Ireland has a relatively low national debt but with the 2009 deficit projected at about 10% of it’s GDP, there will be some tough times ahead.Consequently, the financial regulator for Ireland has some tips for it’s citizens on how to survive the recession. Here are some of them which he estimates could result in savings of about $ 4,000 a year:
Bring your lunch from home.
Cut back on the little luxuries. Skip the latte.
Buy fewer magazines.
Don’t take on more debt.
Shop around for cheaper insurance.
Nothing earth shaking .Stuff that we have definitely heard before here in the US. However, the fact that he needed to repeat these tips must mean that we haven’t subscribed to it in the past.
For whatever reason, the idea of saving for the future is an idea foreign to many of us. Nationally the savings rate has been steadily declining until it bottomed out at less than 1% . Compare with 10% plus in Japan. With blue collar workers in non-unionized jobs ,savings may be out of the question as all the income is needed just to survive but many of the more affluent seem to spend with no thought for the morrow. The prevalent attitude seems to be : “I want it and I want it now.”
I am reminded of an experiment carried out with a group of second graders. Theywere given a choice: One piece of candy now OR two pieces if you wait twenty minutes. Two-thirds of the youngsters decided that they couldn’t wait even for twenty minutes and opted to have one piece of candy immediately. This need for instant gratification seems to have become ingrained in our society and many of us live to the limit of our incomes. Admittedly, much of this is due to aggressive advertising and the easy availability of credit. One New York man is a poster boy for this attitude to spending and life. He has an income of $ 80, 000 / year , three children, credit card debt of around $ 40,000 and is in danger of losing his house to foreclosure since he is several months behind on his mortgage payments.
Not eveyone is like that. My role model is a former colleague whom I will call ” Hank”. Hank always used to brown bag his lunch every day though, once a fortnight,he would treat himself to an inexpensive lunch in Chinatown. No fancy chai or latte from Starbucks for Hank. Each morning he would get a teabag from home and use an immersion heater to make himself a cup of tea . He lived in the same house for 26 yearsuntil he retired and moved to Florida. He and his wife would stick with their cars as long as they could. They drove sensible , reliable cars with and always took good care of them. Even though he never earned more than $ 50,000 a year and his wife earned about half as much, they were both able to retire early . Now both past 80, they live the good life in Florida doing the things they want to do and with a nest egg of several million.
A few years ago,there was a best selling book called ” The Millionaire Next Door” by Thomas J. Stanley andWilliam D. Danko that described people who have become wealthy by practicing many of the things that Hank did. …. watching their expenses, staying away from flashy cars and frequent upgrades to their house, and staying married.When I was reading the book it seemed to me that the authors were describing Hank. If you haven’t read it yet, I highly recommend that you do. If I had my way , I would make it required reading for all high schoolers . In fact , I would like to see a mandatory course on ” How to Manage your Finances” for ninth or tenth graders. It would teach them about things like how much they need to live on, taxes, saving, insurance, the cost of maintaining a car, home mortgages , how to save and invest etc. It’s badly needed knowledge since , at present, students get exactly the wrong ideas from their free-spending parents. These youngsters are the future and it is important that they have the right idea about how to save and be financially independent.
With the onset of the recession, people seem to be changing their spending habits, however slowly. The national savings rate has ” climbed ” to 3%. A modest increase but at least we seem to headed in the right direction. I do hope the trend continues and that we don’t revert to our spendthrift ways. I well remember how , when gas prices went to $ 4 per gallon, the public started moving to smaller , fuel -efficient cars only to reverse themselves as soon as gas prices fell.
A final thought: “ The rich plan three generations ahead ; the poor plan for Saturday night.” I don’t remember who said it but it is a memorable line and has a lot of truth in it. Think about it.