8- Fixing the Fractured Financial Foundations of America’s Families
Updated: Jan 15
We all hear the daily reports discussing the insecure state of the average American’s financial affairs.. Many families are experiencing high levels of financial stress and anxiety due to:
Higher living expenses driven by increased inflation, particularly for healthcare costs
Technological innovation and the related impacts on job security and growth
Increasing automation replacing many jobs
Low wage levels and growth
Having little emergency savings and lack of retirement savings
Consistently record low interest rates
The pressures of the rising costs of higher education, including the drag of large amounts of unpaid student loan debt.
The list of economic and personal challenges is long and without proper preparation, many individuals’ financial health can suffer. can families do to protect their financial security? How can they protect their incomes, plan for increasing life expectancy, wade through health insurance reform and deal with the impact of the costs of higher education?
It is time to get back to the common-sense financial basics. Consumers need to become more educated and understand how a strong financial foundation can help reduce stress in their day-to-day lives and allow for more financial freedom in the future.
Seven Basic Principles for Building a Strong Financial Foundation
Here are seven simple actions consumers can take to improve their financial footing:
Save on a systematic basis. As older Americans can attest, they have seen the importance of systematic savings plans. It is amazing what can be accumulated by putting a small amount away each pay period or by using money received from special occasions. Individuals need to start building their financial foundations by using available tax advantaged 401K, IRA, Health Savings Accounts or other plans, plus life insurance and annuities as basic building blocks. Dollars put away today can grow to a very reasonable sum using these tax-advantaged products and plans.
Use time to their advantage. The time value of money and the power of compounding are concepts that can put money to work over an extended period of time. Most households aren’t saving enough for the expected 30 years following the end of full-time employment. Individuals need to create a plan and have the discipline to accumulate money for later life, despite setbacks and unexpected life events. Life insurance and annuity products can help make this a reality.
Protect against the loss of employment income and premature death. A basic concept in financial planning is to protect against your downside risks. For most people, the main risks are the loss of their income or life. Life insurance and disability products are available at affordable rates and can offer protection from these risks.
Feed their savings for later life. Life expectancy continues to increase. Can people save enough during their working lives to have enough assets to last through retirement? In order to fund living expenses for up to 30 years after full-time work ends, savings need to be fed often and on an ongoing basis. Adopting a private retirement savings plan, as early in life as possible, is a must.
Invest in health and wellness. Financial health and personal health are closely connected. Having basic health insurance coverage and performing physical and mental self-care are essential to a strong financial foundation. Just over a third of Americans have basic dental insurance coverage, a concerning rate in this day and age. . Individuals who put importance on their personal health are often more likely to make sound financial decisions.
Live below their means. This is one of the hardest principles for most people to follow. Distinguishing between what we need and what we want is one of the keys to building a strong financial foundation. Controlling spending to cover only what is needed takes discipline, but will pay major dividends over a lifetime.
Use debt carefully. Over their lifetimes, consumers will likely need to use debt for a mortgage, car loan or to obtain an education. Using debt wisely is key, but to have mandatory repayment amounts that require borrowing of next week’s pay to cover this week’s bills is self-destructive. Families should only incur the debt they can comfortably afford to service.
Like the Hall of Fame basketball player Michael Jordan said, he did not worry about being productive in key games because he had practiced enough to have the right fundamentals in place. For individuals and families, the financial fundamentals are just as important. By following the seven basic principles, you can meet current needs, support future goals and significantly improve your financial foundation for long-term peace of mind and security.