After the Great Recession hit, far too many Americans found themselves without any savings to get through higher prices caused by inflation and the hardships of unemployment. With recessionary periods approaching, it’s important to learn from our past mistakes. Getting into some simple saving habits can really help you down the line.
Social Security and unemployment checks are a lifeline to many, but usually not enough to maintain a decent living standard. The rule of thumb for emergency savings is three to six months’ worth of living expenses. In light of the economic slump and the sheer number of long-term unemployed workers, most advisors tell clients to save even more, at least six to 12 months of expenses.
One way to do this is to set up an automatic deduction program through your employer, or through your bank. You can set up a program that transfers a certain amount from your checking account to your savings. Once established, you can change it, but you probably won’t (because we all get too busy and it’s easier to keep things as they are). Also, once you learn to plan your finances around the remainder of your paycheck not transferred into savings, you won’t miss the money you saved.
You can also start an automatic increase if you get a raise. This simple strategy is also helpful when saving toward any goal, such as retirement. With a 401(k) or similar program, you can automatically put money away, sometimes with an employer matching contribution. The government uses this system by withholding taxes. It takes taxes from your paycheck, and you live on the remainder.
If you pay into your retirement fund automatically, you can save without feeling that pinch of dread when you pay monthly bills.
Write down how much you want to save every month. It helps if you also tell someone about your goal. These two steps greatly increase the likelihood that you will achieve your goal. When you have a set goal and a partner to hold you to it, you stay more focused and are less likely to spend money on things that you don’t need. When on a dubious shopping spree, you ask yourself, “Is this purchase going to help me or hurt me?”
Americans often boast that they are number one in lots of things, but saving the money that we earn would probably be our worst event at the Olympics. American households save less than 5% of their disposable incomes, far less than their less-profligate counterparts in Germany, Switzerland and Sweden.
We are far better at spending money that we haven’t earned yet. The same lack of fiscal probity is evident on the national level. Our national debt is skyrocketing.
If there is a silver lining to the black cloud of the Great Recession, it helped Americans to be more thrifty, put off gratification and think more about the long-term financial health of their family and community.
Copyright © 2022 FMeX. All rights reserved.
Content Distributed by Financial Media Exchange.
Estate planning focuses on three key areas: Documenting your wishes, Stewardship Goals and Tax Efficiency.
At Capital Planning, our experts can work with an attorney to help you document your wishes and protect your family. We can guide you on the benefits of a Will, Power of Attorney, Advanced Health Care Directives (Living Wills) and Trusts.
Stewardship planning can help you protect your heirs from potential risks such as creditors, divorce, or poor money management skills. Stewardship can also help you meet your goals for charitable giving and life’s passions.
Tax efficiency planning can save your family upwards of 50%+ in taxes when combining estate tax, inheritance tax, and capital gains tax planning strategies.
If you would value advice on any of the above, book a discovery meeting today and speak with one of our advisors about independent financial planning with purpose, so you can focus on enjoying life.
Many people are curious to understand the potential tax benefits available to them. Questions such as “Is a 529 plan right for me and my goals?” are common, and at Capital Planning, we’ll be happy to guide you on this and any other questions you have.
We can work with you to conduct an analysis of funding needs, and provide recommendations as to investment allocation, ultimately helping you to select the right investments for your goals.
Book a discovery meeting today and speak with one of our advisors about independent financial planning with purpose, so you can focus on enjoying life.