Ben Franklin is credited with saying, “A penny saved is a penny earned.”1 It was wise advice 250 years ago, and even more so today.
Writing for Barron’s, Karen Hube observes that despite experiencing an era of historically high prosperity, most Americans struggle to save their money, protect it, and invest it for the long-term.
“Even after a decade of steady economic expansion and record-breaking stock markets,” she writes, “almost two-thirds of earners would be hard-pressed to cover an unexpected $1,000 expense.”2
The rich aren’t getting it right either. Huber reports that 70% of affluent families lose their wealth by the second generation, and 90% by the third. Statistics like these echo the “shirtsleeves to shirtsleeves in three generation” principle attributed to Andrew Carnegie long ago.
When covering this issue, the media often point to stagnant salaries, and rising costs in housing, healthcare, education, and other big-ticket necessities. All of which can make it a challenge to save and invest.
But the professionals who help people manage their money say that the biggest problem for most people isn’t lack of income, it’s lack of knowledge. Whether it’s because household finance classes have been eliminated from high school or because parents have not taught their children how to handle money, many Americans (if not most) suffer from a lack of basic financial literacy.
“I’m constantly amazed at how common it is for clients, even sophisticated ones, to be lacking in financial literacy,” says Spuds Powell, managing director at Kayne Anderson Rudnick Wealth Management.
The basic principles are pretty simple. In fact, as University of Chicago professor Harold Pollack demonstrated, you can write them on the back of a 3×5 card.3 They include saving a significant portion of your income, not carrying consumer debt, taking advantage of tax-advantaged retirement accounts, and investing diversely in low cost funds.
These concepts provide valuable advice that works no matter what your income level. Your trusted financial advisor can help you plan your finances so you’re minimizing expenses, maximizing savings and investing, and protecting yourself from potentially avoidable tax exposure.
When you manage your money prudently, you should be able to keep more of what you make and have a much better chance of reaching your long-term goals.
Citations:
1 – https://www.fi.edu/benjamin-franklin/7-things-benjamin-franklin-never-said
2 – https://www.barrons.com/articles/10-rules-for-financial-success-51558742435
3 – https://www.forbes.com/sites/zackfriedman/2017/03/09/9-money-rules-index-card/#76df56922c09
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