Americans Are Spending Like There's No Tomorrow..

What's up you guys, it's Graham here, and this is getting out of hand. According to the Wall Street Journal, Americans are still spending like there's no tomorrow, with the average consumer splurging on events, concerts, vacations, and experiences, all while they're quickly running out of money. Essentially, for more and more Americans, the economy has gotten so bad and future prospects so hopeless that they've shifted to an attitude of reckless spending, now that it can't possibly get any worse. That's a huge problem.

After hearing various stories of blowing down payment money at bachelor parties, financing $110,000 Maui vacations, and spending retirement contributions on fine dining and luxury handbags, let's discuss exactly why this is happening, how this is about to have some serious repercussions throughout our entire economy, and what you could do about this to come out ahead. Because most people don't realize that there are some very easy ways that you would be able to save a lot of money very quickly, and everything that you need to know is right here in this video in the next 15 minutes.

Although before we start, as usual, if you appreciate all the information or you find it helpful, all I ask in return is that you smash the like button by making it turn blue, or subscribe if you haven't done that already. So thank you guys so much, and also a big thank you to Headspace for sponsoring today's video, but more on that later.

All right, so to start, if you thought the situation was bad, chances are it's a lot worse than you're expecting. This article starts by saying that despite rising interest rates, higher inflation, and shrinking savings, American spending has not slowed down; instead, it's skyrocketed. Why is that, you might ask? Well, according to economists, a tough housing market has more consumers writing off something they'd historically save for, while the pandemic showed the instability of any long-term plans related to health, work, or day-to-day life. So they're spending on once-in-a-lifetime experiences because they worry they may not be able to do them later.

This includes one millennial who, instead of saving for a house after getting engaged, splurged on Taylor Swift tickets and a $3,500 bachelor party in AA, saying, "I might as well enjoy what I have now." Another millennial couple decided to go $10,000 into credit card debt to fund a Maui vacation after quitting her job, being quoted as saying, "We didn't have the money, and we were like, let's just do this anyway." Or how about this other couple who diverted their retirement savings into a bucket list fund, which has been used to try fancy restaurant tasting menus and buy a dream designer handbag?

So what on earth is happening? Well, the Wall Street Journal did some investigation, and according to the people who are spending like there's no tomorrow, these are the reasons why. First, there's a good job market. This means that the average American is more comfortable about being able to maintain their income in the event of a downturn. The good news is that, objectively, the unemployment rate is now one of its lowest levels ever in history at 3.7%, which is almost near the five-decade low of 3.4%.

However, the flip side to this is that, so far throughout history, unemployment has never been able to sustain below 4% without hitting a recession. Permanent job losses are rising, with more and more people being forced to take on second jobs, and the yield curve is so inverted that the probability of a downturn could be unavoidable. But until then, sure, everything is fine.

The second reason is that Americans are playing with house money. Thanks to the pandemic, it's reported that Americans collectively pocketed about $280 billion from tapping the equity in their homes and saved about $120 billion from refinancing, allowing them to spend a lot more money than they would otherwise. How? Well, just consider that prior to 2020, the average mortgage interest rate was somewhere around 5%. But after they lowered interest rates to zero, homeowners were able to refinance those rates to record low levels. That adds up quickly. For example, someone with a $300,000 mortgage would be able to save $400 a month every single month for the next 30 years by refinancing from 5% to 3%. And that $400 is extra money that could easily be spent since technically, with some mental gymnastics, it's free.

The third reason is excess savings. This refers to all of the extra money that Americans were able to accumulate by staying home, not spending money, receiving stimulus checks, collecting unemployment, and seeing a surplus deposited into their bank account. The problem, however, is that so far, American spending has not slowed down whatsoever; it's just continued. Since the pandemic, spending across nearly all categories has increased by roughly 40 to 50%, often above the rate of inflation. This suggests that Americans are running out of money, and experts are warning that it's only a matter of time until eventually, they run out completely.

The fourth reason is that people are adopting a buy-now approach. See, the fact is for the majority of products and services, prices have increased each and every year since 2020. So people are now taking the approach that it's better to buy today than wait and risk prices going up even more. Finally, the fifth reason is that people are adopting a new outlook on life. It made them appreciate what they were missing out on or just how quickly things could change. So they're choosing to live it up today. Like one of the people being interviewed said, "I want to be more than just a person who works all day for clients and comes home and works all night for the children, and I don't really do anything for me." That is equating to more of a YOLO mentality today, and that doesn't bode well for the future of the economy.

So given the declining savings rates and potential hazards coming very soon, let's discuss exactly what this means for you, the repercussions throughout the entire economy, and then finally what you've all been waiting for—the secrets to saving a lot of money very quickly. Although before we go into that, I think it's really important to mention that more than half of adults say that personal finance contributes to their mental health struggles. When you really dig into it, it's a lot more prevalent than you think.

