Control your spend

According to USA TODAY, the average U.S. household debt for specific categories is as follows:

  • Credit cards = $16,883
  • Auto loans = $29,539
  • Student loans = $50,626
  • Mortgages = $182,421

If we take the sum of all four, we are at $279,469.  According to BUSINESS INSIDER, the average household income in 2016 was $59,039.  So what do these two numbers mean?

Credit card debt

If your credit card APR is 15%, each year on $16k you are paying about $2,400 in interest.

Auto loans

If your auto loan APR is 5%, each year on $29k you are paying about $1,500 in interest.

Student loans

If your student loan APR is 7%, each year on $50k you are paying about $3,500 in interest.

Mortgages

If your mortgage loan APR is 5%, each year on $180k you are paying about $9,000 in interest.

Now, if you add up your credit card, auto loan, student loan, and mortgage interest, just in one year you are putting out $16k in interest, which is money you will never get back.  If we take the average household income of roughly $60k and remove 35% for withheld taxes, we are left with $39k.  Now, lets remove the interest of $16k, which now leaves us with $23k.  This is the amount of money you have for an entire year for food, transportation costs (gas, tolls, etc), entertainment, clothing, utilities, property tax, and anything else you need to pay.  If you have a family you need to support, this will most likely not be enough and you will most likely continue to increase your debt.  It is scary when you unveil the numbers, but it is the truth.

So what can we do about it?

Avoid debt at all costs

Before you start purchasing unnecessary things, understand the impacts of doing so.  Look at the discussion we just had and understand if you really want to go down that path.  If you are already in debt, then you do not have this option, but not all is lost.  If you are already in debt, your main focus will be to dig yourself out.  Realize when you are spending a few dollars here and there, those dollars do add up.  Realize when you are not paying attention to your financial numbers, it does not mean you are not going into debt.  This just means you are going into debt blindly.  Start paying attention to what you are spending money on.  You need to realize that the small losses really do impact your overall financial stability in the larger picture.

Control your spend

My best advice to help manage debt from an avoidance and improvement perspective is, control your spend.  Everyday you need to make sure you are tracking your money.  If you have a family, understand their financial needs and what they are spending money on, especially if it is coming from your wallet.  As an example, we do not need a Starbucks coffee for $5 every day.  At the end of the week, we put out $25 and at the end of the year, we put out $1,300 on coffee.  The same goes for buying lunch at work.  If you are spending $8 at your cafeteria or local restaurant for lunch each day, you are $2,080 each year.  For a full-time worker, this is equivalent to $1 per hour from your paycheck.  Start thinking a little differently about your day-to-day expenditures.  Overtime, you can really improve your financial situation.

Do you have thoughts on this?

2 Comments on “Control your spend

  1. People can save a ton of money by learning to cook from scratch. Heating up prepared food ($$) is much better than eating out ($$$$). Cooking from scratch ($) saves even more money, is healthier, and once you are good at cooking is tastier.

    Like

    • Agreed! I reduced the frequency I purchase prepared foods for lunch at work because it is much more cost effectively to bring lunch. At night my wife and I cook together, which is always fun and gives us a chance to spend more time with each other. Good Point Paul!

      Liked by 1 person

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