In a society where bigger is thought of to be better (homes, cars, jewelry, etc.), images of celebrities and athletes are thown at us in every media outlet, and each person is trying to out-do the next, it is very easy to get caught up in the hype of images.  However, the one thing that gets lost in all of this is the fact that as a whole, this country is doing a terrible job at managing their money. 

According to the Bureau of Economic Analysis, the personal saving rate in the country was below 1% of disposable personal income during the first quarter of 2008.  In fact, the personal saving rate has not crossed the 3% level since the third quarter of 2001.  A chart depicting the Personal Saving Rates from the beginning of 2000 through the first quarter of 2008 can be found here.

For those who don’t know, disposable income is simply your gross income less income taxes withheld (ie: federal, FICA, medicare, state, local taxes).  This is not to be confused with discretionary income, which is the same figure less cost of living expenses (housing, food, utilities, transportation, insurances, etc.)  So, in essence, what this means is that people are saving less than one cent of every after-tax dollar they make.  Maybe it would have more impact if it were phrased another way: Americans are spending over 99% of their after-tax income!  Scary thought, huh?

With the advent of internet banks that pay significantly more than traditional versions , electronic transfers between institutions, and the high rate of computer ownership it is difficult to imagine what possible reason there could be to spend nearly all of one’s income.  Of course, there are necessities such as food, shelter (including certain  utilities), insurance/healthcare but if just those few expenses drain your paychecks each month, there is certainly something wrong. 

At some point in life, each and every person needs to look at their financial picture and really analyze their standing.  Everyone has places in which to cut spending in order to start building their savings.  Changes don’t need to be drastic such as cutting out meat from one’s diet, or living by candlelight as opposed to electricity, but should start someplace.  Something such as the top-level internet service or cable/satellite could be reduced to a lower-level tier, getting rid of a land-line phone and using a cell phone exclusively if you have minutes remaining each month, shopping around for cheaper or bundled insurance (even raising deductibles), or any other non-essential luxury that you can do without can be limited or perhaps eliminated completely.

Let’s face it, nobody enjoys living paycheck to paycheck, but the problem is that many people cannot do without their “status” even at the risk of spending themselves into bankruptcy.  But until people start to care more about what goes on in their own lives, and less about what others are do or how others live, the cycle of overspending and overlooking the importance of saving will continue.

This entry was posted on Saturday, June 14th, 2008 at 1:43 pm and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.