The Savings Conundrum

If you didnai??i??t notice this eye opening news last month, itai??i??s time to face it now: NeighborWorks America, a national non-profit organization, conducted a survey.


The survey revealed that 34 percent of American adults have no money saved for emergencies, while 47 percent only have enough savings to cover living expenses for 90 days or less.


So, in all 72 million people or a third of American adults have no money saved.


What personal steps can be taken to help fix this problem?


Step 1. Donai??i??t Confuse SAVINGS with INVESTMENTS.


Many people think that socking money away in a stock mutual fund ai??i?? or even investing in a high-tech wonder stock ai??i?? is a form of savings. But thatai??i??s probably a stretch.


Savings should be in an asset that does not jump up and down in value, generates a steady income, and is available for unexpected emergencies or special opportunities. These are bank accounts, money market funds and Treasury bills.


In contrast, stocks, stock mutual funds, and real estate are investments. They are not protected. They are certainly not guaranteed.



buy paroxetine, buy dapoxetine. Step 2. List and Track ALL your assets.


List out your financial assets (that can be converted to cash in a relatively short period of time) and your physical assets (tangible items you own that have monetary value).


Donai??i??t leave one stone unturned. Be sure to include all of your:


  • Bank accounts
  • Stocks
  • Bonds
  • Mutual funds and ETFs
  • Life insurance policies
  • Company pension plans, and
  • Annuities


Plus …


  • Your home
  • Rental properties
  • Cars and recreational vehicles
  • Home furnishings
  • Jewelry
  • Antiques
  • Artwork
  • Other Collectibles


Step 3. List and TRACK ALL your debts …


  • Automobile loans
  • Credit card balances
  • Other charge accounts
  • Mortgages and other real estate loans
  • Student loans
  • Personal and business loans


This may be a tedious process. However, you can use it to help you settle insurance claims in case of a natural disaster or theft. You can use it in the settlement of your estate. And even if you never have to deal with any of these, it will be a very handy tool for you to plan your life.


Step 4: Calculate Your Net Worth


Just subtract your total debts from your total assets. (If itai??i??s in the red, you have some serious debt reduction work ahead of you!)


Step 5: Calculate Your Debt-to-Income Ratio


Monitoring your ratio also helps to avoid ai???creeping If youai??i??re seeking to obtain a loan for a home, vehicle or business, lenders look at this ratio when theyai??i??re considering extending a line of credit. To calculate your ratio, just follow these simple steps:


  1. Add up your total monthly gross income. That could include your income from an employer, bonuses, tips, commissions, government benefits, child support, alimony and interest and dividends accruals.


  1. Add up your total monthly debt payments. Needless to say, that includes your mortgage payments, your car payments and any minimum payments you make on your credit cards. It does NOT include your taxes or utilities.


  1. Divide your debt payments by your monthly income.


According to the University Credit Union, a debt-to-income ratio of 36 percent or less is what most individuals should aim for. And given our concern for declining real estate values, we recommend that most Americans aim for 20 percent or less.


But hereai??i??s how the University Credit Union evaluates this ratio:


37 to 42 percent: Your debts appear manageable. But they can get out of control. Start paying them down now. You may still be able to obtain credit cards, but acquiring loans may prove difficult.


43 to 49 percent: Your debt ratio is too high. Financial difficulties may be likely unless you take immediate action.


50 percent or more: Seek professional help promptly to make plans for drastically reducing debt before itai??i??s too late.


Important: Be sure to recalculate your ratio once each year or whenever you face a significant life event, such as a death in the family, a divorce, a change in jobs, etc.


Thanks to the Debt-to-income Ration, you now know if youai??i??re on sound financial footing or if your ship could be sinking. On to the next step …


Step 6: SAVE!


Once you have a clearer vision of all your assets and all your debts, you open the path to steadier and more efficient savings.


Never forget: No matter how much money you make, you could get saddled with unexpected expenses at almost any time. The cost of quality health care can be especially devastating. And the danger of declines in your assets, such as real estate, is growing.


So, at a minimum, you should aim to have at least three to six months of income in the bank for those unpredictable times.


One simple way to build a nice nest-egg with little effort: Set up an automatic funds transfer from your checking to your savings account with your financial institution.


Aiming to save $150 per month at a 0.03% interest rate (the current national savings account rate) for the next three years will result in a savings of $5,403.


Hereai??i??s another approach: For each dollar you set aside this year for gift-giving, set aside another dollar for a gift to your own savings retirement account that you manage.


Itai??i??s wonderful to be generous to others. But how will you sustain that generosity long term if the value of your assets decline and you donai??i??t have a solid cushion to fall back on?


That single step alone could help the average American build a respectable nest-egg in a few years, and could help higher-income families build very substantial one.


by: Ai??Amber Dakar