Daily Gains Letter

Three Tips for Getting Your Savings into Shape

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Three Tips for Getting Your Savings into Shape

Even after taking a slight breather last week, the Dow Jones Industrial Average and the S&P 500 are still unabashedly bullish. However, that doesn’t mean the average American is basking in the glow of the greenback.

While a small majority of American consumers have more savings than credit card debt, almost 25% say they have more credit card debt than money in the bank. And 16% say they have no credit card debt or savings. This means that 40% of Americans are in a financially precarious position. (Source: “February 2013 Financial Security Index charts,” Bankrate.com, last accessed April 19, 2013.)

At the end of 2012, total household debt in the U.S. came in at $11.35 trillion. The largest portion of debt went to mortgages at $8.06 trillion, for a national average of roughly $200,000—non-housing debt is at $2.75 trillion. Broken down, student loan debt has increased to $970 billion, or $24,803 per person. Credit card debt rose to $680 billion; 40% of Americans have at least one credit card with a balance of $15,799. Meanwhile, auto loan debt increased slightly over the third quarter of 2012 to $780 billion. (Source: “Household Debt and Credit Report,” Federal Reserve Bank of New York web site, last accessed April 19, 2013.)

No matter how you look at it, this adds up to a significant debt load for the average American family; and our ability to pay off that debt is limited—and becoming tougher and tougher. In December 2012, the average real disposable income was $32,663 per person, lower than the $32,729 recorded in December 2006. (Source: “Real Disposable Personal Income,” Federal Reserve Bank of St. Louis web site, last accessed April 19, 2013.)

Despite the recent run-up on Wall Street, our real disposable income is actually less than it was in 2006, which puts the idea of an economic recovery in doubt. And with all the extra debt we’ve racked up since 2008, it makes you wonder how we can devote extra money to debt reduction or set some aside for a rainy day.

With fewer Americans having fewer dollars to set aside for retirement or to invest in their portfolio, it might be a good idea to get back to the basics and look at the various ways we can make money by saving money.

Save Your Relationship: Differences in the way couples deal with money can ruin a relationship and any plans that couple had for retirement. If you do have trouble managing your money, chances are you argue with your partner about it. Toss in a struggling economy, and it only gets worse. Sit down and create a realistic budget. As a couple, make a list of where you’re at, where you want to be, and everything you want to achieve. By creating a budget, you bring your current and future needs into focus.

Track Your Spending: If you are saddled with debt that just isn’t going away, one way you can save is by knowing where you spend. Start by writing down all of your purchases and expenses for the last six months; include all the “needs,” like housing, food, and clothing, and all the “wants,” like entertainment, vacation costs, cable, and dining out—expenses that are non-essential.

Think “Cash Is King”: It might sound old-fashioned, but paying with cash can keep your spending habits in check, because how you pay for an item can have a direct impact on how much you spend. It’s easy to pull out a card and pay for a $250.00 item using invisible money, but it might not be such an easy purchase if you force yourself to live on a cash-only diet. Using cash discourages spending, while carrying credit cards encourages it. Try living on cash for a week—it’s tougher than it sounds.

Before you can make changes that will improve your financial outlook and increase your retirement savings, you need to first know how you’re spending your money and what you’re spending it on.

Being financially fit doesn’t happen overnight. It takes a realistic budget and a strong commitment to change. If having too much debt, not enough savings, and a desire to retire comfortably isn’t enough of a motivator, I don’t know what is.

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