“Save for a rainy day” is an old colloquialism that today’s consumers have essentially thrown out the window.  The savings rate for all of 2006 was a negative 1%; Americans not only spent everything they made, they took out credit lines, loans and spent what they put aside.  The trend of negative savings started in 2005, and there are no apparent signs of a return to typical saving levels by consumers any time soon.

The effects of money management behavior like this can be devastating to the individual consumer.  Even with a fairly healthy job market in spite of globalization, there are always risks to job security; layoffs can occur or regular annual wage raises to support increased spending may not occur as expected.  If consumers are departing from savings wisdom that suggests at least six months of typical salary should be set aside, they may have no financial buffer in case they lose their jobs.

Additionally, those who purchased a home during the recent housing boom through creative financing may see a shift in their monthly payments---a shift that would make their homes unaffordable.  Without at least some funds saved for future mortgage payments, the dream home may be lost through foreclosure, or an owner may have to sell a home that has no equity or declining value.

With no savings for retirement, and little hope for the current Social Security system for today’s income earners, what may be expected is continued work into later ages, or an elderly life of economic hardship.

In the least, not having even a few hundred dollars creates additional income lost to interest rates from credit cards used in emergencies, or even financing used big-ticket item purchases that should be paid in cash.

Savings, along with wise credit management and budgeting are vital to financial health (see related articles on “Understanding Credit” and budgeting for more information).

Whether you are employed, self-employed, or a business owner, you have numerous options for saving and planning for your future, your retirement, or at least to buffer emergencies and economic hardships.

If you have fallen into the spendthrift trap like most Americans, and don’t think you can spare any of your income for savings, there are ways to get started, and tricks to keep yourself on track.  The following articles can show you how: 

• “Types of Savings, Part I-V” gives information for savings accounts available to all, employees, the self-employed or business owners, or accounts that are dependent on your savings goals (revise)
• “Savings Goals” will detail different goals to which savings accounts can be applied
• “How to Save for (Any) Day” will detail tips to for “paying yourself first”

References

Consumer-Action.com.   Saving to Build Wealth

Moneywise.   Help Your Savings Grow

FRBSF Economic Letter.   Spendthrift Nation

Washingtonpost.com.   Personal Savings Drops To 73-Year Low

FCIC.   Financial Fitness For The Self Employed

FCIC.   Personal Financial Fitness