Starting Out
Have You Heard the Wake-Up Call?
Mad about the financial crisis? Learn from the nation's mistakes and reevaluate your own money habits.
By Erin Burt, Contributing Editor, Kiplinger.com
October 15, 2008
Advertisement
A recent Gallup poll found that 90% of us are dissatisfied with way things are going in the U.S. now.
And it's no wonder. Our government debt has exploded to $10.3 trillion. On top of that, U.S. consumers are $2.6 trillion in debt. Unemployment is rising, the dollar and consumer confidence are falling, and our retirement account balances have withered by $2 trillion -- about 20% of their value -- in the past 15 months.
There's not much you as an individual can do to make a dent in those national figures. But rather than joining the pundits in a fruitless game of finger pointing, there is something you can do about the state of your personal economy. Don't like where the country's headed? Learn from our mistakes.
Back to basics
If you, like most Americans, are disgusted at the wasteful spending and skyrocketing debt, take this opportunity to evaluate your own financial habits.
There is no secret to financial success. You know the formula:
Live within your means
Get out of debt
Save some money
Yet somewhere in the past few years, we -- along with Uncle Sam -- have lost sight of that. We've fallen victim not only to keeping up with the Joneses, but also to keeping up with our own fantasies. Credit came easy, and we thrived on money we didn't have. We could afford bigger houses, exotic vacations and huge TVs. As our whims ran wild, so did our debt. Live within our means? How archaic. If you can afford the minimum payment, why bother getting out of debt?
And as for savings, you have plenty of time to make up for it later, right? In the mid-1970s, American consumers saved about 9% of their after-tax income. Today, that figure hovers around zero, according to the Bureau of Economic Analysis. After all, you may have rationalized, why bother saving for tomorrow when you can have what you want today?
Welcome back to reality. Living within your means isn't old fashioned -- it's smart and relevant, perhaps more today than ever. Debt isn't a way of life -- it's bondage. Saving isn't a drag -- it's rewarding, not to mention a great comfort in tumultuous times. These are eternal truths that stand in any economy.
If you get anything out of this whole financial panic of 2008, I hope it is this: Life happens. Be prepared.
A few months ago, who would have dreamed that such towering business stalwarts as Lehman Brothers, American International Group or even Washington Mutual would fall in a matter of weeks? Who would have thought other countries would start viewing our government-backed debt as a shaky investment?
It doesn't take long for your personal fortunes to change either. A job loss here, a rising interest rate or car repair there, and soon that "easy" payment isn't quite so easy.
Heed the wake-up call. Take this opportunity to adopt responsibility back into your own money-management routine. This is not something to be dreaded, but rather embraced. Regain a solid financial footing and you'll set yourself up for success, no matter what economic forces pull at your pocketbook.
Now, if only government and businesses would follow suit.
Getting re-started
Below I've collected a handful of stories and tools to help you regain control over your personal finances. Also, be sure to check out our Basics section for more timeless advice on every topic.
LIVE WITHIN YOUR MEANS
Stop Living Paycheck to Paycheck
Save Money on Practically Everything
How to Create a Budget
More Budgeting Tools
GET OUT OF DEBT
How I Kicked the Credit-Card Debt Habit
Live Debt-Free
What Will It Take to Pay Off My Balance?
More Debt Tools
SAVE SOME MONEY
Why You Need an Emergency Fund
Five Best Ways to Save for Retirement
How Much Will My Savings Be Worth?
More Savings Tools
Reader Comments (6)
Posted by: Nomen at 10/15/2008 11:09:46 AM
Back to basics? What does that really mean? To my grandparents that meant things like fixing your own car and canning your own food. The way our economy is going, THAT definition may be coming back real soon. Most folks have now become too civilized to survive.
Posted by: mark at 10/15/2008 03:05:01 PM
Interesting article - I (for many years) saved money by placing it into 401k/IRA's (some into regular savings). Now, a large percentage of my investments are gone. Since my wife is Russian and survived through their troubles, we decided to stop saving (in 401k/IRA) and to spend the money on things we want - not that we are taking on debt, we are just not going to save to have it disappear. With the amount we lost in 401k over the past 8 years, we could have bought a nice mercedes, taken several exotic vacations and still had cash left over. Good bye stock market - time to live for today!
Posted by: Sandy at 10/16/2008 12:34:11 AM
Oh yeah? Well we already do that in our family and now we are being forced to bailout thousands of irresponsible people who knew better. The whole thing makes me disgusted.
Posted by: lucy at 10/16/2008 01:29:33 AM
...put your ego on the shelf and really look and see if you can better your financial situation. Think about where the information is coming from, Kiplinger's magazine, not on the bathroom wall!
Posted by: Cameron Huddleston at 10/16/2008 02:22:53 PM
Mark--I'm an editor here and would be remiss if I question how you plan to support yourself in retirement if you're not going to save anymore. As your wife could tell you, her parents probably counted on pensions in Russia (and many there still can). That's not the case for most of us here.
Posted by: Alice at 12/01/2008 11:48:18 PM
I know someone who moved from Russia to the US as a teen. To some of us he seems to be spending irresponsibly. His coworker tells him he will be living on cat food when he retires. My understanding of Russia, or some other countries with financial troubles, is that they hit a point where money was not worth anything anymore and there was nothing left to buy. If starving to death isn't an issue, and you have a roof over your head, you can get by. Connect with people, spend time together. While you may not have health insurance, people get sick and die anyways. It's just a matter of when. I've sometimes thought that if I could get rid of all the health problems I've accumulated over the last 10 years, I would gladly give up every penny and material thing I owned. That's for someone who's developed a lot of health problems before age 35, and a lot of money before age 35. I don't think that we are too civilized to survive. More too specialized, and too selfish to survive. I think that people didn't know better because their parents and schools didn't teach it to them. And commercials and financial advisers pushed them to spend and to invest unwisely. My parents knew "Don't take on debt." But they didn't know anything about emergency funds or investing/saving for retirement. Dad's small 401k was in money market funds and company stock.