Financial Abundance

If you are like most of the people I talk to, you are spending a considerable amount of time worrying about how the recent stock market downturn will affect your financial future. While losses in the stock market are a serious concern, your own actions may be even more damaging to your financial future.

The personal savings rates in the US have deteriorated from 10% in 1985 to 5% in 1990 to 2.5% in 2000 to 0% today. Personal savings rates today are the same as they were from 1929 through 1931, after the stock market crash that led to the great depression. This dramatic reduction in personal savings has been caused by an equally dramatic increase in personal consumption.

In inflation adjusted dollars, per capita consumption in the US has climbed 25% from 1985 to today. Including inflation, per capita spending has increased 150% since 1985. From these figures, it is easy to see why the average American now saves nothing, compared to a 10% savings rate in 1985!

What may not be clear is why this has occurred. We all know that, until recently, credit was extremely easy to get. Credit cards, interest only mortgages, home equity loans and 0% down car loans helped transform us from a society of savers to a society of debtors.

Since the vast majority of our Gross Domestic Product now comes from consumerism, US industry encourages you to spend. Our financial institutions have made significant profits from credit card interest and other forms of personal indebtedness. Even our government encourages spending over savings by providing tax deductions for mortgage interest while taxing savings interest at the same rate as earned income. State and local governments get much of their income from sales taxes that are placed on the goods and services that you buy.

Our President has said that we are addicted to oil. I would take that statement a step further and say we are addicted to consuming. All you need do is notice how often the media refers to you as a “consumer. “ Have you ever seen the US population called “savers” in our media?

If you have an addiction to consumption, now is the time address your addiction. Modifying an excessive spending habit is a way to begin your journey toward financial abundance. So how do you begin the process of transforming from a consumer to a saver?

When you get your pay check, always pay your self first by putting a portion of your paycheck into savings. This can be through a 401(k), a self directed IRA or a taxable savings account. If you began saving $50 per week at age 30, with a 7% investment return, your $50 payment would be worth almost $400,000 when you are age 65. If you are older, you will need to save more, but you will likely have more income than you did at age 30.

As your pay continues to increase, try to increase your saving amount until you are “paying yourself” at least 10% of your take home pay. By paying yourself first, you will likely have adequate resources to live an abundant retirement.

By learning to live on the other 90% of your income, you will begin to break your “consumption addiction.” The “cartel” of industry, financial institutions and the government are all hoping that you will never break this addiction. Only you can decide if you will become a saver or remain a consumption addict.