Why You May Never Be Rich
No, not because you don’t have any rich relatives. There are some financial bad habits common to many in our society. Some of these are entirely obvious, yet are mistakes people frequently make in handling their finances.
- We spend too much money too frequently. This is most commonly referred to as ‘living beyond your means’. We’ve taken instant gratification to a financial level, so instead of saving for a needed item, we put it in on a credit card or some other loan mechanism. In the recent economy, this could be due to a temporary circumstance caused by unemployment or underemployment. According to a recent survey approximately one third of U.S. households report spending more than they take home, which means they are living on credit and/or past savings.
- Many of us save too little or have no savings at all, not even the suggested three months emergency fund. In 1975 U.S. households saved 14.6% of disposable income; now it’s only 4.9%. Only half the households have any savings plan at all.
- We haven’t differentiated between ‘wants’ and ‘needs’.
- When we carry too much debt, it tends to keep us in the hole by using money we could be saving to pay off interest.
- We neglect to read the fine print, which sometimes results in paying more in fees than necessary. Does your interest rate increase if you make a late payment? Is there a grace period for payments? Is there any specific consumer behavior required to avoid monthly service charges? Checking out the small print could save you money in the future.
- Often, saving for retirement is neglected until middle age or later. For example, if you start saving $286 per month for retirement at age 25, you will have almost a million dollars at age 65 (given historical return on investments). If you wait until you are 35, you will have to save over $600 per month to reach the same goal at age 65. It’s not intuitive, but that’s the power of compound interest.
So, what can we do?
- Live below your means when possible.
- Create and stick to a budget.
- Don’t wait to plan for your eventual retirement.
- Differentiate between wants and needs.
- Read the small print.
The University of Kentucky Federal Credit Union has an array of products and services to help you spend less and save more for the future. Contact our Call Center at 859-264-4290 or peruse www.ukfcu.org for more information about how we can help you.