You may not feel like it but you are not an insignificant member of your society. If you think that your impact is only felt during elections, think again. Apparently, your financial situation plays an important role in the economy of both your local state and on a national scale.
Although the government is reporting that we have come a long way in terms of recovering from the Great Recession, some consumers have yet to feel that improvement. A lot of people are still struggling with their personal finances. While jobs are being created and employment is proving to be steady, Americans are still burdened with debt.
The truth is, experts like the increase in the average debt because, in our economy, credit confidence is a sign that people feel good about their financial future. After all, you will not borrow money unless you know that you can pay it back right?
But there is another reason to borrow money – when you are faced with an unexpected expense. If you do not have the savings to finance that emergency situation, then you are forced to use credit to overcome that particular situation.
According to TheAtlantic.com, the Federal Reserve Board revealed a surprising data about how consumers will pay for an unexpected expense that will cost them $400. 47% said they will either borrow money or sell something.
While $400 seems like a small amount, a lot of Americans do not have this in their emergency fund. Obviously, if they had it, they would not borrow money. This says a lot about their financial health. If people do not have a good financial position, that could affect the overall state of the economy.
Study reveals your financial security matters
According to a study done by Urban.org, thriving residents have a positive effect on the community and city that they belong to.
The study revealed a strong relationship between the financial health of American families and 4 city outcomes:
- Rate of eviction. This refers to the rate by which residents are driven out of their homes – to move to a shelter or live in the streets.
- Fund for homes. This refers to the ability of the residents to pay their rent or mortgage – whatever is applicable to avoid eviction.
- Payment for utility bills. This refers to the ability of the residents to pay for the consumption of electricity, water, gas, and other utility services.
- Use of public benefits. This refers to the residents who have to rely on the local government for help. This usually involves financial aid to pay for basic necessities.
What does this mean?
Apparently, when the people are in good financial health, they do not need monetary aid or support from the local government. The rate of eviction will be low and so will the use of public benefits. They are able to fund their own basic necessities like paying for their home (whether that is rent or mortgage) and their utility bills.
When your finances are healthy, you get to contribute to the local economy through your taxes. Not only that, you are in a better position to fund local businesses – who in turn will pay more taxes to the city government. This will increase the budget of the community. Since a few people are using the public benefits, the budget can be allocated to projects that will improve the economic condition of the local community. This will attract more people to move in and increase business profits and local taxes even further.
All this is because of the financial health of the residents…
The study also asked two questions. Can a healthy financial position:
- Lower financial hardship?
- Reduce the dependence on public benefits?
Based on the results, the study was able to come up with these facts:
- Families with non-retirement savings, even if it is a small amount, have a lower chance of being evicted or relying on public benefits. They are also more able to pay their housing costs or utility payments on time. The data revealed that this is true even if the family only has a low savings level of $250 to $749. The higher the savings cushion, the less likely they are to miss payments, be evicted or rely on public benefits for aid.
- Low-income families who have a savings cushion of $2,000-$4,999 are more resilient financially as compared to middle-income families who do not have any savings at all.
According to the study, the financial health of residents is tested when they experience a disruption in their income – like a job loss, inability to work because of health reasons or a drop in income. Apparently, around 25% of the families tested have suffered an income disruption in the last 12 months. Those who suffered from a disrupted income was more likely to be evicted from their homes – regardless if they come from low, middle or high-income families.
It was also revealed in the study that savings are not only a problem of low-income families. Even middle and high-income families can suffer a huge blow if they fail to save.
If course, the financial health of a family is not just measured by their financial cushion but also their debts. The local economy can also suffer if people cannot pay off their debts – like their mortgage. This can seriously affect the economic stability of the community and the potential for financial growth.
How to be financially fit
The bottom line of this report is this: you need to take care of your financial health. This is how you can enjoy the economic gains of the community where you live. Your own financial success may seem insignificant. But if it is considered together with the finances of the other residents, this can fuel the stability of the local economy.
To make yourself financially fit, here are some tips that you should follow.
Know your current financial position.
Start by knowing your current financial position. You have to understand where you will start so you will know how far you have to come in order to reach a healthy financial life. Do you have enough savings? Is your spending lower than your net income? How stable is your job? Can you diversify your income or do you have the means to open more sources of income? These questions will help you understand how secure your finances are.
Set a financial goal.
Now that you know your current financial position, you have to set a financial goal next. These will be your targets to help improve your finances. If you think that your financial situation needs more savings or less debt, you can set a goal to work on that.
Create a strategy to help you get to that goal.
Once you have your goals, it is time to think about how you will reach your targets. Will you downsize your expenses or will your work longer hours? According to a survey done by Bankrate, 23% of their respondents said that when they need more money, they will lower their expenses to make way for that. It is their way of meeting the financial needs during an emergency. Regardless if you plan to lower your spending or increase your income, that does not matter. Both are effective. If you can, it is possible to do both. You can spend less and earn more. That will help increase your extra money faster so you can work on improving your financial health.
Identify the lifestyle changes needed to keep yourself financially fit.
Finally, you have to start looking at the changes in your lifestyle that will help you be financially fit. If you want to lower your spending, that might involve lifestyle changes. Things like changing your habits so you do not spend a lot on them. You can also think about downsizing your home – also to spend less on it. Think about what these are and what you can sacrifice so you can reach your goals faster.
Here is a video from Wells Fargo that provides tips on how you can be financially fit.