Sometimes, folks have to be “persuaded” to do the right thing by… shall we say, “extreme circumstances.” Such as, for example, a very extreme recession.
Now that so many folks have lost their jobs, and with more job cuts coming every week, those folks who do have jobs are doing something they’ve done very little of for over a decade. Something that is financially responsible and prudent for themselves. I’m talking about saving.
Saving is something that has not been an American tradition for over a decade. As recently as 1993, the personal savings rate was about 8%. But by 1995, it had dropped to about 4.5 %. Check out this graph of the personal savings rate since 1959.
For the last four years, the savings rate has been below 2%…pathetic! In the first quarter of 2007, the household savings rate in the Euro area was 14.4% and in the EU 27 it was 10.9 %. (Here is my source.)
Perhaps the housing bubble encouraged home equity loans so folks could spend, spend, spend against the ever rising value of their homes. I’m really not concerned about the why; only that saving has become almost extinct in this country.
I’ve always been a saver. My friend Fakename says I’m the most frugal person she knows. I can’t argue with that because I am the most frugal person I know. I’ve always lived below my means in order to save. Living below my means doesn’t mean living a spartan life. It means owning a 25-inch non-HD TV instead of a big screen HD LCD one, for example.
I’ve never understood why folks don’t save. From my very first job, my financial philosophy has been: always pay yourself first. That’s what you’re doing when you save – paying yourself. And I can’t think of anyone who deserves my money more than me!
A lot of folks say they can’t save. They don’t earn enough to save. Their expenses are too high to save. I don’t accept that. Most everyone can save something. But not if you wait until the end of the month to save what’s left of your income. That approach is an excuse for not saving.
The only way, and also the easiest way, to save is to just put an amount – any amount – of your income into a savings account immediately after you receive a paycheck. Then, find a way to make do with what’s left until your next paycheck. You may have to forgo a movie, a lunch or dinner out, or whatever. But even just $10 a week will be $520 after a year. Plus interest.
Interestingly, the co-workers who tell me they can’t save even $10 a week because they are in the lower paid jobs are often letting money slip away when they could be saving it. During all my 30 working years, I’ve brought my lunch to work unless the office was going out to celebrate something. I figure that’s easily saving me $20 a week, after the cost of preparing lunch is factored in. That’s about a $1,000 a year just by bringing lunch.
Yet, I see lower paid staff regularly ordering lunch delivery while I’m satisfied with my homemade lunch, often a sandwich, fruit and a can of soda from a twelve pack. It’s the little “luxuries” like these that will add up to a respectable amount over a year. So when these same folks wonder how I can “afford” to travel four weeks a year, I get just a little aggravated.
So many folks are trying to live a lifestyle beyond their means. A co-worker who’s one of those lower paid folks buys a new SUV every 3 years because she likes new vehicles. In November 2006, I bought only my second new car in my life (and I’m 57) after owning a Camry (my first new car) for 21 years and putting less than 125,000 miles on it by renting a car for long trips. Since that co-worker’s husband is losing his job at the end of the month, I suspect she’ll hang onto that SUV a bit longer….
I’ve seen a number of stories, such as this one, about folks who were making $100,000 and up, lost their job and then ended up in strange situations because they had little or no savings to see them through. I have no sympathy for folks with six-digit incomes who spent, spent, spent and failed to save.
My friend Nick said in a comment that what the rich fear most is being poor. While I certainly don’t consider myself wealthy, my family never had financial concerns. Perhaps because of that upbringing I like the idea of never worrying about money. And since I was not financially deprived as a child, I’m not too concerned with spending moneyt now. Whereas I suspect that folks who did not have a lot when they were young are much more eager to enjoy as an adult what they “missed” as a child even if that means having almost no savings.
But the recession is changing spending patterns, which is historically true of recessions. Look at the graph again and see how savings rises in the blue colored recession years.
Normally, economists would applaud increased savings. Savings are a source of capital for the economy. Interestingly, economists are saying that in a recession a high savings rate is not good. Because in a recession, folks need to be spending to stimulate the economy. And at a macro level they are correct.
But I don’t live at the macro level and neither do most folks. We live at the micro level: our life; our business. I’m going to do what’s best for me. And at that micro level, saving always makes sense. If that means someone’s going to lose their job because I’m saving and not spending, I’m OK with that. It’s not my job to keep someone else employed.
Even in the best of times, financial survival is the prime directive. Save yourself.