Americans need to save much more money. This is true for people’s personal financial health. And it is true for the long term health of the economy. Of course the credit card immediate gratification culture doesn’t put much weight on those factors. And if Americans actually do reduce their consumption to save more that will harm the economy in the short term. But since those reading this are people (the economy can’t read) the smart thing for most readers is to save more to create a stronger financial future for themselves.
Turmoil May Make Americans Savers, Worsening ‘Nasty’ Recession
…
From 1960 until 1990, households socked away an average of about 9 percent of their after-tax income, Commerce Department figures show. But Americans got out of the saving habit starting in the 1990s
…
“Consumers are starting to realize that they’ve been living in a fantasy world,” says Lyle Gramley, a former Fed governor who is now senior economic adviser at Stanford Group Co. in Washington. “They will have to begin salting away money for retirement, their children’s education and other reasons.”
Americans have a way to go to catch up with their counterparts in other countries. The 0.4 percent of disposable income that U.S. households saved last year compares with 10.9 percent for Germany and 3.1 percent for Japan
Related: Americans are Drowning in Debt – Too Much Stuff – Financial Illiteracy Credit Trap
What Is Frugality? What Are The Best Examples?
* Money – less money on replacements and monthly utilities.
* Time – less time at hardware stores and climbing ladders.
* Earth – less burning of fossil fuels to generate electricity.
Very nice example. I do think including time in personal finance discussions makes sense. At times people seem to spend far too long on minimal savings (and/or buy things that break, don’t work well, require extra time to use…), in my opinion.
Related: New Graduates Should Live Frugally – Frugality Versus Better Returns – Too Much Stuff
There are ways to get more vacation time
…
According to Robinson, mentioning to your boss that you are willing to go on vacation without any pay can often be a very effective way to get some time off.
…
Take what you get: It may seem obvious, but many people don’t check how much time they are entitled to take off. Many others are reluctant to take the average nine days of paid vacation to which they are entitled, often because they are afraid it will show weakness or lack of loyalty.
Joe Robinson said there may be “ongoing subtle discouragement” in the work force, but employees should remember that they are entitled to their vacation and should not be afraid to take it. In 2005, U.S. workers collectively turned down a staggering 1.6 million years of vacation time that was offered to them.
I find these discussions of how little time off we have interesting. Similar studies look further back, at hunter gathers and find similar patterns. Still they are a bit misleading. What about total hours worked during the year (for peasants). What about the conditions of work and life. What about life expectancy… Still I agree with the thought that more vacation is more important than more work to fund more spending. I would rather reduce my spending and have more free time. I have taken unpaid vacation myself, and have worked part time, at times, to buy myself more freedom to spend my time as I wished.
Related: Vacation: Systems Thinking – Workplace Experiments
I figure it is pretty easy to figure out if I can afford something. Do I have cash available (my paycheck already has retirement funds etc. deducted before it shows up in my checking account)? I also have a separate saving account for medium term savings and a separate brokerage account for long term investing (and a Roth IRA). So the money in my checking account basically is how much I have to spend. If I have the money and want to spend it, I can afford it. If I don’t have the money, I can’t afford it. I can just save until I can.
There is a nice post, How to find out if you can afford something, that explores when that simple concept isn’t quite enough.
I made this mistake when I decided to start a saltwater aquarium. I found a great deal on the tank and some supplies on Craigslist, and went ahead and bought it. What I didn’t factor in was the costs of additional supplies, fish and ongoing maintenance. Turns out, saltwater aquariums are an expensive hobby. In hindsight, I wish I had done my homework a little more.
Good Advice. Related: Americans are Drowning in Debt – Too Much Stuff – Add to Your Roth IRA – Teaching Children About Money Matters
Retirement planning is a huge financial need and one of the areas where financial literacy can pay off very well. Understanding the incredible power of compound interest can be used to start your retirement savings early and provide you with a huge benefit. Understanding the risks of inflation can guide your investment decisions. The recent Business Week Retirement Guide is very good. In Spending Safely, they explore how to spend while preserving your capital in retirement.
