You can automatically withdraw money from your checking account into a savings account. Many of the newest apps can be run on your phones.
The best strategy, though, is to set goals for yourself. How much can you save? When do you want to be debt free? You’ll need to do some honest planning, but will be richly rewarded when your plan pays off.