In an ideal world, everyone should look at their income and decide how best to spend it. There are obvious monthly bills and often debts to repay; student loans used to fund further education seem to be part of everyday life. Indeed, many students also use a credit card for daily living without thinking how expensive that is. As they start out on their careers they should prioritize money management; paying off a card balance with a personal loan makes eminent sense. However, the whole exercise of figures, column of income and expenditure, is of no use without self-discipline.
The availability of credit has made life very tempting. Suddenly people can usually get the things they want even though they haven’t got the money currently. The consequences of this overspending come later.
Fidelity’s Ray of Hope?
Most of the reports and studies in the USA in recent times have been gloomy. They claim that too few people take responsibility for their finances by preparing and living by a budget that produces a surplus each month. Indeed, without credit card spending, they would indicate that people live beyond their means with credit cards taking up the shortfall each month. Beyond the very short term, problems loom. The positive news comes from Fidelity that has monitored the behavior of their savers. The average 401 (k) balance across the board at the end of last year was $92,500, up by 5% from the previous year-end.
The Pension Plan that was such a feature of working life, guaranteeing a minimum benefit for workers, is effectively a thing of the past. Individuals now need to take personal responsibility for their retirement. The good news provided by Fidelity suggests that there is an increasing realization of that.
Average household income has risen by that same 5% and contributions to 401 (k) s have grown as well. It is not before time because everyone should sit down and look at their finances including short-term commitments and longer term needs.
Employers seem to be contributing more to their employees’ 401 (k) s.
Temptation to Borrow
One of the dangers inherent in 401 (k) s is that individuals are able to borrow from their plans, albeit that they need to repay back into the Plan. The problem is that id money is withdrawn it cannot be working positively to grow the Funds. There seems to be better news there as well with only 20% having loans from their Fund and that is the lowest percentage for seven years when the recession forced many people into action they would not have considered otherwise.
Many Have Nothing
Unfortunately, too few Americans have 401 (k) plans and one of the things that appear to encourage them to take out a plan is the ability to borrow from it. The two things are at odds. The whole point about setting up a 401 (k) is to provide for retirement when the pay check no longer comes in on a monthly basis. Borrowing from it is a risk because if you leave employment for any reason, the loan has to be repaid.
While Fidelity’s report applies to its clients, the disturbing fact of life in the USA is that too few people have a plan, often those in low paid work or working for a small company.
If This Is You!
Do you see yourself as one of the people that has no proper financial plans? If you think that the Social Security System will be your savior, then think again. Fewer people are contributing and more are claiming, even it is just because people are living longer. The result is that the funds are diminishing without any signs of extra revenue being added. The Republican Party is unlikely to approve increased taxation to do that and it very much holds the reins of power.
You have to help yourself and that means starting to reduce your debts and making economies in your daily living. It may be that you can find cheaper utilities, insurance and telephone provider. Comparative websites will do the groundwork for you. Whatever it takes, you must act. The longer you delay, the more trouble you will face in later life.