Everybody is different when it comes to spending habits. Some may argue $150 is better spent on prime football game seats than a trip to Sephora — while others might say it’s better left in the bank altogether.
But with habits that impetuous, financial distress can happen in a flash.
To avoid the fiscal merry-go-round, we sought the advice of local financial planners on how to keep your wallet balanced and happy — and what the warning signs are if you’re in too deep.
Mark Eskin, executive vice president and wealth management at Stedmark Partners of Janney Montgomery Scott in Center City, said people tend to know in the pit of their stomach when their finances are starting to spin out of control.
“If bills every month are more than the income coming in,” he explained, “the sooner you can figure out a way to slow that down and reverse it, the better off you’re going to be in the long term.”
More than half of Americans have less than $1,000 in their savings accounts, according to a recent GOBankingRates survey.
A simple method for thoughtful budgeting, Eskin suggested, is to lay it out in black and white: Write your income on one side and your needs, wants and costs on the other, like housing, food, electric bill or gas.
He recommended bankrate.com as a useful tool to understanding the basics of mortgages, students loans, debt consolidation and budgeting.
The goal sounds simple enough: to save more than you spend.
“That basic formula applies for people at the start of their earnings career as well as for people closer to retirement,” said Eskin, who is on the board of trustees and board of directors, respectively, for the Madlyn and Leonard Abramson Center for Jewish Life and the Endowments Corporation of the Jewish Federation of Greater Philadelphia.
You can’t control the stock market, interest rates or inflation, but you can control how much you’re earning — to a degree — and mostly, how you’re saving.
“The expression is trite, but pay yourself first. Set some money aside every single pay period into an account that you’re just not going to touch, barring an emergency, for the long term,” Eskin said, “and then use what’s left.”
Direct deposit is a helpful tool for that, since you can set aside money automatically in a separate account that isn’t attached to your credit cards. “It’s not as visible so you’re less likely to spend it.”
Another way to get a jump start on saving is to participate in your employer’s 401(k) plan, if possible, and do so at the minimum amount required to receive an employer match.
If budgeting is a struggle, stick to a debit card to avoid overspending — and don’t accept every credit card offer you receive.
Credit card debt is the most toxic kind of debt, Eskin said, with its high interest rates that can affect long-term credit scores.
The average American household has $137,063 in debt, according to a report by the Federal Reserve. On average, $16,883 is from credit card debt, most likely due to the 30 percent increase in the cost of living in the U.S. over the past 13 years, leading to people using credit cards to pay for basic needs.
But Peter Hecht, first vice president and wealth management at the Hecht Investment Group of Janney Montgomery Scott in Mount Laurel, N.J., said his best advice is not to panic.
“The biggest fear that people have is that they’re going to outlive their money,” he said, whether that’s thousands or millions. “What we try to do is look at their spending rates, their saving rates and … try to reassure people or suggest they may have to cut back on their spending.”
Mortgage debt is more acceptable than credit cards, Hecht noted, because the rates aren’t as high. “You really should be able to pay off your credit cards from month to month,” he added.
And when it comes to investments, Hecht advised if you don’t understand what a financial planner is talking about, don’t go through with the investment.
“There are many other investments out there. We don’t care what the neighbors are doing; we try to model it specifically for that person,” said Hecht, who helped manage the Jewish Federation’s 401(k). “Markets don’t blow whistles and wave flags that they’re turning down … or when they start to bounce up again, so it’s really a matter of proper asset allocation.”
Robert Lankin, branch manager of Raymond James Financial Services, Inc. in Glenside, credits the biggest budgeting issues to housing costs.
“If your mortgage payment including taxes and insurance, or your rent payment, is over 28 percent of your take-home pay, that’s where your trouble starts,” he said. “When you add the car payment and other debts, the total should not exceed 36 percent.”
With high spending costs and a trend in people not buying health insurance, Lankin added that is a major cause of bankruptcies.
“You can have an accident tomorrow and be in perfect health today,” he said. “If it is really late, the ultimate remedy is to drastically cut expenses. You can have a happy life with extremely modest expenses. The bigger problem is for people who are unable to care for themselves.”
Although there are ways to prep for good financial health — like completing wills, filing taxes and signing up for life insurance — the warning signs of a downward spiral are never totally blunt, and “no one will ring a bell before [mistakes] are made.”
Even when it comes to budgeting in your Jewish activities, Lankin reminded people to be responsible, but don’t forget to be reasonable, too.
“If you drive up in your new Lexus or you are complaining about the Bar Mitzvah charges while arranging a $50,000 party, do not expect a lot of sympathy,” he said.
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