Tuesday, October 11, 2016

and I was one of them

I'm now in a job that pays better than any job I've had before, bar none. My recent raise has pushed me to new financial heights, and while no one will ever call me rich, I can now toy with the idea of calling myself almost financially secure. In a couple of years, I'll be debt-free, at which point I'll be able to save insane amounts of money and finally have the freedom to do the things I've been wanting to do. This is an entirely new state of affairs for me: it wasn't that long ago that I belonged to the "living from paycheck to paycheck" crowd.

That thought came back to me recently when I read an article claiming that 7 in 10 Americans have savings of less than $1000. According to this article, it's Americans' constant profligate consumption that keeps the citizens financially down; no one has developed the habit, or cultivated the will, to save money, delay gratification, and spend prudently. For me, years and years of penury have taught me how to save money, to put aside the desire to act on this or that impulse, to avoid making major purchases for no good reason.

Hewing to a budget is like following Sun Tsu's maxims: just as you never strike at the enemy unless you're assured of victory, you should never make a purchase unless you're sure you can absorb the financial blow with negligible damage to your accounts. Rule Number One, now and always, is Never spend beyond your means. Even now, with money coming in from at least two sources, I don't spend unnecessarily. Years ago, when I wasn't in a position to think this way, I had borrowed a good bit of money from friends and acquaintances; I have, however, made sure to pay them all back (if I haven't done so, readers, email me!) as a way of increasing trustworthiness and minimizing outstanding personal debts. I'm thankful for the help I received when times were tough, but I'm happy to say I now stand on my own.

...nearly all developed countries have a higher personal savings rate than the United States.

Being in debt is a cause of major stress. Having under $1000 in the bank means you barely have the money to help yourself should you get injured or suffer some other calamity—a theft, property damage, etc. Conversely, having money lightens one's burdens because, while money should never be a be-all-end-all, it nevertheless represents choice. When you have good finances, you have options. Want to take that trip to Europe? By all means, go—if you have the money for it and a healthy enough budget to absorb the expense.

Here's a shocker:

Furthermore, even though lower-income adults struggle with saving money more than middle- and upper-income folks, no income group did particularly well. Some 29% of adults earning more than $150,000 a year, and 44% making between $100,000 and $149,999, had less than $1,000 in savings. Comparatively, 73% of the lowest income adults (those [earning] $24,999 or less annually) had less than $1,000 in their savings account.

And the analysis:

This data is particularly worrisome since the recommendation is for Americans to have six months in expenses saved in case of an emergency, such as a large medical expense, car repair bill, or losing your job. Without this emergency fund to fall back on, millions of Americans could be risking financial disaster.

According to GoBankingRates' report, two factors are to blame for Americans' inability to save. First, some Americans are simply living beyond their means. With roughly 70% of U.S. GDP tied to consumption, and our society revolving around going out for entertainment, this isn't too surprising.

The other issue is that credit cards and alternative payment platforms, such as Apple Pay, have made it easier than ever to spend money. It's a lot easier to spend money when you're not dealing with tangible cash. This out of sight, out of mind mentality could leave Americans out of money when they need it.

Keep track of expenses! And do so honestly and accurately. You can try to fool yourself, but the numbers never lie. As a rule of thumb, you should always know how much cash is in your wallet at any given moment; by extension, you should always know how much cash is in your bank accounts at any given moment. When you become a patient in a hospital, you have to become your own patient advocate. When you deal with money, you have to become your own personal accountant. That would be my message to my fellow Yank spendthrifts. Staring at numbers is a boring task, but your money is a lot like your teeth: ignore it, and it'll go away.

1 comment:

John Mac said...

Good advice! Something I didn't learn until relatively late in life. My kids are both in the less than $1000 category and rely on me to bail them out when something unexpected happens. Glad I'm able to do it (for now at least) but I worry how they'll manage when I'm gone.

My goal is to have two years of pension income saved before I re-retire. The sale of my house has got me close.

Money in the bank equates to freedom. Freedom from worry and freedom to do the things you enjoy. Sad to think so many people can only dream of that kind of freedom.