The Way to Save: A 10-step Blueprint for Lifetime Security
224
The Way to Save: A 10-step Blueprint for Lifetime Security
224eBook
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Overview
Helping a new generation of nonsavers get back on track, Ginita Wall offers a hands-on approach to achieving lifetime financial security, no matter how modest the income.
"A disciplined approach to managing personal finances that first recognizes the need to overcome certain common psychological barriers that prevent many people from achieving control of their money. Chapters written in checklist fashion reinforce her advice to become organized." - Library Journal
Product Details
| ISBN-13: | 9781466891876 |
|---|---|
| Publisher: | Holt, Henry & Company, Inc. |
| Publication date: | 03/10/2015 |
| Sold by: | Macmillan |
| Format: | eBook |
| Pages: | 224 |
| File size: | 2 MB |
About the Author
Ginita Wall is a certified public accountant and certified financial planner with more than twenty-five years' experience working with people and their money. In addition, she is the founder of the Women's Institute for Financial Education (WIFE) and the author of the book Our Money, Our Selves.
Read an Excerpt
The Way to Save
A 10-Step Blueprint for Lifetime Security
By Ginita Wall
Henry Holt and Company
Copyright © 1993 Ginita WallAll rights reserved.
ISBN: 978-1-4668-9187-6
CHAPTER 1
SAVING FOR A SUNNY DAY
What are daydream fantasies made of? You'd be surprised. Pollsters say that people think more about money than sex! Money is something we deal with every day, and yet we don't fully understand it. Like sex, money can be a very positive part of life, but when money matters go awry, the negative impact is often overwhelming.
Money is the harvest of your efforts. To deal with money well, you must learn about yourself—your needs, goals, desires, and money fears. What does money mean to you? Is it something to be hoarded, spent, worried about? Does it give you security, bring you pleasure, cause you guilt, spark disagreements with your family? Does money enchant you, mystify you, or elude you?
Smart money management is your best protection against money troubles. If you are able to anticipate your financial needs, manage your money to meet those needs, and protect yourself against unanticipated financial setbacks, money will be a positive factor in your life, enhancing your experiences and providing you a framework of security. The philanthropist Charles Kettering once said, "I expect to spend the rest of my life in the future, so I want to be reasonably sure what kind of future it is going to be. That is my reason for planning."
The cornerstone of any financial plan is saving. Since ancient times, people have known that smart money management begins with saving for the future. In nomadic gathering tribes, there was no way to store the value of their labors. But as agriculture developed and people established permanent settlements, they began to store goods and trade them. At first, their monetary system used commodities, primarily grains and cattle, which could be traded or consumed. Their "money" grew, because seeds could be planted and cattle bred, thus multiplying the wealth of individuals and tribes. Since this primitive form of saving and investing began, building capital has been important for economic prosperity and growth.
But in recent times, we have lost touch with this basic concept. In today's consumption-oriented economy, we are neither saving nor investing at the rates of generations past. We are consuming our economic harvest rather than letting it multiply. In essence, today the United States is eating its seed corn.
What Went Wrong?
Economic mismanagement is not entirely new. Herbert Hoover once said, "Blessed are the young, for they shall inherit the National Debt." But over the past fifty years or so, the United States has experienced a tremendous personality change. By and large, Americans growing up during the depression acquired a deep-seated respect for money as they witnessed financial devastation. This generation of savers devised a sure-fire way to get everything they wanted: want less.
Rising inflation after World War II changed all that. By the 1970s, the failure of inflation-reducing programs created an alteration in the American attitude toward saving. A penny saved was no longer a penny earned, as that penny rapidly lost buying power in the financial arena. As prices spiraled upward, it was smart to borrow to purchase that new television or refrigerator, because the tax-deductible interest was less than the rate of inflation. Our inflationary economic system rewarded spenders and penalized savers.
As people rushed to purchase consumer goods before prices rose, this demand placed greater inflationary pressures on the market, and prices rose even faster. The normal brake that inflation was supposed to exert on the economy gave way. According to the basic concept of supply and demand, as demand causes prices to ratchet upward, those increased prices will slow demand, and prices will fall once again. But public perspective shifted. People no longer trusted the economic principles of supply and demand. They believed that steady inflation would continue, so they continued buying at any price.
The personality difference between the generations is clear: Our depression-era parents couldn't spend a dime, and their inflation-era children couldn't seem to save one. Borrowing and spending became a way of life, as people mortgaged the future to ensure the present. For a while, it didn't seem to matter. For most people, as long as wages kept increasing, inflation did not impact on their daily lives. Although they had no savings, their house values soared, so people rationalized that their savings were really in the value of their houses. Since they couldn't withdraw the equity in their houses as easily as they could withdraw money from savings, the home equity loan was born, allowing people to tap their home equity for automobiles, vacations, and everyday living expenses.
