The 2013 scorecard from assetsandopportunity.org is, unfortunately, quite scary.
What is striking to me is that net worth is still on the decline. In 2006 we hit our peak, 96,000 dollars was the median net worth. Now, that number has declined to 70,000 dollars in 2010.
The most striking problem that I saw was the liquid asset poor families. This is considered, by the Asset and Opportunity scorecard, to be an individual or family who could not support themselves for 3 months if they lost their job today.
I think about how this ties into the Infinite Banking Concept and everything we are trying to teach here at BecomingYourOwnBank.com. How are we supposed to become financially stable and independent from banks if we can’t even save 5k.
This just further proves the dire circumstances we are in today. Not only do we need to be getting out of debt, but we need to be self financing and end our reliance on bank credit. With American’s, according to Nelson Nash, paying 34 percent of their money to financing costs, the answer to me seems quite obvious. Start self financing and you will easily end the crisis for a majority of Americans.
To me, it comes with the first step, following your dollars. I wish that they would have asked how many of these people keep a budget and write down the money they spend. My guess is a majority of these people do not.
16 percent of American’s fall under this asset poor category and are making less than $18,000 a year. That is pretty bad, if you have children or you are a single parent.
However, 64 percent of those considered asset poor are single or married couples with no children. So, the real problem in our country is not poverty. The real problem is a spending frenzy of “gotta have it.” And I’m not talking about Coldstone here.
To me, the majority of American’s could be saving more money, period. We do not lack the ability to be saving, what we lack is the desire to save. We are too easily persuaded by advertisers and those around us. We feel like it is our born right to have the best things in life. It’s unfortunate to me.
I had a friend who wanted a car. She budgeted out on paper how much she could afford. She figured out that with the money she was making she could afford a 350 dollar payment. I’m not going to even get into why buying a car based on payment is bad here, so what did she do?
Well, I went out with her to look at cars, I helped her find a decent car that would have been around a 175 dollar payment a month, and then she would have extra money as a cushion to save some money and maybe have a little bit of fun on the side as well.
She didn’t make a decision right then, she waited. A few days later, I saw her driving around in her nice new shiny red car that she bought. Payment a month…$350.
Why do we do this to ourselves? I just don’t understand our mentality. Her justifications went as follows.
“I had to have it. It’s really nice. It fits me much better than the cheaper car.” (Of course it does)
“It will hold its value much better.”
“I am probably going to have kids and a family soon so this will be a good car for a family.” (She was single at the time)
And her list went on.
Let’s do some quick savings calculations. You make 8.3 percent of your income every month if you are on salary or a 40 hour a week employee making an hourly wage. This means that, if you live paycheck to paycheck, you will spend 8.3 percent of your income a month on expenses. So, if you save 5 percent of your money a year, will you have enough at the end of that year to even cover 1 months expenses? No.
So, 2 things come into play. What do you think they are? It’s pretty simple. Frankly, you need to save more AND spend less money. It’s the only way.
Am I the only one with a goal of saving 20% of my income? I think this should be the universal goal. If you fall a bit short of 20% you are a heck of a lot better off than if you fall short of 5%.
In order to save 20% of your income, then you need to be saving roughly 1.7 percent of your income a month. This means that, after taxes, you should only spend 6.6 percent of your paycheck every month, and put the rest in a savings vehicle of some sort.
This may sound confusing, but here is the point. If you are spending 6.6% of your income a month, and you save 20% a month, then every year you save 3 months worth of expenses in your savings.
This means, with no debt, you would be out of the “liquid asset poor” category in 1 year.
Now, what if you have debt. Then try to get as close to 20% of your income going towards debt payments. Pay off debt as fast as you possibly can. Then, when you get out of debt, don’t make the key mistake of thinking you have all this money to spend, start putting away the money you were putting towards debt, to your future.
Now, take that money you have been saving, and start using it to finance your cars, kids education, weddings, boats, whatever it is you buy, and pay that interest back to yourself.
Now even more of that money you are spending is going back into your savings, because interest you used to pay to the bank is going into your pocket.
And maybe you are at 10%, or 15% when you start financing your own cars and putting more money into your pocket. It’s a process, but eventually your goal should be to save 20% of your dollars.
You should see now that by getting ahead in life, and maybe roughing it for 4-6 years, will get you so far ahead in the long run that you won’t have to worry so much about the life crises that will inevitably arise.
Lack of planning only brings with it fear. And you won’t get anywhere operating on fear of the future.
I didn’t want to go off on a whole thing here, but these statistics are just sad…for the most part. To me, there are definitely people out there who need help–especially, in my mind, single parents who are struggling. I feel like there are genuine people out there who are in need.
However, I feel a majority of American’s have the skills and the income stream to make themselves millionaires. However, they trade away their future potential because they want something now. They don’t take the time to realize and implement the strategies that will create a much more lucrative future for themselves. Take the time today to take action, do something that will start you down the path to financial freedom in the future.