Is Your Financial Optimism Smart?

Debt, Financial Security, Saving Money, Savings

April 11, 2019

According to a recent Gallup poll, Americans’ optimism about their finances is near a record high. The poll shows 69% of people surveyed said they expect their financial situation to improve over the coming year. The all-time peak was in 1998 when 71% were optimistic about their finances.

I love optimism. It is the best way to navigate life. If I have one wish for you it is that next week, next month, next year, and next decade you indeed build financial security.

But optimism must be paired with being realistic. Based on our record borrowing, I don’t think Americans’ financial optimism is rooted in reality.

We ended 2018 with $13.54 trillion in household debt. Yes, I said trillion. That’s more than the 2008 peak leading into the financial crisis.

The nearly $900 billion in credit card debt surpasses the pre-crisis high. The $1.4 trillion in student loan debt has doubled over the past decade. The amount of auto loan debt has ballooned from around $800 billion in 2008 to nearly $1.3 trillion today.

And yet 40% of households in a federal survey said they didn’t have enough money in an emergency savings account to cover an unexpected $400 bill.

That doesn’t make me feel very optimistic.

The fact is, right now is a great time to take steps to build up your financial security with high employment rates and wages rising.

Are you getting a tax refund? Use it to pay down credit card debt.

Are you in line for a raise or bonus? Promise yourself that it will go toward paying down high-rate debt or building up your emergency savings.

And look for ways big and small to spend only what you need. For instance, if you are thinking of buying a home, focus on how little you can borrow to get it. This is the single biggest way you and your family can live within your needs but below your means. And that’s my #1 rule for living a life where your financial optimism will match your reality.

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