How to Be Better Than ‘Average’ When It Comes to Money

american debt

When you come across statistics about how the average American handles money, it’s easy to feel really good about yourself. If you’re outperforming the average, you probably feel reassured.

But when it comes to money, beating the average isn’t enough.

The average American is, well, bad with money. As a nation, American debt is staggeringly high. We have little in savings, low retirement balances, and carry loads of debt.

Instead of comparing yourself to the average person, use other calculations and tools to evaluate your finances. That approach will give you a more accurate picture of your security.

Here are four areas you can outperform the typical American — and be better with your money.

1. Emergency fund

Nearly 50 percent of Americans can’t come up with $400 in an emergency, according to The Fed. That’s not just people who are low-income either. That percentage includes middle-class and even high-earning individuals.

We tend to spend money as soon as it comes in, meaning that a single unexpected car repair or medical bill could wipe out our savings and leave us desperate.

If you have $400 in savings or a bit more, don’t get too complacent. That’s not nearly enough to care for you or your family in an emergency. A small crisis would empty your bank account, and a major event such as the loss of a job would be a complete disaster.

Instead, you should aim to save six to eight months of living expenses in an emergency fund. If you lose your job or have a medical emergency, you’ll have plenty of breathing room if you save that much.

Putting that much money away might seem impossible. But building a regular savings habit and contributing every month will help you see results over time.

2. Retirement savings

The average retirement savings is difficult to calculate because so many people don’t have anything saved for retirement at all. The median retirement account has between $10,000 and $25,000 saved, according to a Government Accountability Office report. This leaves most people grossly unprepared to retire.

For a simple calculation of how much you need, experts recommend multiplying your income by 25. For example, if you make $50,000, you would need $1,250,000 in retirement.

When you’re starting out and struggling to make ends meet, saving over a $1 million can seem like a pipe dream. But by taking advantage of compound interest and employer-offered retirement accounts and contribution matches, you can build a large nest egg.

3. Student loans

Student loans have become the norm when it comes to paying for college. Over 44 million borrowers have student loan debt and 2016 graduates walked away with an average loan balance of $37,172.

Keeping up with the minimum payments isn’t enough. If you had $37,172 in loans with a typical 5.7% interest rate, it would take you 10 years to pay them off with a monthly payment of $407. You would pay $11,681 in interest charges on top of your original amount.

Such a large debt can keep you from pursuing other goals, such as getting married, moving, or starting a business. Instead, you should accelerate your payments by increasing your income or refinancing to get a lower interest rate. This will help free you from the burden and save you money over time (see for yourself using our calculator below.

Student Loan Refinancing Calculator






4. Credit card debt

The average household with debt has a credit card balance of $9,600, according to Credit card debt can be difficult to overcome. High interest rates cause the balance to balloon, so you end up paying far more over time.

Minimize credit card debt by tracking your spending, using a cash budget, or making extra payments. This can save you money and prevent your balance from getting out of control. If you use credit cards strategically and pay off the balance in full each month, you’ll be in far better shape than most people.

If you don’t know where to begin, credit card consolidation can help you manage your debt by reducing your interest, so more of your payments go towards the principal. With this approach, you take out a personal loan and pay off your expensive credit cards. If you have discipline, consolidating your debt can help you take back control.

Managing your finances

While it can be comforting to compare yourself to the average American, it’s important to keep things in perspective. The typical person is not where they need to be when it comes to money. Many carry high debt balances and don’t have a positive net worth. Those issues can have long-lasting consequences for their futures.

Instead, focus on your own unique situation and personal financial goals. By not comparing yourself to others and prioritizing your debt and savings, you can build financial security.

For more information about improving your finances, check out these money-saving life hacks.

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