Being financially average is not necessarily a good thing. It means you are just like most people, and while that doesn’t sound so bad, what if most people are in terrible financial shape? If you want to move past financially average and be in an entirely different bracket of financial success, it will help to understand what financially average means right now.
To give you some insight into what a person who is about as financially successful (or unsuccessful) as the norm, here are some statistics:
Average credit score for Millennials is 638, according to Experian
Average credit card balance for Millennials is $4,315, according to Experian
Average student loan debt for Millennials is $33,579, according to The Balance
Average income per person in 2017 is $48,150, according to the Census Bureau
Only 32% of Americans keep a household budget, according to Debt.com
Basically, these statistics show that if you are financially average, it’s safe to say that you have a fair credit rating, about $40,000 in debt between credit cards and student loans, make about $48,000 a year and probably don’t have a budget.
So, when I say “financially average” is not a good thing, now you know what I mean. The scenario above is the financial life of the average person. How can you travel the world in that scenario? How can you pay a house off quickly? How can you save for your children’s future? How can you live comfortably in retirement? Those numbers scare me, and they should scare you too.
So, how do you move past financially average?
Start with the biggest impact – income
In the past, I’ve said that it really doesn’t matter how much money you make, you always need a budget. This is still a true statement, however making more money can help you get to a better financial position faster – if you manage it wisely.
I would suggest getting yourself set up on a budget, based on your current income. Does your current income cover all of your bills and living expenses? Great! If there’s anything left over, it can be applied to a little bit of discretionary spending, saving and debt repayment. If you’re new to budgeting, the 50-30-20 budgeting method can be very helpful.
Once you’ve determined that your current income can cover your life’s necessities, it’s time to brainstorm ways to make more money. Since all of your living expenses are covered with your primary income, anything extra you make can go towards extra savings and debt payments. This is going to help you move past financially average much faster.
Note: if your current income does not cover all of your living expenses and bills, you must increase your income just to break even. This is not a good spot to be in, but you can break through.
Move to the next biggest impact – credit
At this point, you have a budget and you’re hopefully bringing in more money. Now you can work on improving your credit score. You can do this a few ways. One of the most effective ways to improve your credit score is to pay off debt. Find a strategy to knock out your debt and stick to it. As you pay down your debt, your credit score will steadily rise.
If you can’t afford to pay off debt faster right now, there are things you can do to ensure your credit score doesn’t go down. Remember to always pay your bills on time. Payment History makes up the biggest percentage of your credit score. Forgetting to pay your bill on time can hurt your credit score and cost you more money. Check out a few more ways to boost your credit score.
Get yourself on a financial plan
One of the best things you can do for your financial situation is create a budget and set some important financial goals. Another statistic that may shock you is that two-thirds of Americans would not be able to cover a $1000 emergency. As you create your budget and allocate money towards savings and debts, think of the important things everyone should be saving for.
You should absolutely have money set a side for an emergency. Your car dies, you need to catch an unexpected flight, or you get laid off – these are all examples of emergencies that can put you behind financially. Having reserves for those one-off or unexpected expenses can be a financial game-changer.
Not only do you want to think of the financial goals that everyone should have, but you also want to think about the things you want out of life. How can you start saving or investing for those things now? The average person is not saving for multiple goals, nor are they investing to help themselves reach their goals.
Think through your life goals, and write them down. Get specific. Write what the goal is, why you want to achieve it, when you want to achieve it and what you’ll need to achieve it. When you know the amount and timeframe, you can calculate how much you need to save each month to reach your goal. This information is powerful.
Be willing to sacrifice
One characteristic that will help you move past financially average is your ability to sacrifice. If you are able to say no to spending money on things you don’t need or things that will hurt your situation, you will reach your goals a lot faster. Of course, it’s not always easy (that’s why it’s called a sacrifice), but it can make a world of difference in getting you to the next level financially.
I don’t know about you, but I certainly don’t want to be financially average, nor do I want to be a number in the shocking statistics. I want to have the financial freedom to do what I want, when I want. I want to have money in the bank. I want to have an excellent credit score. I want to be financially exceptional, not financially average. What about you? Share your thoughts on what it means to be financially average and what some of your goals are in the comments section below.