1. Save more, regularly. Among the survey respondents, 44% of those who saved the most from month to month described themselves as “very” or “extremely” optimistic about their future finances. And 40% of those having the highest savings balances expressed similar optimism. But even among those with the lowest savings balance, 57% of those who consistently put money into savings also expressed optimism about their financial future. These findings show that financial optimism does not depend on how much one has already accumulated in savings--rather, it’s the practice of saving, itself, that creates an emotional lift.
2. Pay off your short-term debt. Carrying too much credit card debt and personal loan balances can greatly reduce an individual's or family's optimism about their future finances. In the survey, only about 35% of survey participants said they feel “very” or “extremely” financially secure from month to month, and only about 34% expressed optimism for their financial future. But among those with high short-term debt, expressions of financial optimism went down to 20%. What’s more, those most concerned about their debt are more likely to feel financially “stretched” from month to month--and are the least likely to make saving and investing a priority.
3. Increase your savings-to-debt ratio. One of the most important results of the study is that an individual or family can have some debt and still feel financially secure--as long as they’re disciplined in their approach to savings and diligent in their payment of debt. The savings-to-debt ratio thus appears to be a very important contributor to feelings of financial optimism, since as one’s savings-to-debt ratio increases, feelings of financial security increase, and feelings of being financially “stretched” decrease.
4. Come up with--and stick to--a financial plan. The survey shows that individuals and families having a financial plan are more likely to have a high savings-to-debt ratio than those without a plan. And this is consistent across all incomes, indicating that a family earning $50,000 per year can achieve the same level of financial optimism and confidence as a family earning $100,000 per year or more--if it is managing money according to a sound financial plan. 45% of survey respondents with a financial plan reported feeling “very” or “extremely” secure financially, compared to 31% of respondents without a plan. Finally, persons having a financial plan expressed significantly more confidence in dealing with financial matters than those without a plan, and they reported greater confidence in their ability to retire comfortably.
The message is simple: save more, pay off your debt, and take control of your finances by living by a financial plan, even a simple one. Visiting Investor Juan regularly is a good first step, and we'll always be here to support you the moment you take your next.