A recent study revealed that over 40% of Americans have less than $10,000 in savings. That figure covers any kind of savings — retirement, emergency fund, kid’s college fund. While the economic downturn has helped begin a sea change, helped begin to turn American from spenders into savers, there is still work to be done.
The same study found that a quarter of Americans have stopped any retirement savings in response to the uncertain economy. When surveyed, only about half the workers said they have done any sort of retirement planning. Calculating your retirement needs is a vital part of financial planning. What all this tells us is that we don’t know how to deal with the financial crisis and therefore we will ignore it. If we stay mired in the day to day of working, however, and don’t focus on a goal or end result, Americans will find themselves having to work well into their golden years.
In 1978 Congress enacted the changes to the tax code that allowed the first 401k accounts to be created. The creation of the 401k system was in response to the slow decay of pension plans. Between the cultural changes of workers no longer staying with a company for life and the loss of any sort of guarantee of life-long employment (a real chicken and egg scenario), the 401k system was a lifeline for the American worker. Over the years the code has been amended to include important tools like the 401k rollover, the Roth IRA and the individual 401k account for self-employed people.
Over the last twenty years, the news has regularly predicted the demise of Social Security. Instead of spurring people to save more, it has had the opposite affect. People feel adrift. The only cure for this aimlessness is hard-nosed planning and goal setting. No one, certainly not Uncle Sam, is coming to rescue us, so we have to save ourselves.
Start 401k investing today. Start right now. If you don’t have a 401k account through your company, ask how to set one up. Put 10% of your paycheck into the account. In two months you will forget what it was like to have that extra $100 a month. Take a hard, mature look at your spending. Where does your money go? Get a written budget and stick to it. Again, in two months you will be settling into the routine of spending less than you make. Your best wealth building tool, the thing that is going to make your retirement years truly golden, is your paycheck. Don’t squander it.
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