How to save the coveted 10%

When it comes to savings money, America has consistently been performing very poorly. In recent years, the savings rate has dropped to a staggering negative 0.4% for the average American household. A recent report from the Center for American Progress estimates the cost of medical, food and household needs has risen more than 11 percent over the past five years—with seven in 10 households using credit as a safety net to cover basic living expenses.

Although too many families are overspending to live the American dream and have all the doodads that the Jones’ do, it is not all due to America’s insatiable desire for bigger and better things. Over the last decade wages have simply not kept up with inflation and have remained consistently flat since late 2000.

It is obvious that a reduction in one’s spending habits through consistent budgeting is the first factor in paving the way towards saving the coveted 10% of one’s income.

However it is important to note that although you may be saving a portion of your income (or maybe not) for emergencies and retirement, it is essential to realize the affects of paying excessive interest rates on outstanding debt. The interest payments on the consumer debt balances almost always far outweighs any returns from the money you are saving for the future.For this reason, we feel that saving beyond the recommended $1500-$2000 emergency fund while still servicing consumer debt payments is a poor allocation of one’s financial resources.

Most people who are overextended have about 20% of their income going out to consumer debt payments. Therefore, if someone were to utilize the method of paying off debts through the Accelerated Debt Reduction method, in a few years when all debts are paid off, they will be saving far beyond the coveted 10% once they have recoup all of these debt payments.

However, if you have no consumer debt and would like to pave the way towards saving 10% of your income, here is a way to break you in slowly, that works well whether it be through an employer sponsored retirement program or on your own…

Point to Ponder………How can you ever manage to save 10%, if you are not disciplined enough to save just 1%?

Start by first setting aside just 1% of your gross income every month for just 2 or 3 months. You probably won’t even feel it that first month at all, but surely not after the third

Next, save just 2% on the second, third or fourth month. You probably won’t feel that either!

Continue this process every couple of months by just increasing your percentage by 1% each time.

All you have to do is repeat this process over a 2 or 3 year period (depending on how aggressively you perform it) and before you know it you will be saving the coveted 10% of your income that over 75% of America does not do.

Whatever you do, do not take the approach of the “CRASH” savings plan. Most people treat saving diets the same way as a food diet……………..hit it too hard from the start and you will binge, binge, binge. Food and money disciplines are very much alike. Both have lasting lifetime affects.