A Quick Note on the Savings Rate

August 24, 2005:  Weston, Florida

 

This weekend, I came across an article about the alarming lack of savings rate of Americans, compared to historical savings rates and to our European counterparts.   I've seen several articles like this lately, bemoaning how Americans used to save something like 20% of their income;  now we're spending 102% of what we earn.  We've been racking up debts at a rate equal to the growth rate of Brittney Spears' belly.

 

We're a consumer culture - thanks to the good people of Visa, American Express, Mastercard and the like, it's easier than ever to buy on credit.  Think about the commercials for credit cards - the industry has been on a successful P.R. campaign to change our mindset from being credit-adverse a few decades ago to extremely comfortable with this spending as a normal, everyday thing.  I'm in awe of the job done by the advertising geniuses to change public opinion.

 

But the flip side of the glamor of using credit cards is laid out these articles. They point out that spending instead of saving will result in baby boomers and the next generation being unable to afford to retirement.  (What's in your wallet?  Food stamps!)

 

When I take an application, I look at the person's assets and liabilies.  As a mortgage planner, I try to look past the four corners of the application to see where the mortgage fits in the person's overall financial picture.   During an application, before we get to discussing how the person can get a 30 year fixed for .125% lower on the internet or $2.50 less in closing costs, I will ask questions about issues that are more important, such as "What is your retirement plan?"

 

Frequently, that question produces mumbling, eye-contact aversion and a guilty admission that there is no plan in place.  But I'll tell my client, to the contrary - your plan, based on your thin assets and heavy liabilities, can be summed up as follows:

 

"Your retirement plan is death!"

 

You're going to work until you die, unless we re-structure your debts so that they're tax-advantaged and bulk up your assets.  Sure, I say this for shock value, but I want to get an important point across about what the true focus should be - planning for a comfortable future.

 

This means consolidating or paying off high interest rate credit card debts by wrapping them into the mortgage, which can save several hundred or more than a thousand dollars a month in cash flow.  The excess cash  flow needs to be applied in the right way - building an investment portfolio, paying down the mortgage or taking care of other important financial planning issues.  (Not buying jet skies, in other words.)

 

Realizing your top priorities is the first step.  Coming up with a plan is the next.  Executing your plan is the last and most crucial part of the equation.  It takes honesty and discipline.

• Gas Used Driving Your Rear End to An Appointment with a Qualified Mortgage Planner:  $2.00
• Beverage Consumed During Appointment:  Free**
• Knowledge of How to Secure Your Financial Future:  Priceless!

 

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**Take it easy -don't get excited about this feature.  Typical choice of beverage includes water, tea or cofee (no espresso, latte's or anything that fancy!).