I mean, just on the surface, 94% of workers feel stressed at their job. 55% hold on to some level of stress throughout the day. And when it comes to saving money, the seemingly minor struggles could easily be holding you back. Even for myself, I truly believe that the foundation of healthy habits, reaching long-term goals, and following through with any new endeavor has to start with mental clarity first, and that's something I've been actively working on. Now, part of that has to do with reevaluating the best direction for myself, and meditation has helped with that tremendously.

I know I don't usually talk about this aspect here on the channel, but our sponsor Headspace gave me a free trial to their services, and it wound up making a huge difference. For those unaware, Headspace helps its users build lasting healthy habits with solutions for improving focus, getting better sleep, reducing stress, and more.

Like I’ve been starting off each day with a guided meditation to help visualize what I want to improve. Later, I'll hit the gym by doing some light cardio with several of them voiced by Kevin Hart. Yeah, no joke, he's in my ear rooting me on to keep going. At the end of the day, I could either end it off with some mindful relaxation before going to bed or I could listen to some sounds to help me focus while I finish off some work.

Whether you need support navigating larger events, handling daily life movements, or just achieving the best version of yourself that you could be, Headspace could help. I also highly recommend it for anybody who wants to take control of their life in 2024. Be purposeful about each and every one of your actions, and achieve what you set out to do—like improving your personal finances. Not to mention, if you want to see how Headspace might be helpful for you, you could try it out completely for free for 60 days just by using the link down below in the description or scanning the QR code to get started today. Again, all the information is down below in the description to get started. Thank you so much, and now let's get back to the video.

All right, so in terms of how you could save a lot of money fast, we need to start with the basics, because for most people it's bad. For example, it's recently reported that the African-American only saves 5% of their income. The median savings for those under 33 years old is just $3,240, and nearly one in four households has absolutely no emergency savings at all. On top of that, for half of all Americans, their spending either meets or exceeds their annual income, meaning it's only a matter of time until everything eventually implodes.

So one method for alleviating this and eventually building substantial wealth is what Dave Ramsey calls the zero budget method. With this strategy, the goal is that every single month your income and expenses should equal absolutely zero. So that way, every single dollar is allocated and has a specific purpose. For example, let’s just say if a take-home pay is $5,000 a month, assuming your expenses are $4,500 a month, you would find a place to allocate that remaining $500, so that the end magic number is zero.

Now, this doesn't mean that you'd go and recklessly spend the money so that you have nothing left, but it does mean that you find a specific purpose for every single dollar so that that way, there's nothing that falls through the cracks. Now, of course, if you can't get to zero because your expenses exceed your income, then you need to do anything possible to cut back while taking on additional work to earn extra money. Plus, according to Dave Ramsey, it really quickly works.

Although in terms of how much you could actually spend throughout every category, here's where things get interesting. One method for doing just that is called the 50/30/20 rule, and it's really simple: 50% needs, 30% wants, and 20% savings. Basically, half of your overall budget should go to the absolute necessities that you can't possibly live without. This could include the cost of rent or mortgage, health insurance, food, utilities, minimum cost of debt payments, or the cost of maintaining a vehicle. To find this number, just go through your expenses line by line and ask yourself on each one, "Can you live without it?" If the answer to that is "No," then this becomes your bare minimum that you need to get by every single month in a worst-case scenario.

From there though, we have another 30% that's allocated towards wants, which is another word for discretionary spending that you don't absolutely have to indulge in, like eating out at restaurants, pursuing hobbies, paying for subscription services, gym memberships, traveling, shopping, or going out with friends. This could also include the cost of upgrading some of the needs category, like living in a nicer place, driving a nicer car, buying more expensive groceries. In other words, if you could technically downgrade or find the same thing for cheaper, it goes here.

And lastly, we have the final 20% allocated towards savings and investing. This includes the money that you put away towards an emergency fund, maxing out retirement accounts, or paying off debt above the bare minimum. The benefit here is that if you could just stick with the 20% savings rate, you could theoretically be able to retire in 37 years with no changes to your lifestyle whatsoever, and that is a lot better than most people are doing.

Although in terms of how you could actually accomplish this or achieve financial freedom significantly faster without resorting to eating rice and beans for the next few decades, here is my approach, and I have a feeling it's going to help you out tremendously. First of all, when it comes to any financial goal, you have to break down exactly how much you want and in what time frame. For example, if you want to save an extra $10,000 in a year, on the surface, it seems a bit daunting. But when you break it down to $833 a month, to then $27.40 a day, to then $0.40 every single hour, it seems a lot more actionable.

