November 2, 2024

Decrease taxes? Build more homes? Whatever avenues policymakers are considering to address the financial squeeze some Americans are feeling during this period of inflation, high interest rates and tight housing supply, those could bring relief years down the line. That’s cold comfort for people who aren’t sure how they’ll afford rent or a utility bill next month.
But in some situations, people can change habits so they’re leaning less on credit — whether by spending less or making it a priority to tackle their debt.
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If you’re spending more than earning, here are some finance DIY tips from professionals.

A July Bank of America analysis of its non-business bank accounts suggests that a number of its customers tapped reserves this spring.
The study, which only sheds light on a partial snapshot of consumer finances — based on the first quarter of 2022, and looking at the bank’s own customers — found that around 20 percent of customers saw a net loss, depositing 85 cents or less for every dollar they took out.
Interestingly, higher-income people were more likely to have this gap between their income and expenses. While the report didn’t include data on where money was headed, David Tinsley, a Bank of America senior economist and the report’s author, said people with higher incomes might be funding investments or paying for things while counting on a bonus. They also tend to be older, so they might be paying for college or have large house payments. For middle and lower-income families, incomes go more toward housing and basic expenses, and as those costs rise due to inflation, their budgets get stretched.
It’s also not clear if these account holders are regularly tapping savings or if the months that were studied mark a shift. But, Tinsley added, having this kind of data is a starting point. “If someone’s outgoings are more than their incomings it at least makes you want to ask why this is the case and whether it’s sustainable,” Tinsley said.
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‘Running out of options’: A San Diego worker and his employer are wrestling with rising prices.

Greg McBride, chief financial analyst at the personal finance website Bankrate, said anyone who’s overspending or having trouble saving should audit their expenses to get their own data.
“That’s a fundamental starting point for someone who is running out of money before they’ve run out of the month. You have to know where the money is going,” McBride said. It’s a good habit for everyone, he added.

For people with some disposable income, McBride shared some tough love about rethinking spending patterns at a time when needs cost more, and there’s less money left for wants.
“Just as it is a lot more fun to eat what you want, when you want and not have to count calories or restrict your intake, it is a lot more fun to spend freely and without a care in the world than to track spending and say ‘no’ to yourself on things you want,” he said. “But discipline is a necessary ingredient to success — whether it is finances, diet, exercise or anything else you want to be successful at. That is easier said than done, and that’s why not everyone does it.”
Bankrate has a budget calculator that can help you piece together a detailed snapshot of your monthly income and expenses.
Unlike food stamps, low income utility assistance and help paying rent, many food banks and community pantries are open to anyone who needs food.

Chris Carter, a spokesman for the Jacobs & Cushman San Diego Food Bank, said a prime demographic of the bank is people who work but can’t afford basic needs. “These are often two-parent families with both parents working multiple low-wage jobs but struggling to pay basic expenses,” he wrote in an email.
But people at a range of incomes visit food banks to get by between paychecks. Recently, he added, that range has been widening.
“Many folks are struggling even more now,” Carter said.
Though the San Diego Food Bank doesn’t collect data on its customers’ household debt, anecdotally, Carter said many families picking up food brought up the debt they accumulated “just to get through the pandemic. Now these families, who have high household debt, are having to contend with soaring inflation and are turning to the Food Bank for help. And without savings, the families we serve are getting by paycheck to paycheck.”
Along with food, the bank provides diapers and women’s sanitary products. For locations, visit: https://feedingsandiego.org/find-food/.

People weighed down by debt today are paying for purchases they made months or years ago. Plus the cost of borrowing that money, which keeps getting steeper as interest rates rise. “The squeeze that households are feeling now can be compounded by decisions that had been made a year or two ago when they were perhaps on better footing,” he said.
Only now, they’re squeezed by inflation, too, which in turn is feeding more debt.
“For a lot of households, with inflation at a 40-year high, there’s probably a gap in the budget. And, unfortunately, credit is filling that gap for some,” McBride said.
But using credit cards is especially risky today, considering that annual interest rates are at their highest since 1996, topping 18 percent. Charging $1,000 for something you could wait and save up for — say, a family outing at Disneyland or 10 nice dinners out — will cost around $1,540, given 18 percent annual interest and a minimum payment of $25. (Even more, if you consider that the interest you paid is money you could have invested.)

His advice: Pay yourself first.
“You’re paying much higher prices for purchases and if financing those with a credit card, are doing so at the highest rate in decades, mushrooming the total cost. Paying yourself first through direct deposit and tracking your spending to hold yourself accountable are fundamental to good financial management,” McBride said. “Challenge yourself by making a game of how much you can NOT spend, or how much you can put in savings. Up the ante to save more next month.”
For people with a lot of debt, a nonprofit credit counseling agency can set up a budget and a manageable repayment plan with creditors. When to get this kind of help: “If you’re having trouble keeping up with your debt payments, are taking out loans in order to make other debt payments or keep adding debt rather than paying it down,” he said.
He recommends finding an accredited agency at the National Foundation for Credit Counseling.
Bankruptcies are at historic lows. At the Southern District Bankruptcy Court, which covers San Diego, there were 261 Chapter 7 and Chapter 13 filings in January. But they’ve been inching up every month since that low, reaching a combined 298 in May, the latest data posted by the court.

Some watchers of consumer borrowing trends expect more bankruptcies to come. Card limits are rising, along with balances. In parallel, people are increasingly falling behind on payments. “Transitions into delinquency ticked up,” wrote the New York Fed about the second quarter of this year. They remain low compared to historic trends.
Christine E. Baur, a San Diego bankruptcy attorney, said certain features of the economy are making it more likely people will file for bankruptcy. “There is some anticipation that filings may increase for the second half of this year due to some economic turbulence,” Baur said.
She pointed to costs of goods rising because of global supply chain issues, the juxtaposition of interest rates and mortgage rates rising while housing prices cool, and the end of COVID-era government stimulus programs and consumer protections, such as moratoriums on evictions and foreclosures, that kept bankruptcy filings low.
Baur said bankruptcy might be the answer if someone has “unexpected financial distress” like medical bills. Likewise, if someone’s “fundamental financial factors of life” became too overwhelming, she added.
One sign that it’s time to consider filing? When not doing so becomes more painful than bankruptcy’s cost, which is potentially “a seven to 10-year negative effect on your credit report,” Baur said.
“If they are getting sued by creditors for collection actions and now they’re getting harassed by collection agencies or they’re having a lawsuit filed against them that they have to defend, once creditor aggressiveness escalates to a point that it’s really unmanageable and untenable for that person, that is often a point where they will turn to the bankruptcy process for relief, for a refuge,” Baur said.
Charity Falls, Union Bank‘s head of wealth planning, said practicing good money habits when you’re struggling financially can help you get out of trouble and then keep you thriving once you’re better off.
She works with high-net-worth families. Her advice to them might sound familiar: “The first step is really to track your spending because then you’ll understand kind of what’s going in, what’s going out. At that point it’s easier to cut something out and begin saving for — say you want to buy a home or some larger expense.” To decide where to cut, draw a line between what’s optional and what’s essential, based on your priorities.
A lot of her clients are people who came from limited means and ended up wealthy through work and discipline — and not family money. She remembered one client who sold a business for around $30 million. Falls asked him how he got started. “He said, ‘I got laid off. And I had two kids to feed and a wife. I had to do something.’ It was being in dire straits that pushed him to be creative and come up with this business idea.”
Jeff Jones, chair of the National Association of Personal Financial Advisors, said financial planners work with people with various financial profiles.

“There’s a misconception that you must be wealthy or ‘high net worth’ to work with a financial planner. We each start our own financial journey at different places, and some of us start from scratch,” he said.
Fees can be hourly, project-based, flat rates or as a percentage of managed assets. Planners with NAPFA “never earn a commission from the investments they recommended, nor will they sell you products,” Jones said.

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