Financial distress is a condition in which an individual cannot generate sufficient revenues or income, making it unable to meet or pay its financial obligations. Financial distress generally occurs due to high expenses, a large degree of illiquid assets, income-sensitive to economic downturns, or possible employment loss. In the event of financial distress, you cannot understate the importance of savings. The choice is obvious and relatively simple; save your dollars for the future or spend it now. The YOLO (You only live once) motto popular amongst the Millenials gravitates them towards spending rather than saving. A higher inflation rate, which devalues savings over time, also contributes to aggressive spending. Ultimately, many young people quickly conclude that they can’t afford to save.
Is that true? Or is it an easy way to justify and fill the emotional needs for new and fancy material things? The ease of purchase driven by the technology and e-commerce economy is ridiculous. Have you heard of same-day delivery? It is so fast, you don’t even feel the money goes out of your pocket, and you already have a box waiting for you at home. Things are getting cheaper with products coming directly from manufacturing countries, and we conveniently find new reasons to own things we do not need to impress people we do not care. Some might say it is all for the gram.
In my opinion, the reality is the fewer expenses you have, the more money you have to save. Having an understanding of this will make you more likely to save money. I am sure expenses vary by individuals, but there are some expenses that we may not be aware of that have been slowly becoming fixed expenses for us. Remember, the devil is in the details.
My quick tips to lower expenses:
1) Always pay credit card bills in full.
I wrote previously on high-interest rates charged on credit cards. Credit card debt can build up fast if you do not monitor your spending, and you may end up paying ridiculous interest charges. If you do have difficulty paying your balances, please apply for a low-interest rate credit card.
2) Monitor your banking service charges.
If you find many service charges on your bank statement every month, you should understand the charges’ nature and how to avoid them. For example, stop paying fees or keep it to a minimum for ATM withdrawals. You are better off using a debit card to support the cashless revolution. Make it a point to evaluate your banking plan to see if you are paying for anything you don’t use.
3) Ditch the Fancy Coffee
If you ditch a $5 latte, you’ll have a considerable amount of money in your savings. If you are a coffee addict, your future self will be thankful to you for making your cup of coffee daily.
4) Bring Your Lunch
I struggle with this as I don’t want to be that one person who never comes out to lunch with coworkers. But the truth is, who cares if you don’t come out to lunch. You don’t have to skip all of them, but be conscious of your decision and start saving lunch money to start building that passive dividend income you have been dreaming for a while now. I think it is arguably the easiest to reduce costs compared to meals that have a more social purpose, like birthday dinners. Plus, its only lunch. Grab a high protein bar; this will stop you from getting hungry and take care of your waistline.
5) Quit Smoking Cigarettes
Do you want to burn the cash in front of you? Really? Unless if your health depends on it, which I doubt so, your bank and lungs will thank you in the future.
Once you have saved some money on the side, you can now start investing. Investing money you have saved is a part of financial literacy that many are clueless. Financial literacy is a subject that I have to learn the hard way, and until today I wonder why we do not have this subject as part of the higher education system.
Stay safe and take care!