Americans still struggle to save
We have 4 solutions that could get you started.
Americans still struggle to save money and have been fighting this battle for years.
Such difficulties were understandable when the economy was in recession and job losses were mounting. But now hiring is brisk and wages are starting to climb a bit. Even the new taxreform legislation could make more dollars available.
Yet it doesn’t seem to be getting much better. Households are saving about 3% on average — 3 cents for every dollar earned. Credit-card debt is up, recently topping $1 trillion in total. Consumer loan delinquencies are still low and personal bankruptcies minimal, but those indicators of financial strain will reappear the next time the economy slows.
Americans recognize the problem. In a November survey of 1,000 adults by credit bureau Experian, a desire to save more money was the top financial resolution cited, garnering responses from 48% of those interviewed. Most of the other top choices dealt with related issues, such as a desire to pay off credit cards, to avoid opening more creditcard accounts and to create a budget.
Here are strategies that might help:
❚ Put your savings on autopilot: As Experian noted in its report, savings becomes easier if you do it automatically. If you can divert a set percentage of income each paycheck into a bank savings vehicle, mutual fund or other account, you’ll eventually stop thinking about the process.
This is one of the big arguments in favor of workplace 401(k)-style plans — the money gets invested automatically. Matching funds, tax savings and other benefits are nice, but the ability to save automatically from each paycheck may be the biggest benefit for a lot of people. ❚ Set achievable goals, but push
yourself: If you’re going to succeed with a savings plan, set your initial targets low enough that you can realize some confidence-boosting successes. You’re not going to start saving 25% all of a sudden if you haven’t had much success before. Thus, it’s better to strive for, say 5%, and raise it by maybe 1 percentage point yearly after that. Saving a small sum is better than getting frustrated and abandoning the effort entirely.
How much should you strive to save? There’s no set answer, with results influenced by how much you earn, what you’re saving for and your ability to find employment in case of a job loss. General goals range from 5% to 15% of pay. One key objective, at least initially, should be in compiling enough money to build an emergency cash reserve.
In this sense, a good rule is to amass enough money to meet six to nine months of expenses, the National Endowment for Financial Education says. But if that seems too ambitious, shoot for $500 to start, the group suggests.
Laura Walton of the TCI Foundation, a Tucson non-profit that provides free financial classes for moderate-income young adults, offers this tip: Start by putting a dollar in a money jar and increase that by $1 each week. By the final week of the year, the jar would hold almost $1,400. ❚ View the process differently: One reason people struggle to save or embark on any investment plan reflects the reality that the goals can seem unrealistic if not insurmountable and filled with obstacles. The TCI Foundation likes to frame the issue differently by describing the saving process not as a chore or sacrifice but as a bargain or reward for people who start early.
In other words, early-bird shoppers who start saving at a young age can purchase future “retirement dollars” at big discounts, the group said. For example, assuming an 8% average yearly investment return, a person who starts at age 25, invests in a stock-focused mutual fund and leaves the money alone might be able to buy future retirement dollars, available by around age 65 or so, for as little as 5 cents on the dollar today.
❚ Look for better deals: The National Endowment for Financial Education suggests people get into the routine of shopping for better terms on various ongoing expenses such as insurance policies, cellphone plans and other utility services. If you’re a longtime customer, ask for promotions or discounts. Credit cards are another product where comparison shopping can bear fruit.
Also, pay attention to small expenses that can mushroom. For example, Vanguard provided an example attributed to famed investor Warren Buffett, who estimated that getting his hair cut every five weeks rather than four, while spending $18 a visit rather than $25, could generate $300,000 over a lifetime. The idea isn’t to groom yourself like Buffett but to recognize, like he does, that small income hikes or cost decreases can compound to sizable sums over time.