Keeping up with all of the expenses in modern-day America has become an exhausting task for many. Some of the demanding bills include high rent, taxes, medical expenses, insurance, gas, groceries and credit card debts. Financial discipline is key for many Americans, especially with rising inflation.
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Financial expert Jaspreet Singh explained on his YouTube channel why Americans run out of money along with what you can do to avoid that fate.
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Why Americans Are Running Out of Money
According to Singh, the main culprit is the super-high inflation ravaging the U.S. Prices of goods and services continue rising, leading people to spend more money on rent, groceries and travel. Maintaining a comparable lifestyle at the same income level while costs go up can lead to a depletion of savings, forcing individuals and families to dig into other sources, leading to instability in the long term.
“People don’t want to downsize their lifestyle, so their income is no longer enough to support them because of inflation,” Singh said. “They dig into credit card debts, refinancing their homes and pulling money out of their savings and retirement accounts to spend more.”
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Consequences of Running Out of Money
The impact of Americans going broke and accumulating debt goes beyond the individual. It can also take a toll on the economy. For the individual, the impact can includes taxes and penalties for pulling out funds from their accounts for basic expenses. According to Vanguard, hardship withdrawals from retirement accounts are still subject to federal and state taxes and a 10% penalty tax before age 51 1/2.
For businesses, the increase in withdrawals from retirement accounts and the increase in debt can lead to less consumer spending over time. With fewer opportunities to expand, downsizing can occur, potentially leading to an economic slowdown.
How Do You Protect Yourself?
“The economy is full of ups and downs despite its growth over the last century, but a lot of people believe it’s OK to spend freely and highly without protection aside from their income. […] But how do you fund your lifestyle if you lose your job?”
Singh recommends a few key financial best practices to protect yourself to ensure you don’t run out of money. The first is to save for emergencies. Then, invest during the market downsides as market stability will keep changing and you can only take advantage of the downsides when you have money. If you’re facing financial hardship, don’t take from long-term investments because they have penalties and taxes. Find other ways to continue funding your lifestyle without debt. The best way to do this is to make financial sacrifices by downsizing your lifestyle and earning more money through a second job, side hustle or business to maintain your lifestyle.
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This article originally appeared on GOBankingRates.com: Jaspreet Singh: Why Americans Will Run Out of Money
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