Financial Snapshot: How Do Your Finances Stack Up Against the Average American?
Personal finance expert Rachel Cruze recently provided a comprehensive breakdown of the financial status of the average American, covering key areas like income, debt, and savings. While Cruze is not a proponent of comparison culture, understanding where you stand financially compared to others can offer valuable insights. By identifying gaps or opportunities, individuals can make better decisions regarding budgeting, debt repayment, and savings. In this article, we delve into the key takeaways from Cruze’s insights and explore additional considerations that may impact your financial health.
Average Income of American: A Benchmark for Financial Stability
The average annual salary in the United States is currently around $61,900. Cruze points out that “your income is your most powerful wealth-building tool.” Whether you earn more or less than this figure, the most important factor is how effectively you manage that income.
Living below your means is a crucial step toward financial freedom. Budgeting wisely allows for flexibility in saving, investing, and reducing debt. Cruze emphasizes that no matter your income level, developing sound financial habits is key. Are you setting aside a portion of your paycheck for an emergency fund or investments? If not, consider reevaluating your spending habits to make room for these crucial financial steps.
The Debt Crisis: How Do You Compare?
Personal debt in the U.S. currently totals $17.5 trillion. The average American adult is responsible for approximately $66,772 in individual debt, a number that includes student loans, credit card balances, car loans, and mortgages. Cruze highlights that the amount of debt you carry in comparison to this average can be a wake-up call. If your debt exceeds this figure significantly, it may be time to reconsider your approach to debt management.
The Credit Card Conundrum
The average American holds $6,501 in credit card debt. With eight out of ten adults owning at least one credit card, it’s easy to see how many people fall into the trap of revolving credit balances. The allure of rewards programs often masks the higher interest payments that accumulate over time. Cruze warns that credit cards can become a “slippery slope” and advises people to avoid unnecessary credit card use. For those already in debt, Cruze suggests cutting up cards to prevent further financial damage.
The Car Loan Debate: Are They Worth It?
Car loans are another significant debt burden for many Americans. Approximately 35% of households have a car loan, with the average balance sitting at $36,357. Monthly car payments average $738 for new cars and $532 for used cars.
Cruze is particularly vocal about her stance on car loans, stating that they are a “rip-off to the average American.” The general advice is to avoid car loans altogether, but if you must finance a vehicle, Cruze recommends paying off the loan within 18-24 months. If you can’t manage this, she suggests selling the car and opting for a cheaper alternative. This might mean downsizing temporarily, but it can save significant amounts of money in the long run.
Mortgages: The Largest Slice of Debt
Mortgage debt forms the largest portion of American debt, accounting for about 70% of the total national debt. The average mortgage stands at $145,833, with monthly payments averaging around $2,006. Cruze advises taking out a mortgage only if it fits well within your financial capacity. This often means making a substantial down payment to keep monthly installments manageable.
Homeownership is often seen as a key marker of financial stability, but it’s crucial to evaluate whether you’re ready for this long-term commitment. Cruze urges caution, suggesting that homebuyers only proceed when they have a healthy financial foundation.
Student Loans: A Growing Burden
Student loan debt is growing at an alarming rate in the U.S., with the average borrower owing $38,290. According to Cruze, student loans often have a cascading effect on other major life decisions, such as retirement savings, home purchases, or even marriage. It’s essential to tackle this debt as soon as possible to prevent it from hampering future financial goals.
For recent graduates, it’s critical to start paying off these loans aggressively, as they can affect not just your credit score but also your ability to take on other forms of debt responsibly.
Savings: The Key to Financial Health
Though Cruze didn’t go into specific details about the average American’s savings, she did emphasize its importance. Savings and investments play a crucial role in long-term financial stability. Whether you’re building an emergency fund, saving for retirement, or investing in assets, prioritizing savings is essential for financial security.
While averages are hard to pinpoint, most financial experts recommend saving at least 20% of your income. Building an emergency fund covering 3-6 months of living expenses is also a widely accepted financial best practice.
Final Verdict: Financial Comparisons as a Tool for Improvement
In summary, comparing your finances to the national average can serve as a benchmark, helping you identify areas for improvement. However, it’s essential not to get bogged down by numbers. Everyone’s financial journey is unique, and the most important takeaway from Cruze’s analysis is the importance of awareness and action.
Whether your income is above or below the average, the key is in your approach: live below your means, focus on paying down debt, and prioritize saving. With these principles in place, you can work toward financial stability regardless of where you currently stand.