"Remember to put 20% in your piggy bank!"
The Saving Habit
Did your parents ever tell you to take $.20 of a dollar that you got and put it in a special place separate from the money that you usually spent on toys, treats and special occasions? Whether you got $20 for your birthday, or $.25 from the tooth fairy, do you remember ever being told that you needed to save some of it as a good practice for managing your finances when you were a grown up? Did your parent, grandparent, relative or guardian make sure that you were only spending 80% of what you had and ensure that you kept the other amount? Maybe yours did, maybe like mine, they didn't. You see, the habits of the way that people spend their money are instilled at a young age and that is why it so hard to change spending habits when a person is older and has to start from scratch.
Believe me, I speak from experience. I still have regret over not saving any portion of my income when I worked at a great paying job for a year...I was such an idiot. I did not realize that there is no such thing as
<---- "disposable income".I had a personal tragedy afflict me and couldn't work, so when my roommates moved on and out, I was left holding the lease and without a penny to my name at the age of 22. Some lessons in life are harder than others.
It is incredibly important to cultivate the habit of saving a portion of what you earn, or are given because often enough, your savings is all that you have should tragedy strike, or an unexpected expense arise. And it is never too late to change your financial future. Remember when Oprah showcased financial expert and author Jean Chatzky's Debt Diet? I recommend that book for everyone!!! That and Dave Ramsey's The Total Money Makeover and Financial Peace University!!! Dave Ramsey is on air and you can listen to his radio show, check it out at daveramsey.com.
The Painful Truth
In October of 2012 The Huffington Post published an article stating that "nearly half of Americans have less than $500 in savings". Ouch. Prior to this posting a popular website, statisticbrain.com posted these statistics based on an average.
| American Family Financial Statistics | Data |
| Average American family savings account balance | $3,800 |
| Percent of working Americans who are not saving for retirement | 40 % |
| Percent of American families who have no savings at all | 25 % |
| Average amount saved for retirement | $35,000 |
| Average American household debt | $117,951 |
| Average American family home value | $160,000 |
| Average amount owed on home mortgage | $95,000 |
| Average American household annual income | $43,000 |
| Average credit card debt | $2,200 |
| Percent of American workers who postponed their retirement age this year | 24 % |
| Percent surveyed who are very confident about having enough money for retirement | 18 % |
| Percent of American adults who do not have a bank account | 7.7 % |
| Percent of American adults who have an emergency fund to fall back on | 38 % |
Those numbers are nowhere near what a financially responsible person ought to be at. What we see here that a lot of people are living beyond their means. Do you see the errors of the financial choices of many people? Let me highlight some financial choices that could be altered, starting from the first debts that we accrue.
Student Loans
If the average household debt is as stated above, let us reason that without a vehicle included, a person's total debt just from student loans is $60,000 for both adults in the household. (This information based on nytimes.com and money.cnn.com for 2012.) Many people either graduate college to move on to work in their chosen professions, only to amortize their monthly student loan payments into a household budget and then live around them as "just another bill", or they do not finish college and have the debt and the challenge of procuring enough income to pay the bills and keep the debtors satisfied.
Let us have a paradigm shift...what if before accruing a mortgage, people paid off their student loans? Economizing and living within one's financial means. Having the will power to say, "No, I will wait until my financial situation is such that I can still comfortably put 20% of my income into savings, only pay 25% of my income to my housing budget and still live in a financially sound way!" Now, that would be profound! But how often do you meet people who can wait to have the nice house in the great neighborhood until they have their student loans paid off and are actually in a secure place financially with a healthy savings account? Most people are 1 to 3 paychecks away from broke.
Transportation
No, I am not going to tell you to take the bus, unless it is convenient and doesn't take 2 hours to get you to work and 2 hours home-that is reason enough to buy a vehicle. What I propose is to make a choice based on keeping your savings account healthy. Instead of buying an expensive brand new car (that loses $10,000 off the sticker price once the rear wheels hit the street pavement) to instead chose to get the test-drive model, or a slightly used vehicle and saved that $10,000 plus 36 to 50 months of interest payments. There is a significant savings to be had if you buy with your financial future and retirement in mind. Another clever idea to keep in mind is that if you have a healthy savings account that has been building for sometime, you can not only afford a great down payment that will lower your monthly financed amount, but you can also afford to double up on payments. This double paying towards your auto loan will still build your credit score up every month as you make payments on time and it will help you save money on the interest that you would have paid on the latter half of your loan.
