There are so many reasons to be optimistic about the economy right now. Stock markets are up, unemployment is really low, wages are rising, and consumers are generally confident and buying. Mortgage rates are at nearly all time lows. All good signs. Of course there is a lot of concern about potential inflation (price increases) but these are generally offset by the strong labor market. More importantly, COVID continues to hamper the economy. We all still have that uncertainty about “what’s coming next”?”
But even amongst all this relatively good news, people are not saving and investing enough. Aggregated data from the Federal Reserve showed that savings rate (percent of disposable income) jumped to an all time high during COVID. I find that troubling, but also suspect, largely because the numbers reflect a summary view and is not focused on individuals. I care more about the person than I do the totals for a country. I do believe the ultra-wealthy (over $30 million in net worth) and high net worth individuals (or millionaires) are investing more. There contributions are probably accounting for most of the changes observed by the Fed. But for the majority of people, let’s say 75% of all Americans, I don’t see people making significant changes in their level of spending, saving, or investments. Have you?
But we can get there. With the economy going strong, now is the time to make a shift in how you manage your money. Here are 3 financial choices you can make today. These are all part of my Mindful Money Management Model (TM) highlighted in my upcoming book called The Quest for Wealth. If you do these three, they will propel you forward.
First, consider having at least one mutual fund as an after tax investment. As you get additional money from your paycheck, don’t just sock it away in the bank but invest it in an equity-based managed mutual fund. Index and exchange-traded funds are great for the bulk of us. They invest in diversified pools of companies and industries and are less expensive than stocks. They also do a much better job at “beating the market” than even the best stock pickers. Investments are at least a thousand times more likely to make you wealthy than simply putting money in a savings and earning .1%.
Second, maximize retirement contributions through your employer. If your employer matches contributions in a defined contribution plan, contribute the maximum amount you can to get their full match. Retirement contributions generally have tax free growth, and some allow pre-tax contributions. Meaning, you don’t pay federal taxes until a much later date. Not paying taxes today will help it grow faster. This improves your chances of making compound growth work for you.
Third, get clear on your spending patterns. We all have a lot more room in our budget to save than you think. Even finding $25 per week that you could save and invest (versus spend) adds up quickly. Our thoughts and behaviors guide our actions, so be sure to have positive intentions and expectations. Set some initial goals and hold yourself accountable.
2022 is coming up fast. It would be great to get it off to a solid financial footing. Start now with these 3 steps to get started.