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Why You Need To Stop Spending Money Right Now

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You’re going to want to sit down for this next statistic.

Go ahead.

Ok, comfortable?

Great.

In 2016, the total U.S. household debt rose to $12.6 trillion (yes, with a “t”), an increase of $460 billion over 2015 and the highest increase in a decade. 

That’s not so great.

Mortgage payments make up the largest percentage of household debt, followed by credit card balances, student loans, and car loans. Cost of living has increased more rapidly than income growth, leading to much of the household debt. For example, while the median U.S. household income has increased 28% since 2003, medical costs have risen 57% since that time, and the price of food has increased by 36%.  Student loan debt has increased by 186% over the past ten years. If these trends continue, household debt is projected to break the 2008 record high of $12.68 trillion at some point during 2017.  This is particularly concerning as 2008 marked the start of a recession.

Despite these bleak statistics, 52% of Americans continue to spend more than they make. In fact, for every dollar that the average American earns, he or she spends $1.33!

I feel like that needs to get said again: The average American spends 33% more than he earns. That’s a figure that just can’t keep up if the economy is going to stay positive.

As a financial advisor, it saddens me to see so many people (sometimes even my own clients) struggling with debt and spending beyond their means. If you have debt, the most important thing you can do is to meet with a financial advisor and make a budget and develop a plan to get out of debt. To give you a headstart on breaking the cycle of debt, I’ve come up with a list of strategies you can use:

  1. Generate more income and save it.

This is perhaps the quickest and most effective way to manage debt. Think about ways in which you may be able to make extra money.  For example, could you ask for a raise at work? Would you consider getting an extra part-time job or doing freelance work? If none of these are possible, you could think about getting a roommate or renting out a room in your home.  Even selling things on Ebay or becoming a tutor or housesitter can make a dent in your debt.

  1. Track your spending and automate savings.

Having a clear picture of what you’re purchasing is crucial as it will help you identify potential areas where you can cut back. Take a few minutes at the end of each day to record everything that you bought that day. Over time, you may notice patterns that you could consider changing. For example, you might decide to spend less on lunch or cut back on entertainment once you can clearly see the cost of these on paper.  You should also speak to your workplace about automating your 401k contributions, and automate contributions to a savings account is a good idea, too.  As I share with my own clients, this automatic savings method means that you won’t be tempted to skimp on contributions to savings accounts because the money is taken out of your paycheck before you receive it.

  1. Use cash as your sole payment method.

Paying with cash virtually eliminates the possibility of spending beyond your means, so use this method whenever you can. Don't touch plastic until you're ready. To quickly get your budget and debt under control, stop using credit cards as a form of payment.  By using cash only, you will physically see the money leaving your hands, and studies have shown this will teach you to value it more.

  1. Employ the “50-20-30” rule.

If you’re struggling to come up with a sensible budget, implementing this rule can make a big difference.  Using this strategy, no more than fifty percent of your income should be allocated for essentials such as rent or mortgage payments, utilities, car payments, student loan payments, and insurance bills. Twenty percent or more of your take-home pay should be put into savings accounts, retirement plans, or investments.  The remaining thirty percent can be used for personal expenses or “fun,” non-essential purchases such as cable TV, cell phone plans, and eating out.  This strategy will help you have enough for essentials and some fun now while preparing for the future, too.

  1. Use apps to help with money management.

Your financial advisor can’t be with you every day, but personal finance apps can, and they can help you limit your overspending. The apps act as a personal trainer for your finances and give you a visual representation of your budget at a glance and on the go. They can really boost your self-control, too.  For example, if you log in and look at your expenses before heading out to lunch, the app might make you reconsider getting that second cup of expensive coffee. Some of the most useful apps include PocketGuard, GoodBudget, Mint, Unsplurge, and Wally.  Try several to see which one works the best for you.

While these practical tips will really help in curbing your overspending and managing your debt, keep in mind that to truly stop overspending, you’ll need to change your philosophy about money and adopt a new mindset.  Many people equate budgeting with deprivation, and this only fuels them to spend more. Instead, try to think of it as a tool for being able to afford the life you want.

I hope these tips are helpful in your journey to a healthier budget, and please don’t hesitate to get professional advice in order to pursue your goals!

Winnie Sun is a registered representative with, and securities offered through LPL Financial, member FINRA/SIPC. Investment advice offered through Sun Group Wealth Partners, a registered investment advisor and a separate entity from LPL Financial. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.

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