Inflation drove costs upward, and those retired on a fixed income were hurt, as the purchasing power of their retirement income dwindled each month. In the early 1970s, cost-of-living increases became a permanent part of social security, federal, and military pensions. With automatic increases, the security of the American retirees was assured. But as inflation-indexed retirement payments increased, budget surpluses dwindled, disappeared, and turned into deficits. The United States became a debtor nation, borrowing from its people and foreigners to keep the economy solvent.
Welcome to the Nineties
Now that our nation and its people are deeply in debt, it takes increasing amounts of personal income to pay interest on our personal debt and to pay taxes to the government to service its debt. Nearly 40 percent of our country's income, excluding social security, is spent on interest payments, so the United States must continue to borrow to survive, and that new debt weakens our ability to meet expenses in the future. Many households have encountered the same problem with debt overloads. In 1950, only 5 percent of disposable income was used to pay off debt. By 1980, this figure had climbed to nearly 30 percent. In 1982, household debt was 62 percent of income. By 1992, it had risen to a record 95 percent of income.
By mortgaging the future to pay for the present, the future has become much less certain, and anxieties about money are as common as they were in the 1930s. Some people worry that looming economic disaster will destroy their financial security. Many people are concerned that their children, overwhelmed by debt and taxes, won't live as well as they do. They are concerned about their own personal and financial well-being. They want financial security, enough money to last the rest of their lives. Indeed, some think it would be nice just to have enough to last the rest of the month.
Inflation Isn't All Bad
Money supply, yield curves, and federal discount rates are all important, but to most people, the major economic problem is inflation. And the problem with inflation is that prices keep going up.
Yes, inflation does tend to increase your paycheck. But is it good to earn more if everything costs more? As Senator Alan Cranston once said, "Inflation isn't all bad. After all, it has allowed every American to live in a more expensive neighborhood without moving."
Inflation and wages are interdependent. When prices go up, wages increase as well. And when wages increase, it causes an increase in prices. Because wages seldom are cut, prices seldom come down, so inflation spirals ever higher. In economic parlance, prices frequently rise, but they tend to be "sticky down," rarely falling. These days, when we talk of recession, we discuss inflation slowing, not prices dropping. In general, even in recession, prices will continue to increase, but at a slower pace.
New technology should bring prices down, but manufacturers frequently create new products that are technologically advanced and more expensive than the old versions. Because of the demand created by aggressive advertising, manufacturers rarely lower prices. For instance, if consumers think that prices of soft drinks are too high and begin to purchase fewer of them, voilà! Rather than lower prices, the soft drink companies mount new advertising campaigns and introduce new products designed to increase demand. The result is new products, new demand, and new prices—higher ones.
The Credit Crunch
Americans have become consumers, not savers. Net national savings have declined from 7.1 percent of gross domestic product in the 1970s to 3.4 percent in the 1980s, and in three of those years the savings rate dipped below 2 percent of GDP. In addition, credit card balances kept increasing.
It has been reported that Americans, though not saving, are at least paying down consumer debt. For the most part, however, that report is based on misleading statistics, because mortgage debt is not counted as consumer debt. The lower consumer debt is offset by an increase in mortgage debt and home equity loans, for which interest is still deductible for income tax purposes. What is passing for a dramatic shift in Americans' appetite for debt is merely a tax-induced shift in financing vehicles. We don't get any farther ahead with this sort of "boomerang" financing, where one debt is paid off with funds from another loan.
Home equity loans are dangerous. With home equity loans, you can put a trip to Paris or a candlelight dinner for two on your home mortgage, frittering away the equity in your home that it has taken so long to build. Though this source of funds played a major role in stimulating the economy in the 1980s, now foreclosures on real estate are on the rise, as the excesses of the past come due.
Today many people with no financial control find themselves using the credit card budgeting system. Their overall credit card limit tells them how much they can afford to spend, and the monthly minimum payments on the cards tell them how much to pay each month. Unfortunately, the credit card budget is an expensive method, since the credit card companies collect 15 to 20 percent for their dubious budgeting services.
We must begin to curtail debt and begin to save and invest once again. We must produce more than we consume and save the excess. If we do not, our federal economy will spiral downward, as we become more mired in debt, and our life-styles will suffer inexorably. As we save for our financial futures rather than overspending on foreign goods, the twin deficits of trade and budget will begin to fade away. (When we experience a trade deficit, we import more than we export, and when we pay foreigners for those goods and services, dollars flow out of our economy. We have a budget deficit because we spend more than we make. That leaves us increasingly more in debt to other countries, and dollars needed to pay interest on the debt reduce the money available for our own economic use.)
