Friday, October 27, 2006

Middle Class families and saving.

How much is the average middle class family saving? According to this article, not much. The study involved boiled down to three questions:

1. Do you have 3 months income put back?
2. Can you cover a jobless spell?
3. Can you cover a medical emergency?

Respectively, 18%, 22%, and 23% of middle class families have done these things. The numbers (spanning back to 1989) have never been great but this is low even by comparison. I will conceed that the drop in interest rates over the last few years really discourages savings, but at the same time having money put back is always important.

What about you? I realize a good chunk of our readeship is not in the middle class family demographic but are you living from paycheck to paycheck, living with a comfortable amount of savings, or somewhere in between? Are you living above, at, or below your means? How do you answer these 3 questions? To be honest we're right on the bubble for #1 right now.

One thing that caught my eye was the following:

"One family feeling the pinch is the Andrew Miller family in Charleston, S.C. With a combined income of just less than $100,000 a year, Miller and his wife say they work harder than ever but are no better off than five years ago. They keep a tight rein on spending, but tiny raises that don't match inflation and escalating health costs are leaving them feeling like they are treading water."

A question I always ask myself when I see something like this is if they have a budget. Since I won't find the answer to that, I'll ask you: Do you have a budget? My family does and while we're not the best at sticking to it, being in the hole budget-wise really helps us cut down unneccessary spending. It also helps prevent arguments over money since you both have clearly-defined rules on what you can spend and you've both agreed to this beforehand. Therefore there is a mutually agreed to "bad guy." For example, like SAWB I have some interest in the new Nintendo but I probably won't have the money on budget to buy it at launch since I'm a bit overdrawn after our yearly clothes-buying super excursion and still need to get some supplies for winterizing the boat. And I don't even want to think about passing up my favorite cigars now that they're back out for the first time in years. I just hope a box is still available in December.


liberalandproud said...

Sadly, I have never been a budgeter. I just don't think I have the genes for it. With my current situation, I might find it too depressing. I know I should, I just have never done it. Maybe I'll get inspired by your post!

Fishplate said...

I got "downsized" in 1992, a few months after we purchased a house. I found out unemployment insurance was not much help... fortunately, my very clever wife had insisted that we consider only one income when we decided how much house we could afford, so when my salary went away we managed to live comfortably in a smaller house that we might otherwise have bought while I searched for new work in my field, instead of living in a car for a year.

Nowadays, we save at least 10% of our earnings before anything else, and always keep a cushion of readily available cash on hand.

The danger is in our credit cards. I have two cards which we pay in full every month, but they have a credit limit that is about 60% of my ~annual~ income. If we were to depend on these for lifestyle, as so many folks seem to do, we would be royally rogered if one of us lost our job, even temporarily.

It takes, hard work, smart decisions, and resistance to temptation, but we are in a place now where we could weather almost any storm for quite a while.

Patrick Armstrong said...

As someone who just gave up the lion's share of his stuff and hit the road, I might just be the least bohemian looking vagabond ever to drift on down to New Orleans.

I can't wait to join the middle class. Unlike Sprout, who apparently arrived on the Earthly scene with a self disciplined approach to money, the P-A-T economy has had more ups and downs and bailouts than Mexico (the France of the West).

Perhaps it is because the PAT economy is overly dependent on the fluctuating cost of foreign 'fuel sources,' only recently investing heavily in domestic brewing -ahem- drilling, and alternative sources of power (solar & hydro dominate).

But, the current fiscal plan is quite sound: make more, spend less. Spend much, much less.

lagnsfit said...

We've got a budget and it has been one of the best things that's happened to us (even though it's a deficit budget.) We used to use our credit card as the backup for our checking account at least once a month if not two or three times. We could always pay it back just a couple of days later but it still cost us the transaction fee. Since we've made the budget about a year ago that's only happened once and it was to cover a less than $5 transaction one day before my paycheck was deposited.

We don't have any real savings to speak of but our only debts are the house and the mini-van. The house has enough equity in it that it's more of an asset than a liability.

We do invest in a 401K for ourselves and 529 for our daughter but not nearly enough to fund what either account is meant for.

All in all, we're better off than we were a few years ago even if it doesn't always feel like it. Sometimes we miss the day's of dining out every weekend and making purchases with little to no thought but those moments pass quickly (well, eventually at least!)