Last year, the BBC reported a story about a woman from India with polio who was a beggar for over 40 years. It was discovered that she had saved over 200 pounds of coins "for the days when I cannot beg." If a beggar can save money, what stops families in the U.S. from saving money?

Families used to save. During the seventies, U.S. families used to save around 10% of their earnings. By 2003, the saving rate had fallen below zero (so families were spending more than they earned, often using credit cards).

Why do families spend more than they earn?

The first place to look at is the lifestyle that is chosen. Is it affordable? How do you know? When you shop at a store and look at the prices, you probably make decisions based on what you can afford. But what about your family's lifestyle — the house, the cars, clothes, cable television, computers, cell phones, restaurants, vacations, etc.? They all add up to a total cost at the end of the year.

The goal is to make sure that these expenses are less than what your family earned that year. Spending less than your annual earnings is important because you need this extra money for future expenses. Otherwise, when it comes time to pay for college, retirement, medical and other unexpected expenses, you don't have the money, it stresses you out, and you may end up having to borrow it. That means needing, even more, money to pay back the loan plus all your other expenses.

How do you know if your family has a lifestyle they can afford?

Think of your family as a business. You have money coming in and money going out. The goal is to show a profit at the end of the year. Businesses need to keep track of their expenses to control costs and make decisions based on income. So keeping track of your expenses is a very powerful way to determine the lifestyle you can afford.

At the end of the year, when you can compare what you earned with what you spent, you will instantly know whether your chosen lifestyle is sustainable or not. Many families, like the ones who attend our MoneyWise financial education course, find out that they cannot afford their lifestyle and this is why there is no money to save.

Economic pressures also work to reduce your family's income

The average hourly wage (adjusted for inflation) since 1980 has remained the same. That means that even though the costs of goods and services have increased, there is a good chance that your family's income did not increase enough to make up this difference. Imagine you were playing the game Monopoly, and every time it was your turn, the cost to buy properties and the ensuing rent prices increased, but you still only collected $200 when you passed "Go." Now add in all the other expenses you have in life, and you can see how this creates a situation where you can afford less and less.

Next steps

Look at ways to earn more money or to cut spending. Earning more money can involve asking for a raise, working extra jobs, or finding work for other family members. To reduce spending, families can look into bartering for services that they previously paid for and make choices as to what goods or services they can reduce or do without. Sometimes this involves "tough" choices, but others choices may not be so tough. A can of soda a day can cost you $365 a year. Is that a good investment? If you put $20 a week in a savings account, you'd have $10,400 (plus interest) in just ten years!

Habits can be hard to break and making a lifestyle adjustment can feel challenging. But with practice, you may find ways to live below your means and start saving money. Then, while you gain control of your spending, you reduce stress and direct money towards the things you want.

Do you have any questions?