With millions of articles and thousands of sites giving financial advice on the internet, one would think that Americans are prepared for any financial issues. Unfortunately, our national savings rate is basically at zero. According to a March 2010 study by the Employee Benefits Research Institute (EBRI), 29% of workers feel confident that they have enough money to retire. 27% have less than $1,000 in savings. 54% have less than $25,000 in total savings. This issue is not just our neighbor’s problem if they are in this group of people. It is also our problem because we will pay for their mistakes through taxes and entitlement programs.
Sunset by Micah A. Ponce
The lack of financial preparedness is not a low income problem. It is spread across all economic spectrum. I’ve seen families who make minimum wages with more liquid assets than some professionals and business owners who makes six figures a year. Many families are struggling to make ends meet despite both parents working. A part of the problem comes from people being taught to only save by going for cheap. In some cases, frugality goes too far and people actually spend more money to save a fraction.
None of us exist in a bubble, separated from the rest of the world. We’re all interconnected and related to each other in a large web spanning the entire globe. For example, the economic policy that the United Kingdom choose will percolate overseas to affect a normal middle class American family. Check out a possible scenario below.
To have true financial security, you need to be aware of all the strings tugging on you. Maximizing your assets goes beyond just putting money into an investment account. You need note everything that touches your life and slowly work to remove risk and control costs at the origin. Here is a sample of some ways that your life can be touched financially.
If you can step back and remove emotions from some of these choices, you will find that your expenses will go down because you are now aware of cost versus benefit. Questions that you never think to ask before will suddenly become obvious such as am I truly ready to own a house and all the expenses that goes with it when I only have enough savings for a minimal down payment.
As our lifespan becomes longer than our parent, the risk of outliving our savings is a high probability. Just saving for a retirement account is not enough because there are many outside factors beyond our control that we can’t anticipate such as a spouse developing Alzheimer and needing decades of care.
When you aim for your dreams, whether it is early retirement or running a business or anything in between, look beyond saving money to other factors that can affect you in an adverse way. Involve your family in the planning because it takes just one person to destroy everything that you have worked for. Peace of mind and quality of life are equally important in providing financial security.
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Wow, is this article spot on. For the past two years, I’ve been writing hardship letters for people who are trying to avoid foreclosure. The reasons are those you mention here. I’ve written 100′s of letters for folks who probably should never have bought a home in the first place, then for many that didn’t have a buffer to handle adversity, including a bad economy and ailing parents. I hope that we as a nation have a much more risk-averse outlook for the next 25 years or so.
Great piece.
Thank you for your comment.
I’m hoping to break the pattern of how people think of success and financial security. I know millionaires who don’t own any homes or just a small condo.