For every person who hits the jackpot millions don’t!
A lottery win for example can make someone a multi-millionaire overnight but the money has to come from somewhere. It is from the multi-millions that don’t win.
The strategy of believing that the future will be financed by a windfall is built on extremely shaky ground. The problem in the USA today is not so much that a huge number of citizens think they will suddenly have a windfall.
It is that they have not sat down and grasped how difficult life will become when they approach retirement and have minimal savings to fund their lives once the regular pay check does not come in each month.
It is almost as if money is a dirty word and ordinary people don’t want to talk about it, much less seek advice on money management and the things they should be doing to put their financial affairs in order.
A budget with a monthly surplus should be the aim of everyone and the surplus should be set aside for the future, both retirement and an emergency fund to meet all eventualities.
The question is how much everyone should save, especially for their retirement fund. With life expectancy increasing there is the real prospect of people living 20 years after retiring and needing the money to cover those years in reasonable comfort.
No one can predict the stock market and of course the recession destroyed many well prepared plans. It makes planning difficult though there are basics that everyone should follow and they include avoiding expensive debt.
Credit card debt in the USA is huge and everyone carrying a balance is paying high interest on the balance each month after the due payment is deducted.
A simple step is to pay off such balances with a personal loan; it is much cheaper and can clear one of the major obstacles to saving.
Those who do turn to advisers or read the regular financial articles on the subject will probably come to the conclusion that they need to be saving a minimum of 10% of their income towards retirement as a starting point.
The later your starting point the more that base should rise. Clearly current spending habits suggest that the number doing this is a tiny majority. Those performing well and reaching 15 or 20% of their income hardly register.
There is no reason why 10% is unrealistic but it usually involves a proper analysis of current spending and some fairly radical changes. That means more than settling credit card balances.
Monthly economies elsewhere will be necessary. That may be in areas of insurance, utilities and telephone supply.
The majority of Americans cannot find a spare $500 cash to meet a repair bill. Sounds surprising but many would have to reach for their credit cards for more than just convenience.
Most are apparently reluctant to talk to advisers because they believe the advice will cost more than the value of that advice in monetary terms.
The Saving Habit
If you are prepared to take a single piece of advice, although it is fairly all-consuming, you need to change your mindset and get into the habit of saving.
Compound interest helps savings to grow far quicker than you would expect but it needs time to work. In your 20s small regular savings will grow enormously by your retirement date.
If you are middle aged and older, time is running out. That said you still need to start to save, having eliminated the expensive debt mentioned above.
It may be that you can’t change your auto as frequently or need to cut back on your clothing and entertaining spending.
The alternative if you are not prepared to do that is to accept that in your retirement years you will struggle to buy any new clothes, to eat out even on a special occasion and an automobile might be completely out of the question.
Believe it because if you are going to rely purely on Social Security that will become the reality. Surely you can be happy without being surrounded by material things that look nice but make no real contribution to your daily good health and well-being.
In the end you don’t want to make the wrong choices with your retirement because it could cost you big and the last thing you want to do is try to play catch up.
So what are you doing to make sure you have a successful retirement? Share your thoughts and comments and stories below.