Here's Your Plan To Move Your Finances Past 'Survival Spending'
"Survival spending" refers to using income primarily to cover immediate expenses, like rent, utilities, groceries and debt payments. When you’re in that situation, a lot of modern personal financial advice simply doesn’t apply. How can you set aside a year of expenses in an emergency fund, contribute 15% of your income to your retirement plan and pay off all your high-interest debt when you can barely cover your monthly bills?
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A recent survey from Beyond Finance and Operation HOPE found that nearly 80% of Gen Z and millennials are relying on survival spending just to get by.
The first step is to make a plan. Survival spending can be managed on a temporary basis, but it becomes dangerous when it turns into a permanent financial lifestyle. Here are some steps you can take to prevent that from happening.
Evaluate Your Finances Honestly
The first step is figuring out whether your budget is broken beyond repair or simply going through a tight stretch. The answer to this question can push you in two different directions.
If you’re going through a job transition, have some temporarily elevated bills or recently made a big purchase, time is usually enough to solve the problem. In that scenario, temporarily tightening your belt by eating at home, watching TV instead of going to the movies and saying “no” to more social events than usual could get you through the rough patch.
But if your regular operating mode involves constantly upgrading your lifestyle, living off your credit card and living in a home you can’t truly afford, you’ll have to make a more substantial overhaul.
In that scenario, you might have to make some hard decisions. As per Chase, the common financial advice is to spend no more than 28% of your gross income on all of your housing costs and a maximum of 36% on all of your debt.
If you exceed those amounts, you might have to make structural changes to your lifestyle. Cutting out your daily coffee won’t do much to dig you out of survival spending. Start with your biggest expenses, which for most people are housing and transportation. Consider downsizing, moving to a more affordable area or even selling your home and paying rent instead. If your car expenses are high, one option is to sell it and pay cash for a reliable used car.
Build a Small Emergency Buffer
Even if you’re living paycheck to paycheck, it’s imperative to build some type of emergency fund. In fact, it becomes even more important if you’re just scraping by. Without an emergency fund, any number of life’s little surprises could drive you further into debt, giving you an even bigger hole to climb out of.
While a reserve fund of six to 12 months of expenses is ideal, you don’t have to shoot for this right out of the gate. Start with just $100 at first, then slowly bump that up to $500 and then $1,000. That’s it. That should be enough to cover many of the most common emergency expenses, from car repairs to dental or medical co-pays.
Even a small buffer like this can go a long way towards keeping you out of further difficulty.
Separate Stress Spending From Actual Needs
Another important shift is learning to separate stress spending from true needs.
When times are tight, many people spend emotionally as a form of pressure release. It’s hard to work long hours and still be in survival spending mode, so it’s only natural to feel like you “deserve” to spend some money on yourself.
But if money is tight, there’s obviously not much room for discretionary spending.
To overcome this difficult situation, consider putting a “planned relief” category in your budget. This can be a small amount of money that allows you to enjoy yourself guiltlessly while still containing your spending. Perhaps most importantly, it acts as a pressure valve so that your desire to spend doesn’t explode into a financial meltdown.
Avoid Viewing Financial Progress as 'All or Nothing'
Financial progress is a path, not a single event. Many people delay saving or investing because they feel they can’t contribute enough to matter. But small consistent actions create momentum. Small wins today can translate into big victories over time.
If you’re relying on survival spending to manage your finances, the road ahead may seem difficult. But it’s a path that just requires one step at a time.
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This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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