6 Reasons Why Your Efforts To Save Are Not Adding Up
Saving for retirement and reducing debt can sometimes appear as a never-ending endeavor where you feel that you are making little to no progress. Learning from the successes, as well as the failure of others can not only help you to reach your goals sooner, but has the potential to increase your saving potential over an entire lifetime. Learn from the entrepreneur who have been there themselves, and discover why you may be feeling like you are struggling in your saving endeavors.
Truth In Equity
In my humble professional opinion, most Americans don’t have the luxury of making a savings choice because they can’t, not that they don’t want to. The conventional model of banking and borrowing is dictating and inhibiting the American consumers decision and ability to save. Most average American’s carry some form of debt; mortgage, credit cards, autos, etc. The model by which interest is calculated and how we pay that
interest is sucking savings opportunities right out of people’s pockets.
If you look at just mortgage debt: collectively American mortgage debt stands at $8.8T. If the average interest rate was 4% the monthly interest cost is $2,933,333,333. That is a huge amount of money flowing away from the consumer and into the banking coffers. What if a portion of that interest was retained by the consumer on a monthly/annual basis? Savings would start adding up very quickly.
As of Dec 31, 2017 average American debt was $113, 063 and median gross income was 59,039. The debt is consuming $4522 of annual income or $377 per month. The second component in the conventional model that is hurting Americans savings is our checking accounts. In 2016 the Gross National Income was $18.75T. What was the return to depositors on those deposits? Less than 1%. If the consumer base could capture just 2% return on those deposits consumers would see $375B returned to them on an annual basis. Redistributing that kind of wealth back to the public would change the financial trajectory of every American.
Kalen Omo Financial Coaching
The main reason why Americans’ efforts to save are not adding up is because people are trying to save while still living in debt. The biggest wealth building tool any working person has is the income they bring home, and its hard to do that if you’re having to make minimum monthly payments to banks, lenders and debt collectors. Americans need to have a game plan that will keep them focused on getting out of debt so that they can use their income to save without distraction or diversion.
Don’t Pay Full
Americans were never famous for their saving habits. A recent report says that 1 out of each 3 US citizens have no or less than $500 in their savings. Let’s talk about a few valid reasons which will throw some light on why Americans can not save much.
Limited income: Most of the middle class and lower-middle class Americans exhaust their slim monthly income in their basic requirements like house rent, food and paying off debts. There are a huge number of single parents with at least one kid. Saving from poor income, sometimes from only one source is a joke for most of the Americans.
Borrowing habit: Americans are famous for taking loans for any reason and carrying the debt burden for years. Most of the US citizen is paying off at least on among different loans taken for higher study, house, car, jewellery, credit cards etc and after paying off for these loans and monthly requirements nothing much remains left for saving.
Sheer consumerism: Americans are dedicated worshippers of consumerism because it is one of their basic natures. Most of the Americans prioritize enjoying present life after fulfilling basic requirements than saving for future. Consumer goods and everything that gives pleasure even for some moments can easily attract common Americans.
Retirement policies: In last few decades, corporate sectors of America has modified their retirement policies such that employees now know what amount of money they will get after their retirement. This policy has erased the anxiety of most corporate employees about their finance at old ages and they became reluctant in saving money.
Samalin Investment Counsel
American’s are struggling to save for retirement due to higher living costs, reduced real incomes, and longer expected lifespans. Increasing costs of basic needs, such as housing and healthcare, are reducing discretionary dollars for retirement savings. Despite inflation in key facets of the market, the relative slack in the labor market over the previous ten years combined with a more global economy is preventing inflation from flowing down to increasing wages. The combination of lower real wages and increasing living costs make it very difficult for Americans to find the dollars required to meet their retirement goals. To make matters worse, Americans are living longer, which requires a higher level of savings to meet the needs of many more years of post-retirement living. So while incomes have largely declined on an inflation-adjusted basis for most Americans, the years for which they need to save have been increasing. There are several ways in which Americans can make adjustments to increase their likelihood of sufficient retirement savings. One area where most people can make changes to increase their retirement savings is reducing the impact of taxes. Taxes remain one of the largest detractors from individuals’ savings and investment returns and, with the ever changing tax code, it is difficult for the average investor to minimize the impact of taxes. Changes to budgeting, living expenses, and lifestyles can also improve one’s ability to meet their retirement goals. Working with an experienced financial professional, Americans can develop a plan that addresses longer expected lifespans, minimizes their tax drag, and meets post-retirement goals.
My Money Wizard
As a 28 year old who managed to save $250,000, I get asked for advice on saving all the time. What I’ve found after answering the question so many times, is that most Americans budget backwards. In other words, they spend too much money on the big ticket items, and then scramble to save money on the small stuff. This is obviously inefficient, and is a huge reason why the average American’s saving efforts are falling seriously short.
If we need proof, we just have to look at the Bureau of Labor Statistic’s most recent study about the average budget. It shows two interesting facts. One – the average American saves just 4% of their income, which is a financial disaster. But more interesting, exactly 70% of the average American’s spending goes to just three things – housing, cars, and food. So, if we want to improve our savings, then we need to stop focusing on the small details that don’t matter. Clipping coupons and cutting back on our minuscule entertainment budget isn’t going to move the needle compared to the 70% of stuff our money is going towards.
DebtWave Credit Counseling
While it’s true that where you choose to spend your money is a personal decision, there are some financial truths that organizations like ours repeatedly stress the importance of such as creating a budget, refraining from spending beyond your means and saving money. Unfortunately, this advice is rarely followed. One reason for this spike in consumer debt may be because saving is no longer a requirement to get what you want or need in the eyes of many Americans.. Why wait when you can use a credit card?
It’s become normalized to spend every penny on rent, bills, clothing and entertainment as we try to keep up with Kardashians or our friends on social media. When we do experience an unexpected financial expense, we put it on our credit card and the rat race continues. We’re now deeper in debt and we don’t feel like we have the luxury of saving money. If we truly want to turn everyone in America’s financial situation around, financial literacy programs must become part of the mandatory curriculum, so that Americans have a chance to truly understand the value of a dollar, the importance of saving and creating and sticking to a budget – even if you’re a millionaire.