These are times of economic uncertainty. Foreclosures are much higher than usual. Many people who are paying their mortgage are “underwater” and owe more than their houses are worth. Unemployment remains at levels that are almost unheard of in post-World War II United States. These rates have remained higher than usual for nearly four years. Millions are Americans are nearly drowning in debt and have little hope of paying it off. Many people are beginning to question the validity or even the possibility of achieving the American Dream. Has this goal disappeared for current citizens?
A very smart quote often mentioned when talking about success is that “those who fail to plan, plan to fail.” In the arena of business, this is a true statement. It also applies to personal finance. Most people have little to no idea of how they spend their money. Most Americans live paycheck to paycheck and have little, if anything left over at the end of the month with which to begin building financial security. Those who do have a plan are usually not the fabulously wealthy and famous people often seen on television or internet fashion blogs. They are the people next door who have put off senseless purchases for years to own their own homes and vehicles while saving money for retirement or emergency expenses.
What Is the American Dream?
This can actually vary depending upon the person. A single woman may want to travel the world and own her own home. A married man with children may want to provide for his family, pay off their home early and then retire at 50 to play golf and volunteer at his favorite non-profit charity. Goals and dreams can vary by the person and the stage of life that he or she finds himself or herself in. Personal values often come into play when people develop their version of the American Dream. One thing is sure, however, those who have no dream rarely accomplish much.
Set Goals to Achieve the Dream
There has to be a goal to reach. Americans need to come up with a goal and then work out the steps needed to achieve it. The first steps should be easy to take, so that it is easy to stay motivated when the steps become more difficult. A noble goal would be to pay off all debt. Those with a car payment, student loans, credit card debt and a mortgage may owe well over $100,000. This is not easily paid in one lump sum without hitting the lottery or having a rich uncle die. Debts must be kept up with each month. Failing to pay a bill can lead to useless late charges and higher interest rates that lead to even higher bills.
Pay Yourself First
Saving is difficult. It is necessary to achieve the dream. Many employers allow for automatic deductions to savings or 401(k) accounts. Everyone should take advantage of this option and save something, even if it is only $5, each payday. Even small sums can add up to large amounts over time. The proper time to start this process is now to take full advantage of the time value of money and compounded interest.
How Much Money Is Necessary to Achieve the Dream?
Formulating a budget is something that many Americans fail to do. It is impossible to know how a person stands financially without knowing how much money is coming in and how much is going out. A budget allows for the easy tracking of income and expenses. Those who have more expenses than income have two options. First, they can try to cut expenses. Some expenses are easy to cut. A cup of water from the water fountain at work is free. An espresso from the local coffee shop is going to cost at least $3 a day. Switching drinks could easily save $60 a month from the cost category. Some people have cut all they can cut, however. These folks may need to find more income to make up the difference. Using the internet to sell a few items around the house can offer some extra money. Getting a part-time job or providing a service for local residents such as mowing laws can provide extra money that can make up budget shortfalls. Taking time to assess financial needs is a necessity to make a plan of action.
The “Debt Snowball”
One method of achieving financial independence that has become very famous in recent years is the idea of the “debt snowball.” This method recommends paying the least amount due on each outstanding bill each month. Any extra money available after paying the minimum should go to the smallest debt until that debt is paid off. After paying off the smallest debt, the money used to pay off that debt can then go toward the next smallest. The amount available for payment will be larger with the paying off of each successive debt. Repeat the process until all debts are paid off. The debt snowball method allows Americans to become debt-free more quickly than they might otherwise have done.
Financial plans will differ by household. Goals as far as travel, homeownership or retirement will vary. One thing is necessary, however. A financial plan is the only reliable way to achieve ones’ financial dreams. The dream and plan may need tweaking at a future date, but those who plan are more likely to meet success than those who do not.