The average American saves about 1 to 4 percent of their income. They only get up to about 4 percent or so when they are scared out of their pants due to a recession, job losses, etc.
We're not known for being a nation of savers. We're known for being a nation of spenders. The person who makes $30,000 a year or $100,000 a year or $300,000 a year typically does about the same thing. They spend about 96 to 99 percent of what they make.
For years, I've lived off of no more than 50 to 60 percent of my income. Why? Am I a miser? No, I'm not Scrooge. Far from it. In fact, there have been times where I've given up to $50,000 in a year to my church, and that's not counting helping individual families, single mothers in need, etc.
So I'm not a hoarder. I am a saver. What got me to living off of no more than 50 to 60 percent of my income when I used to live off of 80 to 90 percent?
It's because of two things that I see coming in the future.
More of your money will be taken away from you in the future. I really don't like saying that, but I believe it to be true.
The money will be taken away by increased taxation and also by a more "stealthy" way ... inflation.
Why increased taxation? It's not a coincidence that the government is on a witch hunt, looking for Americans' money all over the globe. They're putting pressure now on tax havens, when they have not really done much of that before.
Additionally, the government now thinks that you're rich if you're single and make $200,000 a year or married and make $250,000 a year. Now there's no doubt that someone who makes this kind of money is better off than the average person in America; however, they are far from "rich." But if the government can deem them to be rich, then it's easier for them to tax them and somewhat have the public on their side.
But here's the deal. There's coming a day when they will have to dig deeper into the heart of America — into the middle class — for increased taxes. Why? It's simple math.
We're so deeply indebted as a nation that taxing the rich won't be near enough. So that's just the starting point. Before it's all said and done, they'll be taking more of your money through taxation even if you aren't anywhere near the $200,000 mark.
As they take more of your money, you'll have less to live on. So you'd better make adjustments to your living standard now and save up and invest what you can now, because you'll need it in the future to maintain a nice lifestyle in the midst of a greedy government.
Secondly, you'll be taxed in a way that is less understood — inflation.
A dollar, is a dollar, is a dollar, right? Wrong! What that dollar can purchase changes all the time — and for the most part, for the worse.
I come from an area where some felt their money was safe because they buried it in the back yard or hid it in an electrical socket.
The younger generation thought that was stupid, so they do something different (yet with almost the same effect). They keep their money in a checking or savings account where it's "safe" and they can't lose anything on it. However, if the bulk of one's money is in a checking or savings account, by default, you're losing money because of the loss of purchasing power.
Oh, your bank may give you 0.01 to 0.5 percent on your money "safely," but the costs of goods in the marketplace (food, gas, rent, etc.) is going up at an average rate of 3 to 5 percent per year.
So if you made $10 per year in your checking and savings accounts, but the costs of things you need in life went up by hundreds of dollars in the year, then did you really "make money" that year? No. You lost purchasing power, which was a guaranteed loss.
Now, does that mean you should have no money in savings? Absolutely not! You should have some money in savings for emergencies to replace high-ticket items.
For instance, I tell my kids to have several thousand dollars set aside at all times just for car repairs. If nothing "big" happens, they'll at least need four tires all at once if everything works perfectly.
So there is a place for a savings account or money market account, and everyone should have some reserves in there. Having a savings account also keeps you from being forced to liquidate stock holdings at inopportune times.
A savings account does have its place, but the bulk of your money that is not set aside for emergencies and big expenses should be in something that will keep pace with inflation.
Generally speaking, stocks, some foreign currencies, commodities and real estate are the main assets that keep pace with inflation over time.
Real estate isn't liquid enough and many people don't know enough about foreign currencies. Therefore, for the average person, they should have a stock brokerage account.
Even when it comes to commodities, the best way for the average investor to take advantage of commodities is through exchange-traded funds and commodity-related stocks, in my opinion. These are all bought through stock brokerage accounts.
The bottom line: Make changes to your standard of living over time to where you'll be able to handle the coming tax increases easier (both literal tax increases and the tax of rising inflation).
Structure your financial life to where you live off of far less than you make. The average Asian saves 30 to 33 percent of their income. So it has been done before and people are still doing it today ... just not many Americans. But it will be crucial in the upcoming years for them to do so.
The only ones who will have a bright future are those who will live off of no more than 70 percent of their income and save and invest the remainder.
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About the Author: Sean Hyman
Sean Hyman is a member of the Moneynews Financial Brain Trust. Click Here to read more of his articles. He is also the editor of Ultimate Wealth Report. Discover more by Clicking Here Now.
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