Saving for a Rainy Day
Saving for a Rainy Day is More Important than Ever, So Why Are So Few of Us Doing It?
A new survey from Bankrate.com shows that a mere 37% of Americans have enough savings to pay for a $500 or $1,000 emergency. For a country that in legend if not exactly in real metrics is the richest in the world, the fact that a full one-third of Americans have no savings at all – and that over half have less than $1,000 in their checking and savings accounts – is more than a little scary. Why are we such poor savers? The real reasons defy the media’s typically oversimplified tendency to blame it on the public’s desire for instant gratification. For some it’s a matter of not really having much to save, whereas for others, lack of motivation or simple lack of education may be to blame.
It’s hard to save if you routinely run out of money before you run out of month
It’s a well-established fact that while inflation has marched along unabated for decades, wages have flatlined for the vast majority of workers during the same period. Those wage-earners who hold professional positions, including physicians, attorneys, engineers, and the like, have seen their earnings increase more than those of skilled trades and service workers, but significantly less than the amounts earned by top corporate executives and wealthy investors.
Rainy days are a bit wetter at the lower rungs of the earnings ladder
As people’s earnings increase, so to do the costs of the typical emergencies they are likely to face. Repairs to luxury items such as expensive cars tend to be significantly more expensive than are repairs to the cars driven by those who earn less. The same applies to home repairs, since the homes are more likely to have more expensive amenities and appliances. The higher cost for the more affluent families, however, are offset by the portion of total monthly income those repair costs represent. An individual who has $1,000 in disposable income after expenses every month will be less impacted by having to purchase a $1,000 refrigerator than will someone who has $20 left over at the end of the month.
It is tempting (and easy) to overlook the need to save
Consumers have frankly been spoiled by the technological advances of the latter half of the twentieth century, to the point where it is not unreasonable to expect the more expensive products we purchase to operate flawlessly for much longer than their previous equivalents. For example, it is not unusual for a modern automobile to last longer than a decade with little more than routine maintenance. Modern fuel and ignition systems rarely require repairs, and even the once expected regular tune-ups have become a thing of the past. As a result, we are prone to dismissing the need to save for repairs that we do not think will be needed. Unfortunately, when such repairs are required, the tab is significantly higher, often more than we had paid for new vehicles in the not-too-distant past. And the same mentality applies to other items, as well.
Overwhelmed by choices
America is not the only savings-challenged nation in the world; other wealthy countries have the same problem. As in the US, the difficulties don’t always stem from poverty or from simple lack of motivation to save. People often make poor choices based on incomplete information or unrealistic notions regarding the best vehicle for growing their money. Or they are just overwhelmed and don’t know where to turn for information, so they rely on the very appealing offerings in slick ads or the overly-optimistic claims made by aggressive sales reps. As a result, they end up socking away their earmarked savings in a vehicle that is either too risky or that offers paltry returns.
But it doesn’t have to be that way. To begin with there are good sources online and off to help people make better choices; prospective savers have everything from online savings calculators to online investment tools to help them decide where to put their hard-earned money. Of course none of these online tools should ever be considered as a substitute for advice from a qualified professional, but good information and some solid number-crunching can get the saver or investor started on the right track.
Helping everyone make better money decisions
Calculating ROI on savings or any other investment vehicle should just be a matter of common sense, and more people are becoming aware of the tools available to help them do just that. But even the best savings calculator can’t address some of the core problems that remain as obstacles to healthy saving practices, particularly for the poor but also for middle class people who may be just a paycheck or two away from poverty.
It’s not just about the dollars (or lack thereof). It’s about the dreams, as well
Especially after a bout of economic hard times such as the world has experienced over the past decade, it is understandable for people, both poor and middle class, to focus more upon restoring and sustaining a comfortable lifestyle now than to work toward ensuring such a lifestyle sometime in the future. Especially when a family has little or no money left over after basic expenses, the motivation to save can be pretty elusive.
For this reason, a successful effort to encourage savings must focus not only upon the dollar amounts, but upon behavioral economic factors, as well. People must have a readily understood and embraced reason to want to save; something that can transcend their tendency to spend whatever funds are available to them. For example, they need to know not only how much they can borrow to purchase something, but how much they should borrow, so as to leave them sufficient money to save something after paying their bills.
The savings-challenged also need to be made to understand the real costs of debt. While those who sell credit are great at eliciting information about how convenient a payment program can be, they tend to be less enthusiastic about how much the extra convenience will ultimately cost. In the past, little effort has been put forth by government to educate consumers about the actual costs of credit, with the government’s focus being primarily upon regulating predatory lending practices. There is a growing awareness in government that helping the consumer more fully understand the actual costs of credit is as essential as protecting the consumer from being manipulated.
Although sound government policies are crucial for a healthy economy, there is much that we as individuals can do to increase our own fiscal fitness. Educating ourselves about our options, and making an effort to stay motivated to save and make responsible money decisions, can go a long way towards boosting our own bottom line.
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