Are You Saving Enough?

by Alan Lavine and Gail Liberman

Does your family feel financially strapped? Or, would you simply like to have a lot more money?  Either way, one sure way to head in the right direction is to regularly monitor certain statistics.

By viewing the hard numbers, you can figure out exactly where your family stands financially, and what needs to change.

The first step is to determine whether your family is afloat financially, or whether it’s in the red. To determine this, you need to calculate your family’s bottom line, or net worth.

Net worth is all your assets minus your liabilities. Assets may include your home, cash value life insurance, valuables, cars, boats, bank deposits and investments. Liabilities are your debts, including a mortgage, credit cards and other loans.

The Federal Reserve recently pegged the median American Family’s net worth at $93,100 dollars, including retirement accounts and real estate. That isn’t very much when you consider that it includes the value—less any mortgage or loans, of your home.

Once you’ve established whether your family’s net worth is positive or negative, you can compare it with other families. Also, you can move on to track some other important measures.

For example, what percentage of your income is your family spending on everyday expenses? You can easily get this information from your family’s checkbook register. Write down all monthly expenses by category. Then, compare it with a benchmark.

Here’s some benchmark information we calculated that can show you what percentage of income, before taxes, U.S. families tend to spend. The percentages of income, before taxes, are based on data from the most recent Bureau of Labor Statistics consumer expenditure survey.

• 21 percent on food.
• 32 percent on housing.
• 4 percent on clothing.
• 18 percent on transportation.
• 6 percent on health care.
• 5 percent on entertainment.
• 14 percent on other expenses such as medical, utilities, installment debt and life insurance.

Whenever you see statistics like these, you need to remember that data often are based on very wide disparities. Younger people, for example, tend to spend more on entertainment, clothes and transportation than older people because they work. Older people typically spend more on health care and medical expenses than entertainment. Housing costs also vary dramatically.

So only you and your family can determine whether the comparison is valid, as well as how best to improve.

Nevertheless, once you’ve written down your own expenditures, these benchmarks can help you determine whether you might be overspending in one or more areas. If so, it could pay to examine ways to get that category’s expenses under control.

Some expenses may be simple to cut. Others might be painful. Don’t worry. Cutting expenses is not your only option when it comes to generating more money.

You also can boost your income and assets through investment. The median family income in the United States, the Fed says, is $43,200 annually. It rose just 1.6 percent over the past few years. How much are you earning annually, and how fast have your wages been increasing? Has your employer given you adequate raises to at least keep pace with inflation? The annual inflation rate currently, according to the Bureau of Economic Analysis, is running 4 percent!

If not, it might be time to ask for a raise or seek a higher-paying job.

Are you saving or investing enough?

The Bureau of Economic Analysis has been saying that the U.S. savings rate is below zero, based on certain expenditures and disposable income.

What percentage of your income do you sock away in the bank or investment account? If it’s more than zero, congratulations!

Less? Most experts suggest it’s a good idea to save at least 5 to 10 percent of income. You can have money automatically deducted from your checking account and invested in a savings account, mutual fund or individual retirement account. 

Alan Lavine and Gail Liberman are husband-wife personal finance columnists, journalists and authors. They are the authors of "Rags To Retirement," published by Alpha Books. Their columns appear in newspapers throughout New England and the Southeast, as well as online. Their commentary on mutual funds and personal finance is carried by 200 radio stations nationwide every Sunday over Business News Network's Charles DeRose Financial Advisor Show. Al and Gail’s new book is "Rags To Retirement:  Stories from people who retired well on much less than you think," published by Alpha Books.

More articles by Al and Gail can be found here.