Coming to grips with financial fragility

A recent research study reports that nearly 50% of Americans say they “definitely” or “probably” couldn’t come up with $2,000 in 30 days. According to the study, this puts them in the land of financial fragility—in other words, they’re living close to, if not on, the financial edge. And as anyone who’s been there knows, it ain’t a pretty place to be.

This got me thinking about my own financial state. I’ve been fiscally conservative, I live squarely within my means and I don’t gamble or indulge in any expensive hobbies. But in reality, that and a smile gets me only so far. I’m also married with two teenage sons, I’ve got a mortgage that’s not going away anytime soon, college is looming and there’s an endless laundry list of everyday living expenses that seems to keep growing. Needless to say, there’s very little cash left each month available to plunk into the old emergency fund.

So no, I may not be financially fragile according to the parameters of the study, but my financial situation is more vulnerable than I’d like to admit. The stark reality is that my sweet suburban existence could take a real hammering in the blink of a rebuilt transmission, a leaky roof, emergency root canal or even unplanned double ACL surgery for my aging hound dogs.

Yikes.

So what’s a financially responsible Saver like myself to do in the face of potential financial calamity? Here are some easy ways I’ve learned to keep fragility to a minimum and make the most of what I have available to me:

Pay yourselves first (duh). We contribute 12% to my employer’s generous 401(k) plan with the 6% match (that’s 18% of my gross take-home pay tax free—not too shabby). Through the years, the fund has evolved into quite the nest egg, despite recent market volatility. Not retirement-worthy by any stretch, but reassuring nonetheless.

Pay yourselves regularly (double duh). Ever heard of Automatic Savings Plans? They’re awesome…and they’re automatic. Our savings account is linked to our checking account and the cash is transferred to savings before we can ever get our grubby hands on it.

Realize your home’s your biggest savings account. While we don’t have a ton of equity in our suburban ‘60s split-level dreamhouse, it’s still our biggest savings account as we continue to pay down interest and principal. How? Well, it’s currently appraised at least $100,000 more than we paid for it 10 years ago—and that’s saying something given the recent mortgage meltdown. Which may come in handy when it’s time for the wife and I to scale down.

Trim the financial fat. It’s true that you live up or down to your means. It’s also true that you can cut out a lot of fat and get by without sacrificing your standard of living. Stuff like high-def TV and fluffy magazine subscriptions are nice, but they’re easy to get rid of. Try to eke out as many savings shortcuts as possible.

I’m sure there are those worse off than us, but in the end, aren’t we all just a few bad breaks away from financial fallout? What worries you the most and what are you doing to stave off financial fragility?

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  • Mary Althar Neville

    I try to keep re-acurring expenses down. Lawn mowing, housekeeper, club memberships, extra tv channels are e are NOt necessities, and over time eat your savings.
    I make a game of it. Can I save 250 this month? ( beyond the auto deposit to savings) If I win, I give myself a treat.

    I also “take it for a test drive.” 2 years ago, I put myself on my retirement budget, with just enough extra to money for work expenses. Boy was that an adventure! I thought I knew what it would take to fund my retirement. I was so wrong, things like car tags and yearly memberships were left out. I also saw very quickly the effects of inflation, especially with food. I have decided to work 18 months longer. I would have been very unhappy if I did not tryout my retirement budget first and resigned.

    “Take it for a test drive” also works great for buying things on credit too. Making that payment to your savings will tell you if you can afford it or not, and up your savings at the same time.

  • Jeff

    You have got to get rid of debt! 2.5 years ago we both had good jobs, made over $110,000 per year but found ourselves with $85,000 in debt between 1 credit card, car loans, and student loans. Now we have no debt besides our house (which is on a 15 year note – so important!) and we our almost done with our 6 month emergency fund. We also have a zero base budget (we allocate every penny to something every month-huge!) which makes this possible. The thing that helped us get this all going is Dave Ramsey’s Financial Peace University. Next step in 2 months is to start putting 15% away in retirement savings and start paying down the mortgage early. I am 34 right now, and we hope to be totally debt free in 7 years! Oh and we are contributing to the kids college fund as well. All of this is happening on my 1 salary while my wife gets to stay home with the kids – how awesome.