A recent study shows that for the majority of Americans, a mere $400 unexpected expense would force them to have to either go into debt, or sell something just to cover it. The same report found that while just over half of Americans are saving at least some portion of their income, a full 1/5 were spending more than they earned. (Source: Federal Reserve Report on the Economic Well-Being of U.S. Households in 2013.)

Meanwhile, another Federal Reserve report, the 2013 Survey of Consumer Finances, showed that the combined retirement accounts per household nearing retirement averaged only $111,000, which would equate to approximately $500/month in retirement income. How well do you think you and your spouse could live on $500/month?

Unfortunately, this sad state of affairs will likely only get worse, as thousands of baby boomers retire every day, and the burden on Social Security and other government programs will only increase. Household debt continues to grow, and we continue to live beyond our means on a grand scale.

But we've only been doing what we've been told, right?  All of the financial gurus tell us to invest in the stock market, buy mutual funds and hold them, max out our 401ks, etc. While we don't all follow this advice, many do. And when they do, they may just end up with $500 in monthly income in retirement, which means they can't really afford to retire at all. But jobs are still hard to come by, especially for senior citizens. I think we are looking at the beginnings of a financial crisis never yet experienced in this country. And it's a scary, scary picture.

So what is the answer? First of all, we've got to turn the current financial paradigm on its head. While investing in the market is all well and good if you've got tons of extra money that you can afford to lose, saving HAS to come first, and HAS to be a priority. I have talked before about the importance of saving, but obviously, with stats like the ones above, it bears repeating! You should have AT MINIMUM, 2 year's worth of income saved in a safe place before you start investing - and then, only do so with money you can afford to lose, or are at least 20 years away from retirement.

I will admit, financially things are a big tight for us right now, as we are carrying 2 mortgages until my husband's old house sells. But honestly, if I hadn't been so diligent about saving for the past 10 years, we wouldn't even have a new house - let alone money to help furnish it, and make an extra mortgage payment every month. Although it is sometimes stressful trying to purchase furniture for our new home, make the repairs that need to be made, and pay for two mortgages at once, the peace of mind that comes from knowing we have savings to cover our needs for a while is almost indescribable. Don't get me wrong - I don't necessarily relish spending down our savings, but I am happy to do it if it means staying out of debt, and not fighting with my husband (too often) about money! These are the "rainy days" they tell you to save for I guess - and I am living proof that it definitely pays off! I am looking forward to getting things settled and being able to start saving even more, for future needs that we may have when we start a family.

People often refer to my Bank On Yourself plan as "an investment," but I am quick to gently correct them. Because if you go by the definition of "investing" as putting money into something in the hopes of getting more out of it than you put in, Bank On Yourself is definitely not investing. It is saving. It is putting money aside for the future, somewhere that it will grow safely and steadily, and never go backwards. That is saving. And when you can save into these types of plans on a consistent and disciplined basis, over a long period of time, I don't see that you even have any need for investing. I just don't feel a need to take risk when my financial plan accomplishes everything that I want and need without it. But maybe that's just me.

If you want to invest in the market, and you have a long time-frame to do it in, and a large cushion of savings already set aside, and plenty of extra cashflow, go right ahead. Otherwise, my advice is to forget about investing until you have the savings part taken care of. I can absolutely promise you that you will not regret it.

Yours in financial security,


03/12/2015 5:37am

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Greetings! Very helpful advice in this particular post!


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