November is financial literacy month, so inevitably there will be a slew of articles expressing the virtues of improved financial knowledge.  This will not be one of those articles.  There is no doubt that improving an individual’s financial knowledge would help fix a lot of the expensive and self-inflicted problems consumers create for themselves in finance.  Two very common, and often repeated, mistakes consumers make with investments is what’s called chasing performance.  

First, many will invest in the latest fads, think meme stocks and cryptocurrency.  The problem is that they typically know very little about what they are investing in.  However, FOMO takes control and compels consumers to make unwise money decisions.  Second, consumers will follow advice and advisors about achieving returns that exceed the market over time, that is counter to nearly all empirical research.  Very few advisors have shown an ability to beat the market over a 15-year period.    

While mistakes like the two shared above can cost people a lot of money, they do not represent the primary reasons that people run into money problems.  Let’s explore one BIG issue that accounts for the majority of household money problems.

Low income

Low income is traditionally defined as families who earn less than 200% of the federal poverty level.  In 2022, the federal poverty level for a family of four is $27,750.  This equates to an average hourly wage of $13.88 for 2 income earners (assuming a 40 hour work week for 50 weeks of the year).   Low income families are thus best defined as families whose hourly earnings are near minimum wage.  

As a result, low income families tend to spend a larger portion of their budget on housing and transportation, which crowds out other spending items.  Some lower income families will spend up to 60% of their income on shelter and mobility versus 25% for higher income families.  Is it any wonder why low income families can’t pay a surprise bill?  They are spending nearly every dollar on putting a roof over their families head and don’t have emergency savings.  

So, what can low income families do to ensure that a surprise bill doesn’t bankrupt them?  Most importantly, they can apply for financial assistance.  There are many programs available to help families that might be negatively affected by a bill.  Second, they can create and maintain a strong credit profile.  Access to affordable credit is available for consumers with a good credit rating, regardless of income status.

Credit is one area where we have seen low income families make unwise money decisions.  Credit card debt is very expensive, so carrying a balance on your credit card is a substantial tax on your wealth.  We appreciate that all families may not be in a position to eliminate their credit card debt, but consolidating debt into the account with the lowest interest rate could save families hundreds to thousands of dollars.  

Families should take these steps to get started:

  1. Review the APR of your credit cards;
  2. Find the highest APR card and find a way to immediately transfer the balance;
  3. Search for balance transfer opportunities with other credit cards    

Improve your financial situation using Iryss

As with most things in life, we can’t control what comes our way, but we can very much choose how we respond. A sound financial plan is an excellent way to prepare for your future, regardless of where you find yourself today. Let a specialist like Iryss guide you in the right direction.