Serious Sunday: 1/29/2017

Let’s get serious, serious. I want to get serious. Let’s get into…sorry, I’ll stop. You know, if I’m going to get serious I thought I should have some lighthearted fun to start. No point in being glum for an entire post.

The Abysmal Savings Rate: An American Epidemic

The most recent seasonally adjusted savings rate (SASR) in the United States was 5.5% (St. Louis Fed). In 2015, the real median personal income (RMPI) in the United States was $30,240 (St. Louis Fed). If you’re doing the math, that’s about $1,663. According to the Bureau of Labor Statistics (BLS), on an average and household basis, Americans earned $69,629 in 2015 while spending $55,978. However, according to a now famous survey by GoBankingRates.com conducted in 2016, 69% of Americans have less than $1,000 saved. This survey included Americans from ages 18-65+, which means this is an age agnostic “disease”. Worse still, GoBankRates.com conducted a similar survey in 2015 and found that 62% had less than $1,000 saved. And the BLS data would support these trends. According to the data, household expenditures increased 4.6% from 2014 to 2015 while income increased at a rate of 4.1%. To get a little more depressing, 34% of people surveyed said they had $0 saved. What the Fuck, America?

“…the US Significantly fails at saving money.”

Yes, it is American to consume, to wear the trendiest items, to play keep up. Obviously, not saving money is American. If you take a look at other developed countries, the US significantly fails at saving money. According to the OECD, there were 24 countries with greater savings rates than the US in 2014. These include:

1. China: 49.2%
5. Russia: 12.3%
8. Estonia: 11.2%
13. Ireland: 8.1%
18. Australia: 6.1%

Not surprisingly, these countries matched or outpaced the US in terms of Household Income growth over the last few years. Even less shocking, only Estonia outpaced the US in terms of spending growth. The US comprises 37% of total OECD tracked household spending – essentially tied for number one with ALL of Europe.

“(in 2015)…US households spent 7.9% more on eating out than they did in 2014.”

Anecdotally, I’m no stranger to the financial hardships of the Great Recession. No stranger to the life of growing up in a single parent household. No stranger to having a minority background. My family has been terrible at saving since I can remember. And terrible at saving because they were amazing at spending. Credit cards were always used. Cars were exchanged over-and-over again. We ate out constantly because we “never had any time” for meals at the table. Eating out is American. In 2015, US households spent 7.9% more on eating out than they did in 2014.

It’s these upsetting facts and watching my family struggle with working well past retirement age, struggle with only paying the minimum on credit cards and providing a limited resource for financial training that forced me into an education in finance. I wanted to understand what was going on in the world of money and economics. I needed to know how to never end up in the situation I watched. I promised to never put my daughter in the same situation.

So, what can we do to adjust these disturbing trends? Well, spend less. Yes, that’s definitely easier said than done. Below are some recommended tips:

  1. Establish a family budget with realistic and attainable goals that help you and your family save. Literally write down every category of your spending (housing, food, clothing, utilities) and make sure you have a savings category. This is by far the most important step you can take in financial planning. You and your family need to have a very firm understanding of how much income you have and where that money NEEDS to go. 
  2. Build up an emergency fund. Start maximizing that savings category. Become one of those who has more than $1,000 in savings. You’ll feel amazing satisfaction that you’re working towards a goal and that you’ll be financially stronger than the majority of Americans. And who knows, you might actually need that emergency fund.
  3. Start “tackling” your debt (if you have any). Your best bet will be those debts with the highest interest rates. The higher the interest rate, the more money you’re paying to the bank for your past purchases.
  4. Once you’ve successfully made it through the first 3 steps, you’re ready to start building up a “nest egg” (aka Retirement). Take a look at Roth and Traditional IRAs. If your company offers a 401(k) plan, review the details. If your company offers a match, maximize the match. Retirement is such a long term goal but life moves much faster than we all realize.
  5. Now you can have a little fun. It may have taken you 6 months, 12 months or even 2 years to get to this point. But you made the winning point. You’ve successfully planned your family’s financial life. You’ve earned a little bit of wiggle room to fall back into your old consumer habits. Now, I don’t recommend immediately racing to the your favorite store to purchase something fun. No, in order to maintain discipline, do some research on items you want and begin storing some money to the side every month for that purchase.

 

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