Savings: Does Your Desire to Save Match Your Reality?

“The only money that’s really yours is the money you spend.

Everything else goes to somebody else.”

Teddy Chafolious

Piggy Bank

That piggy bank we remember from childhood wasn’t just a place to store our birthday money and spare change: it was a lesson, a way our parents encouraged us to get into the habit of saving. Many parents even go so far as to deposit half of any monetary gifts their children receive directly into a savings account, just to drive the point home. Adults who took that lesson to heart might set up automatic deposits into long-term savings or retirement accounts from their paychecks every month – a modern mechanism for implementing this age-old lesson.

 

But the quote from Teddy Chafolious raises an important point: What are we saving FOR? Many new investors come to their financial advisors with a number in mind: “I want to save $1 million before I retire.” There’s even something of a fad among millennials who work as hard as they can, save as much as they can, and try to retire before age 50.

 

But why? After all, “you can’t take it with you.”

 

It’s important to have financial goals and committing to a regular savings plan is good first step towards achieving them. But if you treat your long-term financial planning as just a series of targets to hit, or numbers you have to drive up as much as possible, your return on investment is going to be a lot higher than your Return on Life – the feelings of happiness and fulfillment that your financial planning should provide you.

How much are Americans saving?

According to the US Bureau of Economic Analysis, Americans today are saving a lot less than they have in years past. Personal savings in the United States averaged 8.29 percent from 1959 until 2017. The rate for 2017 is hovering around 3 percent. Experts tie this historically low savings rate to increased household spending, which continues to outpace wage increases, and high levels of revolving debt, like credit cards.

Figures like these drive many people to the opposite end of the spectrum: they save as much as they possibly can, especially if they’re nearing retirement.

Finding balance.

We tend to think that the person saving more is doing a better job of managing his or her money than the person saving too little. But neither extreme is going to maximize your Return on Life. Spend too much enjoying the now, and you might end up having to work much longer than you want to – maybe even all the way through retirement. Save too much too early, and you and your family might miss out on the experiences that you deserve to enjoy with your hard-earned money: big family vacations, a new home, creature comforts, entertainment and culture that will enrich all of your lives.

Worse, new retirees who have spent their lives stuck in “savings mode” often have trouble transitioning to the reward mentality that should provide for a meaningful retirement. These retirees worry so much about running out of money that they often neglect their own wants and needs, to their emotional and physical detriment.

Reality check.

So how do you find that balance between enjoying today and preparing for tomorrow?

First, ask yourself if your rate of savings is in line with your reality. Are you saving so much that you’re not enjoying life as much as you could be? Or are you hovering around that 3 percent savings figure, telling yourself that you’re putting enough money away when you know, deep down, that you’re not?

Next, make an appointment with us to talk about your financial goals, and your vision for a dream retirement. Work together to find that saving/spending balance that’s going to align your savings with your reality, and hopefully, your goals and dreams. Find that sweet spot, and your money won’t just be numbers on a balance sheet. It will be yours.

 

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Debt and Holiday Spending

Happy HolidaysAre you ready for the holiday rush and buying spree? Traditionally, the holidays bring us a time of sharing and giving. But the cost of giving has increased over the years and you need to be aware of the burden it could put on your financial situation. With the change in most individual’s financial situation over the past year, this is a good time to reevaluate your holiday gift giving.

Most families spend around $500 on holiday gifts. If you put all those gifts on your credit card, the end result may surprise you. Do you have any idea how long you will be paying off those holiday gifts if you can only make the minimum payment each month? Let’s do some math:

$500 of holiday gifts: Let’s say you charge $500 on your credit card and only make the minimum monthly payment of $20. Some credit cards now are around the 19.99% interest rate for long period payoffs, you will be paying on those holiday gifts for 3 years! And to top it off, you will be paying the credit card company an additional $153 in interest (see Bank Rate website – www.bankrate.com/calculators/credit-cards/credit-card-payoff-calculator.aspx ).

What if your gifts top the $1000 mark: Now you have an after-the-holidays credit card bill starting at $1000, with the same $20 of minimum monthly payment and 19.99% interest rate. Are you sitting down? It will take you 9 years to pay off those gifts you purchased! The credit card company will be happy because you will pay them $1,167 in interest. Yes, that is correct you will be giving $1000 worth of holiday gifts to your friends and family, plus over time more than a $1000 gift to your credit card company.

Not to be a Scrooge, but there is a downside to credit card use if you can not pay it off in a month or two. Another option is the cash envelope and gift list method. Make a list of people you will be buying for, a dollar amount for each person and some great gift ideas you know they will love. Now hit the mall with list and cash envelope in hand. Your goal is not to purchase more than you have in your envelope.

A last tip to remember: the holidays are not always about the purchased gifts. Think back on all the unwanted, unneeded or forgotten gifts you have received over the years. If you were able to have something different from the giver, what would it have been?  What were the best holiday gifts you have received? Was it the homemade cookies, the framed children’s art work or just being able to spend time with your family and friends? The holidays are truly about sharing and giving; think about using your heart and mind instead of your credit card. Have a Happy and Financially Safe holiday!

Kimberly J. Howard, CFP®, CRPC® is a Certified Financial Planner and the owner of KJH Financial Services, a Fee-Only practice located in Newton, MA and Denver, CO (781-413-4879). Please visit us at www.kjhfinancialservices.com or email Kim at kim@kjhfinancialservices.com. Follow us on Twitter @KimHowardCFP.