The Five Best Ways to Run Out of Money.
Regardless of how many zeros are in a paycheck, people typically spend what they make and then some. The path to financial ruin is paved with good intentions. The items listed here are all within your control like spending and savings.
Here are the five best ways to run out of money.
No budget. A lack of a budget is the first step to running out of money. Without a budget it’s not possible to get a handle on your spending. A budget will help you identify the good, the bad and the ugly of your spending habits. What is the best way to prepare a budget? I recommend reviewing your credit card and bank statements to see where your money has gone. This initial review of your spending habits will give you the framework for your budget. You can also compare your spending to others with the Consumer Expenditure Survey found at www.bls.gov/cex.
Spending more than you make. If you make $1 and spend $2, you will run into financial Armageddon. Are there items in your budget you can remove or eliminate? Let’s say you’re a foodie and eat out three times a week with an average restaurant tab of $100. At this pace you would spend $14,400 on fine dining during the year. If you cut your dining tab in half and invest the money at 7%, you could end up with over $312,000 in twenty years. The less you spend, the more you’ll have.
Keeping up with the Joneses. If you’re in an arms race with your neighbors, you’ll lose. Do you need a bigger boat, a faster car or a country club membership? A neighborhood country club membership may cost you $1,000 per month (golf, tennis, pool, food, tips, etc.). A twenty-year member can spend over $328,000 on green fees and bacon wrapped shrimp. Spaulding!
No savings. The lack of savings is troublesome. According to the Huffington Post 73% of Americans can’t cover six months of family bills. It’s recommended to keep six months of expenses (or more) in savings. Once your budget is finished, you’ll be able to calculate how much money you should sock away in a savings accounts. With a savings account you can use it for emergencies and opportunities without relying on debt.
Too much debt. I’ve had more than a few people tell me they have no debt except for a home mortgage and a car loan. A mortgage and a car loan is debt and too much of it can bring down the house. According to the Motley Fool, credit card debt is $882 billion, auto debt is $943 billion, student loan debt is $1.2 trillion, and mortgage debt is $8.13 trillion. Big numbers. The less debt you owe the better your balance sheet will be. Your total debt payments should be no more than 36% of your gross income. If your annual gross income is $100,000, your debt payments should be $36,000.
The good news in the bad news is you can control how much you spend and save. Less of the former and more of the latter will put you on solid financial ground.
Therefore, everyone who hears these words of mine and puts them into practice is like a wise man who built his house on the rock. Matthew 7:24
Bill Parrott is the President and CEO of Parrott Wealth Management, LLC. www.parrottwealth.com
 Jillian Berman, Associate Business Editor, Huffington Post, updated 6/24/2013, http://www.huffingtonpost.com/2013/06/24/americans-savings_n_3478932.html
 http://www.fool.com/investing/general/2015/01/18/the-average-american-ha..., accessed 6/6/16.