…
Bengen now suggests that the 4% figure – actually 4.1% for a 60/40 portfolio of large caps and bonds and 4.5% if you toss in small caps – merely seems impressive when plugged into Excel (MSFT) spreadsheets. In practice, the strategy, which Bengen stopped using with his own clients about three years ago, is inflexible and unrealistic he says – and the formula is too stingy.
…
Flexibility is factored into Bengen’s revised approach, which permits withdrawals to fluctuate within guidelines. His “floor-and-ceiling strategy” suggests that an initial withdrawal rate of 5.16% would be appropriate if a retiree pares back subsequent withdrawals by as much as 10% of the initial withdrawal during hard times (the floor). On the other hand, a retiree could withdraw extra cash equaling up to 25% of the first-year withdrawal (the ceiling) when the market is strong.
This adjusted thinking is correct I believe. People want simpler answers but some things just require a more complex understanding.
Related: How Much Retirement Income? – Add to Your Roth IRA – Retirement Tips from TIAA CREF – Our Only Hope: Retiring Later
New research confirms feeling powerless leads to expensive purchases. So in addition to learning about personal finance logically it can be important to build your self esteem in order to improve your financial position. For many people understanding human psychology helps them take more control of their own life. And can help when helping others.
In a study that may explain why so many Americans who are deeply in debt still spend beyond their means, authors Derek D. Rucker and Adam D. Galinsky (both Kellogg School of Management at Northwestern University) found that research subjects who were asked to recall times when someone else had power over them were willing to pay higher prices for status-symbol items.
“This increased willingness to pay for status-related objects stems from the belief that obtaining such objects will indeed restore a lost sense of power,” write the authors.
Instead of allowing yourself to submit to this impulse you will put yourself in a better position if you refrain from trying to buy a sense of power. Take a real look at your position and make changes that move your personal finances in the right direction.
Related: Buy Less Stuff – Too Much Personal Debt – Financial Illiteracy Credit Trap – Curious Cat Investing Library: Personal Loans
Update: I would not even consider using Vonage. Any company that takes you money using there online site and then refuses to cancel your service without you call them is exactly like the traditional phone companies they try in ads to say they are different than. Then you call and then force your through a ridicules voice mail tree and then they tell you you have to call back between 9-5 on weekdays to have the privilege of not having them take your money. Completely unacceptable behavior. You can get VOIP phone service without a monthly free now via Ooma by purchasing a device to plug your broadband internet connection into (I got mine for $203 via Amazon).
old post:
Cutting expenses is a great way to free up money to add to savings.
A couple years ago I switched to Vonage for my phone service. They provide phone service through my DSL high speed internet line. I play just $18/mo for local and long distance calls (this is for 500 minutes or less – for $29/mo you can get unlimited calling in North America and Europe). I still use my same phone (I just plug my regular phone into a modem they provided). You do lose the ability to make phone calls when the internet is down which happens if the power goes off – people can still leave you voicemail). I have been very happy and get free voice mail and free caller ID.
More recently I picked up a prepaid phone from Virgin. I pay only for the time I use (no monthly charges) – 25 cents a minute for the first 10 minutes any day and 10 cents a minute thereafter. There are no fees for calling from out of your service area and you have a regular cell phone number. They require I add a minimum of $15 every 3 months to the account but if I don’t use that much the balance just keep growing. This is ideal for anyone that doesn’t spend much time on cell phones. Now some people are very attached to their cell phone. Then this isn’t a good way to save money but for those that don’t feel the need to to stay in touch at all times this is a good option to stay connected when you want without having to pay high monthly fees.
Together I save at least $35/mo. (over $400 a year) and loose nothing I value. I would have to earn an extra $700, or so, to have the same impact (I have to pay taxes on additional earning).