Published in: Banks | Jan. 9, 2020

Most Americans Think They're Disciplined With Money. Here's Why They're Not

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We might be overconfident when it comes to our money habits.

People often struggle to know whether or not they're on track financially. How do you know if you're saving too much or too little? Are you really ready to take on a mortgage? The answers to these questions are rarely clear-cut.

It's difficult to gauge your financial situation if you don't take the time to lay out all of your finances, develop clear goals, and track your progress regularly. Unfortunately, research by The Ascent on personal financial habits shows that the average American spends little to no time on their finances. When you consider this, along with some other startling statistics, it's not so surprising that most Americans are well behind where they should be -- even though they generally feel positive about their financial discipline.

Woman looking at her much larger and stronger-looking shadow.

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Americans are financially overconfident -- but they're still behind on saving

The numbers don't lie. Americans are overconfident when it comes to being financially disciplined. The financial habits study found that 59% of those surveyed felt they were financially disciplined, but their savings accounts told a different story.

Only 21% of Americans are confident they have enough funds to stay afloat beyond three missed paychecks. This means that for the majority of the country, one mishap could send their family into debt.

And although you may have the best intentions when it comes to financial discipline, it's important that your actions reflect your intent. The average American spends less than two minutes each day managing their finances, which is only about one hour per month. 

The secret to managing money well is setting aside time in your weekly routine to check in with your spending, budget, savings, and other financial goals. With so little time spent focusing on finances, it's no wonder that Americans are neglecting their savings accounts.

Why emergency funds are crucial to financial stability

An emergency fund is meant to cover any major unexpected financial blow, which can include anything from car repairs and veterinary bills to the loss of a job or a temporary disability. Its main purpose is to prevent you from having to borrow money during an emergency situation, which could land you in expensive debt.

During a financial emergency, you're likely to already be in an emotional state. Having an emergency fund allows you to make necessary financial decisions without the added stress of trying to produce money out of thin air or having to borrow at high interest rates.

An added benefit is that a well-padded emergency fund can enable you to take advantage of more risky opportunities -- like starting a small business, accepting a better job offer, or investing in a rental property. You can start a new adventure without worrying that one mistake will land you in long-term debt.

How to buckle down and build a healthy emergency fund

We could all benefit from spending more time on our finances. The study shows that the average American spends almost 100 times more time per month watching TV than they do working on their personal finances. But these poor financial habits can be unlearned.

Make a commitment to put your finances first. Set aside a specific time each week to review your finances in detail.

Set clear and attainable financial goals. One of your first major goals should be to save at least six months' worth of basic living expenses. These funds will serve as your emergency fund and should be set aside before you begin saving for any other big purchases.

Create a budget that will help you build your emergency fund. Calculate how much you can afford to save each month and how long it will take to reach your goal. Identify areas in your monthly spending where you can cut back to increase your savings. Write your goal and deadline in your planner and put it in your phone. The more places there are where you can visually see your goal, the more likely you'll be to stick to your plan. 

Set up automatic deposits that move money into your savings account each month. It's best to set the automatic deposit date for right after you'll receive your paycheck. This way you'll pay yourself first and avoid spending that money elsewhere throughout the month.

When you have your plan in place, evaluate your progress weekly and adjust your plan as needed. Look at how you can maximize your savings. For example, you can use a high-yield savings account for better returns on your money. You can also transfer leftover money at the end of the month from other budget categories to build your emergency fund even faster.

Building healthy financial habits takes time and dedicated action. But that upfront effort can give you an important safety net in case your family gets hit with unexpected expenses.

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