Credit
How did credit start? Well, in the beginning it was how early businesses were able to operate until their wares sold. Take the farmer who needs seed to be able to harvest, or the rancher who needs to be able to get tools and feed before he can take and sell his full grown livestock, or the seamstress who needs thread and fabric to be able to make garments to sell. Credit was a short term solution to help people through short term situations. We can look back and see how credit has grown and taken over our economic structure. We now focus on our credit scores and not necessarily our savings amounts. Our dependency on credit has replaced our understanding for a need for savings. The school of thought propitiated in the 1950's was"Why wait to save to pay for it in a year when you can get credit to buy it today for low monthly payments?!" The now mentality. ,
Credit cards ought to be used to build your credit score and paid off monthly to every other month. Yes, that requires self-discipline and sticking to a payment system...that's ok, there is an app for that.
The reality that we have is that many people have more than one credit card that they are just paying the minimum payment of interest, or amount due and not making any headway on paying down the actual principle balance. Or they are just transferring their balances to new 0% interest cards and still not making a dent in their debt.
What the personal finance experts teach is to pay off your credit cards and stop wasting money on unnecessary interest payments and miniscule minimum payments and get the proverbial monkey off your back.
Stagger; to arrange otherwise than at the same time, especially in a series of alternating or continually overlapping intervals.
Do you know someone who got a house, then a vehicle, then furniture, then a new TV, new computer, new appliances...? That is a lot to get at one time! How do they do it? Financing. Not only does it negatively impact your FICO score to take that many pulls to get financed, but the stress of paying everything on time on doesn't afford one peace of mind. Again, it's OK if you are in that situation because there is an app for that!
It is important to make a big purchase that may need to be financed and then wait 6 months to make another big purchase, so long as your budgeting margins are still in adherence; your savings still gets fed 20% regardless, and your housing stays at 25% of your net income.
Again, make economic choices with big items like furniture. I know someone who got a couch off of craigslist and found $400 in it. Being thrifty pays...maybe not like that, but it feels good to brag about how much you saved!
Investing
I discussed in my first blog the amount of opportunities that my parents let pass them by because they weren't able to afford to invest. If the principle of saving 20% had been a house rule, we would all be sitting pretty right now. Why? Because my parents would have invested in the cellular industry, they
would have invested in insurance and they would have a 402B retirement plan each. My sisters and I would have trust funds and we would have our own respective businesses and for those of us who enjoy learning, our college degrees. It all goes back to having the self-discipline to have a boundary within yourself to say, "No!" to your internal instant gratification gremlin that gets green with envy at the nice things of others. Think about it; do those other people that you see with the nice things that you want have investments that give them returns? Do they have the peace of mind knowing that they have a healthy retirement plan? Do their children's college funds are robust? Do they have the peace of mind of knowing that they are not in uncomfortable debt?
What Now?
Now is the time to make a decision about how you are going to manage your financial future. I am a solution oriented person. That is why I like the apps that come with my Wake Up Now! membership. I can plug in all of my expenses and track them. I get to have a financial manager in the palm of my hand! There is this app called Taxbot that I got, it is great! And, just like the wealthy, I get rewards to help me save even more money...unfair? Not at all! I may not be able to go back in time to when I was 21, or 19 and tell my younger self what choices to make, but I can take control and move on from here and make better choices! And so can you!
Isn't it time to take control of where your future is heading?
Isn't it time to make cultivate your legacy that you will leave behind now?
YES it is!
Get your Wake Up Now membership and apps and get going! Then tell your friends and family and help them get in control of their finances and save money while they do it!
And if you like what you use enough to share it, then talk to me about joining my team and get something back for giving to others the gift of financial freedom!
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*This Blog is the intellectual property of Amy J. Smith, all rights reserved 2013
