Americans are spending too much

WASHINGTON (AP) - People once again spent everything they made and then some last year, pushing the personal savings rate to the lowest level since the Great Depression more than seven decades ago.

The Commerce Department reported Thursday that the savings rate for all of 2006 was a negative 1 percent, meaning that not only did people spend all the money they earned but they also dipped into savings or increased borrowing to finance purchases. The 2006 figure was lower than a negative 0.4 percent in 2005 and was the poorest showing since a negative 1.5 percent savings rate in 1933 during the Depression.

Simpler Times

At one time, the average American worker would get a job and earn money. He or she would save money in the bank to put a down payment on a house. The money in the bank would collect interest. They would buy a house and plan to have it all paid for in 20 to 30 years. The house would appreciate slightly better than inflation. Many of the companies they worked for provided pension plans. Workers did not have to be concerned with how these plans were invested; they only knew what to expect to be paid after their retirement.

Really sophisticated “investors” might have used some savings to buy securities, such as bonds or stocks. This was done with the help of a broker/advisor. There were a small number of mutual funds available to invest in. Some people bought investment properties with the intention of collecting rent (as opposed to flipping).

These days, there are so many, many choices for the individual, that it has become almost impossible for the average person to make any sense of it all. Many simply give up and surrender their money to multi-billion dollar management firms, which proceed to make outrageous amounts of profit from the management of your money, while your returns wallow in mediocrity.

Starting in January 2007, Pennyjar will be gathering small groups of individuals together to learn and gain confidence in personal finance and investing. These groups are in the form of an "investment club" but they will be much, much more than that. Our first groups will be in the San Francisco Bay area (since that's where we live).

It is important, to us, for people to be fully engaged in the process. For that reason, we will all have some "skin in the game". As a group we will be investing a small amount of money in real investments, be they stocks, bonds or some other product. Let's say, for the sake of argument, that each individual's minimum dollar comitment will be the equivavlent of about one Starbucks latte per week. Not too much, but it will be enough to make it interesting. The collective group of 10 or so members will decide on where the money gets specifically invested.

Pennyjar doesn't stop at being an investment club. We intend to make this process a lot of fun. By design, our meetings will be entertaining. There will also be a significant degree of social interaction. We are not interested in being a group of experts. Frankly, most of the supposed money "experts" are basically full of shit; they just know a lot of jargon and they know how to confuse people just enough so that they will be intimidated to hand over all thier money.

We are just regular people that want to get ahead and we agree that education and knowledge is the best path there. Better than lottery tickets, Amway, Vegas, dot.com stocks, pre-construction flips, and so on.

We are going to help people to help each other gain the knowledge and, we believe more importantly, the confidence to make good decisions. Pennyjar doesn't have all the answers, but we certainly will generate a lot of questions. And we will have a good time in the process.
We promise.

You are responsible for your retirement, not your company

There was a time in American when it was not usually to work your entire life for one company and then retire with the security of knowing that every month a company retirement check would show up in your mailbox. As I am sure you realize those days are long gone. Outsourcing, mergers and overseas competition have changed the landscape of the America workforce. I work in IT and recent studies have shown that on average folks change companies every five years in IT.

Gone too are the days were a company would provide a pension plan to its employees. With a company pension plan every employee knew exactly how much money they would have when they retired. The companies funded the pension plan and the employee was not responsible for making any investment choices. The company took care of it all. When you retired you would get a retirement check for the REST OF YOUR LIFE.

Can you image the dismay felt by thousands United Airline workers when their company declared bankruptcy and was allowed by the courts to default on billions of dollars of employee retirement money? This is just one of several recent examples where company funded pensions have failed. The mantra of this posting is “you are responsible for your retirement”.

Most companies have shifted from company funded pension plans to 401(k) retirement plans. With these plans employees put a portion of their earning into tax-deferred investments. Sometimes a company will match a portion of the dollars the employee contributes. The two big differences between a traditional company funded pension plan and a 401(k) are:
- You are not guaranteed a retirement check for the rest of your life.
- The company provides a selection of investment choices and it is up to the employee to research and understand the investment choices.

You are responsible for your retirement, not the company. You, not the company, need to make sure you are not living in a run down apartment and eating canned food when you are 70 years old.

You need to save and invest for your retirement NOW. Time is your enemy. Now is the time to start taking responsible and learning about your 401(k) investment choices. Now is the time to start putting money aside each month to make investments. You need to make your money work for you now or you have no chance of enjoying the 20 or more years you expect to live when you retire.

As the first step I urge, beg and implore you to watch the PBS Frontline documentary entitled Can you afford to retire?. You can veiw the show for free online. The instructions state that you need Microsoft media player or Real Player. I cound not play the show using Media Play, but was able to using Real Player. If you do not have the time or bandwidth to watch the show online you can visit your local library and see if they have a copy.
The picture in this posting is meant to be distrubing I want you to seriously think about where you will be 10 years after you retire. Example: my rent is $1,000/month and my food bill is about $500/month. So food and housing is $1,500/month for me.
I want to live and have fun for at least ten years after I retire. How much do I need? $1,500 X 12 = $18,000 per year
10 years = $180,000
Now this is very basic and actually $180,000 won't even come close to being enough money to live on for ten years. The key is learn about investing and start making your money grow now. This is the only way to increase your chance of having the retirement you have dreamed of. Now go watch the video. Check back in at Pennyjar and let's learn together how to invest wisely.