Now, in the post–Reagan/Bush 1990s, the economic climate has begun to change. We have entered the Clinton era of sacrifice and belt-tightening, designed to reduce the deficit and to protect our economic future. Just as we are finally able to take a hard look at the deficit, we now can take a similar hard look at our own personal finances. The yuppie life-style of the 1980s was bought at the price of economic contraction in the 1990s, which we will endure as we pay for our economic excesses. But this contraction may produce a greater feeling of well-being than we have experienced in forty years, as we focus on our financial futures rather than just on the desires of today. As individuals grow more financially responsible, our economy will grow, and a growing economy will produce more revenues with which to reduce borrowing, stimulate profits, and spur economic recovery.
Even if you have tried to reduce debt and save money before and failed, now it is time to begin again. After all, success is merely getting up just one more time than you fall down. Just as with dieting to lose weight, many of us try over and over before we become successful money managers.
Your Blueprint for Financial Security
In school, most of us were not taught the fundamentals of practical money management: goal setting, budgeting, and saving. Unfortunately, economics courses and investment books haven't filled our need. Economic courses describe economic theories, but they don't tell how to invest. Investment books tell how to invest, but they don't tell us how to save. And most of the popular "how-to" books tell us what to do with our money after we've already done something else with our money.
This book is different, because it starts where you are right now. The next chapter will help you deal with your psychological barriers to saving and conflicts over money. No matter what barriers you have encountered in the past as you have struggled toward financial security, no matter what conflicts you and your partner have had over money in the past, today you can begin to build a better financial future for yourself and your family.
Like any blueprint, this book provides you with the general specifications to build a sound financial structure, but you must tailor details to conform to your unique needs, values, and financial desires. By using this financial blueprint, you can revamp and revise your financial plans as your financial situation and needs change over the years. The blueprint will be there to give you the basic structure within which you can design a financial future that is uniquely right for you. Financial security won't happen overnight, and it won't happen without effort. But be assured, if you pursue your savings plan and financial goals with diligent resolve, it will happen. Instead of treading water while you wait for your ship to come in, in the pages of this book you will learn how to swim out to meet it.
CHAPTER 2MONEY MINDTRAPS
Resolving Conflicts About Saving
Money is powerful. With money we can realize our full potential, acquire the tools we need to become more productive, and be free from anxiety about our future needs.
But money can also destroy. Greedy King Midas, who wished that everything he touched would turn to gold, quickly discovered that the power to create wealth is devastating when misused.
We both desire and fear the power of money, and most of us have problems harnessing the positive power of money through regular saving and investing. Some people are financially careless, while others develop profound spending disorders. Most of us have a few deep-rooted psychological barriers that interfere with wise money management.
Money makes a big difference in how people feel about themselves and their lives. We all have heard that money can't buy happiness, but at least it can cure poverty. As Treasury Secretary Lloyd Bentsen once said, "Money isn't the key to happiness, but if you have enough you can get a key made. But to save money, you need some compelling reason."
Your money attitude has a great deal to do with your financial position. It isn't the amount of money you have that matters, but whether money is giving you a sense of financial security. Money, just like the lack of it, can bring its own set of financial worries. If you have money in the bank, you may worry that inflation is draining your savings of its future buying power. As you work to achieve some of your financial goals, such as educating your children, you may worry that other goals, such as saving for a secure retirement, are not being met. If you have a hefty salary but equally weighty expenses, you may not feel that you are getting ahead financially.
Your Financial Security Notebook
To gain control of your financial life, you must first get organized. Begin with your Financial Security Notebook. Buy a plain, lined spiral-bound notebook, thick enough to contain lots of notes, but small enough so you can carry it with you in your purse or briefcase. Your notebook should be at least 6" × 9" to accommodate the larger worksheets, or use two notebooks, a smaller one to carry with you, and a larger one in which to complete the worksheets. In this notebook you will jot money-saving ideas and complete the worksheets and exercises from this book. As you progress through this book, your Financial Security Notebook will chronicle how far you've come and will serve as a blueprint for your financial future.
(Continues...)
Excerpted from The Way to Save by Ginita Wall. Copyright © 1993 Ginita Wall. Excerpted by permission of Henry Holt and Company.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.
Table of Contents
Contents
Title Page,Copyright Notice,
Dedication,
Acknowledgments,
PART I: A NEW WAY TO THINK ABOUT SAVING,
1. Saving for a Sunny Day,
2. Money Mindtraps: Resolving Conflicts About Saving,
PART II: YOUR TEN-STEP BLUEPRINT FOR FINANCIAL SECURITY,
3. Step 1: Take Control of Your Finances,
4. Step 2: Insure Your Future,
5. Step 3: Save for Specific Goals,
6. Step 4: Cut Expenses and Boost Your Income,
7. Step 5: Control Taxes,
8. Step 6: Slash Debt,
9. Step 7: Save Money on Cars and Housing,
10. Step 8: Harness the Positive Power of Inflation,
11. Step 9: Diversify with Mutual Funds,
12. Step 10: Retire in Style,
Index,
Also by Ginita Wall,
Copyright,