After you do that, though, number two—you gotta start immediately. I know this seems common sense, but you would be so surprised how many people come up with a goal, they break it down, they get super excited about starting, and then absolutely nothing. You have the most momentum in the very beginning when you're excited about starting something new, and then once you actually start, that momentum is difficult to break. So use this as your reason to start right now.

Third, in terms of starting right now, it really all begins by itemizing your expenses. Here's the thing: anytime you set up a new financial milestone, you need to understand exactly where your money is going, and if you don't track your expenses, it's kind of like navigating a car through a brand new city in 2005 without MapQuest or a cell phone. And as we all know, that's usually a disaster. All you need to do is make a free account with any money tracking platform like Credit Karma or Rocket Money, and from there you'll be able to see all the money that goes into and out of your account. Not to mention, with 20 minutes of work a week, you'll be able to better pinpoint all the random miscellaneous expenses that just continue to add up over time that you never really pay any attention to.

Fourth, speaking of that, let's talk about cutting back. One survey found that it was easiest to cut back on ten categories: eating out, alcohol, credit card interest, clothes, electricity, cigarettes, heating your AC, unwanted returns, convenience, and the lottery. Beyond that, you can also look at your most common expenses and just think to yourself, "How could I get the same thing but cheaper?" Like take your car insurance for an example. When's the last time you shopped on rates? I almost promise you that with 30 minutes of work, you will be able to find the exact same coverage for a lot less. The same thing also applies to your phone bill, internet, groceries; there's so many things that you'd be able to get the exact same of just for less.

And finally, fifth, with all of this extra savings, you need to pay yourself first. This runs with the philosophy that most people first spend their money on housing, entertainment, bills, shopping, utilities, and so on, and then they save whatever's left over, which in most cases is nothing. But this one flips it around entirely because by paying yourself first, you're going to give yourself a set amount of money every single month, and then you're forced to live on whatever's left over. Over time, in most cases, you’ll be able to do it just fine.

And finally, in terms of my own realistic ways of being able to build the most amount of wealth relatively quickly, I would focus on these five main categories. First, housing. I know it's easier said than done, but since housing is usually your largest single recurring expense, perhaps you'd be able to rent out an extra bedroom or garage to help cover your overhead, or maybe you could ask your landlord for a reduction in rent or look into moving to a less expensive neighborhood. Ideally, there's typically about $100 to $300 a month that you would be able to save in this category just by getting a bit creative.

Two, we have transportation. With the average new car payment coming in at $729 a month, this is such low-hanging fruit to cut back on. Personally, my recommendation is that unless you need a really nice car for professional use, go and get yourself the most reliable, affordable, good-on-gas, easy-to-maintain used car that you could possibly afford, which you could preferably pay off in less than two years, and then just drive it until it doesn't run anymore.

Three, we have taxes. A recent report just found that the average single worker here in the United States paid 30.5% of their income to taxes in 2022. So one-third of your entire year is spent working enough just to pay off the IRS. This means it's more important than ever to at least make sure you have a base level understanding of how the tax code works and understand all the resources that are out there that are designed to help you keep as much money as possible. On top of that, a good CPA could also help you save hundreds or even thousands of every single year in your taxes, so make sure that nothing is missed.

From there, though, we have four, food. One study found that the average person spends $6,600 a year in this category, and 40% of that is eating out. Again, if savings is the priority here, avoid eating out unless it's absolutely necessary. Don't order Starbucks when you could just as easily make it at home, and don't have food delivered to you if you have food in the refrigerator. From now on, nothing goes to waste; generic brands are just as good, and you should always save the difference.

Finally, we have debt repayment. It's said that the average American has $5,700 worth of credit card debt at an average of a 24% interest rate. This means that every single month, you're wasting $114 by not paying off your bills in full by the time they're due. If this sounds like you, I would take the approach of cutting back anywhere necessary, saving that money, and throwing it all at the debt with the highest interest rates until eventually, it’s paid off. By doing this, realistically you should be able to save an extra $300 a month for the cost of maybe 10 minutes of work a week, and the payoff in the long run is potentially to the tune of over a million dollars if you just let that compound over time.

The risk of not doing this, on the other hand, is that you're going to be completely at the whims of the economy, the job market, fancy marketing aimed at constantly trying to get you to part from your money, and the danger that your entire financial future is basically a heads or tails coin flip of whether or not you're going to run out. That's why it's so insanely important to start planning for the future. Save money today, don't spend more money than anything you make, even though people at the Wall Street Journal tend to glamorize it.

And no matter what, subscribe if you haven't done that already. So with that said, you guys, thank you so much for watching. I really appreciate it. As always, feel free to also hit the like button, and don't forget that you could get some free stocks worth all the way up to a few thousand when you make a deposit using a paid affiliate link down below in the description. Enjoy, let me know which stocks you get. Thank you so much, and until next time!