On the cusp of each new year, Americans vow
to lose weight, eat right, quit smoking and exercise. We're
big on physical goals, but rarely talk of financial ones. However,
the warning bells are starting to sound.
The Commerce Department put a microscope
to our fiscal habits and found that incomes jumped 5.9 percent
last year, but spending rose 7 percent and savings dropped
to an all-time annual low of 2.4 percent after taxes.
In other words, we're living large in
a booming economy, but not thinking about the future.
"We're in what I call the 'now generation',"
says C. L. Wayne Moore, assistant professor of family economics
at the University of Tennessee extension service.
"We don't think about saving, even
for an item. We see something we want and buy it right away.
Everything is instant gratification."
The
two must-do's
Experts agree there are two must-do's for anyone who
wants to put their money habits on the right track: record
expenses and set a budget.
Norma Tharp, spokeswoman for the National
Foundation for Consumer Credit's north Georgia region,
has an exercise in self-awareness that she recommends trying
for one month: Keep account of every penny you spend.
"I'd be surprised if you're not surprised
at what you find," she says.
Recording daily spending, whether with
pen and paper or a computer program, can cure the impulse
itch and prepare you to set goals and a budget. You might
discover that the money for the rainy day fund you never thought
you could build is going to fast food and too many trips to
the golf course each month.
Once you see where your money is really
going, you can make adjustments based on your needs and goals,
not what the pie charts tell you.
For example, 10 percent of after-tax income
is the recommended minimum for savings. But that's not a possibility
for many.
"A lot of people have the misconception
that if they can't do 10 percent, don't do it at all,"
says Sunny C. Orr, assistant director of the Center
for Financial Responsibility at Texas Tech University.
Just
start saving -- even $5 a week
"If you have to start out with 1 percent, do that
and then scoot it up gradually. Five dollars a week can make
a difference."
Uncle Sam's take on how much Americans
are saving is a tad bleaker than the reality. Commerce Department
figures account for investments in retirement plans, interest
earnings and saving accounts, but do not include capital gains
from the stock market, which is the key reason U.S. wealth
is accumulating at its highest level in decades.
Even though an estimated 48 percent of
Americans own stocks, most don't have gains large enough to
excuse them from saving.
"We are making lots of money in the
stock market and housing markets, so real asset accumulation
is not so bad," says Richard Thaler, a professor of behavioral
economics at the University of Chicago.
"However, neither of these can go
up forever and, if the stock market tanked, many would be
caught very short."
What
sinks us -- two miscalculations
Don Blandin, president of the American Savings Education
Council, says Americans' lack of financial vision is tied
to two miscalculations: "They tend to overestimate how
much they will receive from Social Security and underestimate
how long they will live," he says.
"These two things combined can be
very dangerous."
As a result, he said, people don't modify
their spending habits. "They're buying two lattes a day,
the latest paperback books and fashions, spending $10 a week
on lottery tickets."
One area where consumers splurge is housing.
"They tend to go out and pick a place to rent or buy
and then figure out how they can afford it, instead of the
other way around," says Orr.
The other money-muncher is food. A two-income
family of four earning about $55,000 a year after taxes spends
almost $3,000, or nearly one-third of their annual grocery
budget, eating out, according to the federal Bureau of Labor
Statistics.
"People don't realize how they can
make that money grow," says Blandin. "If they had
put that into a mutual fund four years ago, they'd have lots
of money now."
Five
financial personalities
The ASEC categorizes people into five financial personalities.
You can take the quiz at their Web
site and hold a mirror to yourself.
- Planners determine how much
they need to save and are in control of their finances.
- Savers are careful with money,
but aren't confident that they are investing wisely.
- Impulsives spend today and
let tomorrow take care of itself.
- Strugglers have difficulty
saving because of day-to-day financial responsibilities.
- Deniers are almost deliberate
in their refusal to face reality.
Blandin says the planners are the ones
who achieve their goals, whether it's to stash enough for
retirement, college, a laptop computer or an emergency fund.
"Calculating the goal is very important,"
he said. "Saving is not a one-size-fits-all exercise."
Then, once the money tracking and budgeting
are done, you must decide how to grow what's left.
"The best place to start is an employment-based
retirement plan. That should be the first place you put your
money," says Blandin.
Start
with a 401(k)
Employer plans such as 401(k)s
are the most popular savings vehicle, according to a 1999
survey by the Employee
Benefit Research Institute. But the EBRI found that 25
percent of workers whose companies offer such a plan do not
participate.
"Not taking advantage of your company's
match in a 401(k) plan is just dumb," says Blandin.
Second, consider investing in equities.
"That's the fastest way to build your nest egg, and the
only way to stay ahead of inflation," he adds.
Those who are new to the money shuffle
can take heart: There is a treasure trove of information at
their fingertips -- on the Internet, in the workplace and
around the corner, at their local branch.
Says Blandin, "One place people typically
under-utilize for advice is their bank. That's a great resource."
-- Posted: Feb. 8, 2000
|
