Monday, February 9, 2015

Thrifty Thinking: Americans Need To Get Their Finances In Order

Disclosure: I received complimentary products to facilitate this post. All opinions are my own. 

Jay Hochheiser, Certified Financial Planner™, President and CEO of Hochheiser, Deutsch & Company out of Woodbury,NY just published the first book in his series of books entitled, "The Physicians Guide to Achieving Financial Freedom" available on Amazon. What sets this book apart is its focus on those at the upper end of the income spectrum. Surprisingly, even people with a comfortable income struggle. The tips, however, are still applicable for anyone who finds themselves in upper middle class on up.
Through Jay's 31 years of experience he has seen many physicians make the wrong financial decisions – some major, some less so. But many times the wrong financial decision can mean the difference of a substantial amount of money over a lifetime. In this guide Jay shares his tips, tactics and strategies (and asks the right questions) that will help physicians dramatically with their finances. Financial freedom is not only about the destination but it is also about the journey.
I was able to publish a piece by Jay so you can learn more.

Considering the dramatic financial impact of institutional and governmental decisions in the past few years (such as the subprime mortgage bubble, financial bailouts, and Federal Reserve monetary policies), it seems a bit harsh to say the key to economic recovery is getting American households to clean up their personal finances. But there is also some truth in this perspective; on the whole, American households don’t manage their finances very well.
Between 1951 and 1992 U.S. household savings rates as a percent of disposable income were consistently between 7% and 11%. When income growth slowed in the mid-90s due to global competition and down-sizing, American households maintained their spending habits by increasing debt and decreasing saving. By 2005, the savings rate was below 2%, and personal debt ratios were at an all-time high. Since the recession, there has been some improvement, both in debt reduction and saving. But compared to other countries, U.S. households are underachiever savers.
The Organization for Economic Co-operation and Development (OECD) is a global think tank sponsored by democratic nations with free-market economies. According to the OECD, the estimated savings rate for the United States in 2013 is 4%, which ranks 18th among the 26 countries listed in the report. Yet citizens with greater economic challenges – higher unemployment, lower economic activity, heavier taxation – save significantly more than Americans. The French save 15.8% of disposable income, while Germans save 10.6%. In Spain, where unemployment is approaching 20%, the national savings rate is estimated to be 13.6%! Belgians have a higher tax burden, yet save 9.5%. In light of these numbers, you can’t lay all the blame for a poor U.S. savings rate on governmental or institutional policies. There’s more to Americans not saving than difficult economic conditions.
 Establishing and Maintaining A Personal Budget
 Why a budget? (And can you make one?)
 The dictionary says a budget is “an itemized summary of estimated or intended expenditures for a given period along with proposals for financing them.” In theory, establishing a budget will help you see the reality of your financial circumstances, understand where your money is going, leading to an “Aha! moment” that motivates you to better decisions. 
Assembling and maintaining a budget can be a data-heavy, time-intensive activity – the devil is most certainly in the details. That’s why most businesses rely on professional assistance.  In theory, technology promises to make similar budgeting assistance affordable for individuals.  But no matter how “easy” technology makes the process, financial behaviorists admit some people aren’t going to prepare a monthly report – written or computerized.  Their personality type just can’t handle details, even for “important” issues.  A budgeting process can’t make people change if it never gets done.
Is Budgeting Really That Easy? Maybe
People who commit to saving first tend to adjust their spending to accommodate their priorities.  Any household that works toward consistently saving 15% or more of annual income will almost certainly achieve long-term financial stability.  If this minimal budgeting process achieves these results, what else is needed?
There are reasons to consider a full-fledged, detailed budget – at least once.  Some households need a detailed budget to find the money to save.  For others, a budget can discover inefficiencies and “turbo-charge” existing allocations.  As a one-time project instead of an ongoing process, even individuals with an aversion to details should be able to get through the task, especially since making a budget doesn’t have to be a do-it-yourself project; financial professionals who want your business should be available to help you.
The value of a budget is measured by its results.  If you need expert assistance, get it.  But the process only works if the priorities are clear:  You must be a “save first” household for a budget to improve your financial condition.

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