Saving Money to Insure Your FutureThe Smiths are college graduates with two healthy children, good jobs, a home worth about $325,000 (median home value in 2018) and two relatively new cars. To the casual observer, they’re doing well. Yet anyone taking a close-up look would find a few flaws in their situation, especially when it comes to their finances. You see, the Smiths have: Virtually no savings; Retirement plans available through employers but with contributions at a bare minimum; A portfolio of several hundred shares of stock bought as a result of a tip from a friend - the investment has gone sour; and Large debts on their home, cars and credit cards. Obviously, Mr. and Mrs. Smith could benefit from a course in financial fitness. Their greatest need is to take a long, objective look at their financial picture AND make some rather radical adjustments! Unfortunately, the hypothetical Smiths aren’t a lot different from many Americans today. Statistics indicate that a large number are saving about 4 percent of their disposable household income, far less than citizens in other countries. For example, Australians and Germans save about 10 percent.* In addition, American workers (similar to the Smiths) aren’t taking full advantage of their employer’s retirement plans, most making pension contributions of only about $2,900 each year and most fail to take full advantage of their employer’s matching contribution. Most retirement specialists recommend you save 15% of your spendable income each year. Perhaps most ominous, however, is the amount of personal debt Americans have been incurring. Household debt (including mortgages, credit cards, auto loans and student loans) increased to $13.15 trillion, according to statistics from the Federal Reserve Bank of New York. * According to statistics from the Organization for Economic Cooperation and DevelopmentImprove Your Own Financial Future The Smith scenario and previously cited statistics paint a gloomy picture, but there are steps you and your family can take to prevent similar results. Achievement of financial security comes from adjusting your current financial picture in light of future goals. Far from being easy, the whole process requires a good amount of self-sacrifice and more than a few trade-offs along the way. Check your spending habits For November 2017 the average American household carried $137,063 in debt, according to the Federal Reserve’s latest numbers. Yet the U.S. Census Bureau reports that the median household income was just $59,039 last year, suggesting that many Americans are living beyond their means. The only way to objectively view your finances is to set down on paper what you’re currently spending. No one enjoys this job, but it’s necessary if you’re serious about a plan to ensure financial well-being. Keep a log of what you spend your money on for a while (account for every cent, including all cash, check and credit purchases). Write down everything from house payments to dinners out, grocery purchases, haircuts, parking fees, entertainment expenses, doctor visits, etc. Try to list each item by category – e.g., amounts spent on movies out, Internet downloads, and cable TV could all be listed under a category called Entertainment Costs. At the end of the period, total each expense category and get ready for a huge surprise - you’ll probably find that those “little” extra miscellaneous items have made a sizable dent in your pocketbook. After you examine the totals carefully, you’ll begin to see a trend. It’s then that you need to ask yourself, “Where can I cut down?” Once you have a feel for the expense side of the ledger, concentrate on your income - salaries, pensions and annuities, interest, dividends, etc. Total everything you received for a given period (e.g., a month, a quarter, or a year) and subtract from it the grand total of all your expenditures for that same period. If your answer is positive, you’ve done all right - there’s a profit. If your answer is negative, you could be faced with a problem. Debt Could Be The CulpritOne reason many people can’t seem to get ahead financially is that they have a lot of debt - mortgages, student loans, credit cards, etc. And it’s difficult to reduce debt unless spending habits change. Probably the best place to start cutting back is with the credit cards. Most people have a huge pile of them (the average is 4-7 for most Americans). Credit card spending is expensive. Assume, for example, that the balance on your Megabank card is $1,000 on which you’re charged an annual interest rate of 20 percent. If you pay the minimum $20 per month on your account, your total yearly payments will be $240 ($20 x 12). Yet by the end of one year, you will have only reduced your debt balance by $44, as shown in the following chart: