Several years ago, I met with a couple in their mid-fifties who reached out to me because they needed help with their budgeting. I had known them for a few years, and it appeared they were doing well based on our past conversations and their Facebook posts. Looks can be deceiving, however.
As I reviewed their financial situation, I was shocked at what I saw. They didn’t own their home and they had a mountain of debt. Their only asset was a small checking account. If they attacked their debt aggressively, it would have taken them more than fifteen years to become debt free. This assumes they were willing to curtail their spending, which was going to be a tall order. Their high debt level was robbing them of their ability to establish an emergency fund or save for retirement.
It will be challenging for this couple to make ends meet, especially in retirement. With zero assets saved for retirement, they’ll have to rely on Social Security. The average Social Security check is $1,400.[1] If they both received this same amount their annual retirement income would be $33,600 – before taxes.
In addition, one of the spouses was reluctant to go back to work because most of the jobs being offered were beneath his skill set and level of training.
During my career I’ve met with about a half-dozen families who were in similar financial situations. It’s heartbreaking. As a financial planner, I never want to tell anybody bankruptcy is their best option, but, on occasion, it is.
What should you do if you’re behind the financial 8-ball? Here are a few suggestions.
- If you’re in a financial hole, stop digging. Reduce your expenses. Stop spending. Create a budget. Cut up your credit cards. After analyzing your spending habits create a needs-based budget. What are needs? Food, clothing and shelter. Until your financial situation improves put your wants and wishes on hold.
- Reduce your financial footprint. Rent a smaller home. Sell one of your cars. Bring your lunch to work. Brew your own coffee. Get rid of cable. Play board games with your family. Visit a National Park for vacation.
- Contact your bank or credit card companies to negotiate better terms. They might reduce your interest payment or waive late fees. According to Credit Karma they may offer you a hardship plan due to a job loss or illness.[2]
- Find a non-profit or credit-counseling company to help you reign in your debt. These organizations will help you with budgeting and debt consolidation.
- Get a job. Any income is better than no income. As I mentioned, the husband in this article was reluctant to get a job that was beneath his social status. The current unemployment rate is 3.8% so finding a job shouldn’t be too difficult. At my local Home Depot, they have scores of orange signs screaming: “We’re hiring.” A sales associate at Home Depot can make between $11 to $14 per hour.[3]
- Cut your kids loose? Is it time for your adult child to support themselves? Are they ready to leave the nest? According to a recent Barron’s article, parents are spending $500 billion per year supporting adult children and their families.[4] This money is a drain on the parent’s resources forcing many to continue working well beyond their golden years. Chris Hogan, author of Everyday Millionaires, reports that 71% of millionaires do not provide monthly support to children over the age of 25. I love my daughter dearly, but after college she’ll need to start working.
Life is hard and balancing financial resources is difficult. I’m currently teaching a financial class at my church and one of the biggest benefits from the people attending has been identifying how their money is being spent. If you know where your money is going, you can make life changing decisions today. I know you can do it!
The rich rule over the poor, and the borrower is slave to the lender. ~ Proverbs 22:7
March 23, 2019
Bill Parrott, CFP®, CKA® is the President and CEO of Parrott Wealth Management located in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose.
Note: Investments are not guaranteed and do involve risk. Your returns may differ than those posted in this blog.
[1] https://www.fool.com/retirement/2018/10/16/heres-the-average-social-security-benefit-for-2019.aspx, Maurie Backman, October 16, 2008
[2] https://www.creditkarma.com/advice/i/negotiate-debt-credit-card-company/, Satta Sarma Hightower, December 4, 2018
[3] https://www.payscale.com/research/US/Employer=The_Home_Depot_Inc./Hourly_Rate
[4] https://www.barrons.com/articles/how-to-protect-your-retirement-from-your-kids-51553285595, Reshma Kapadia, March 23, 2019