This year, CNN Money reported that 43 percent of Americans have less than $10,000 saved for retirement. If Americans want to someday live off of their savings, then something must change (and fast).
What accounts for such low savings rates? While there are many circumstances that could bring out such low savings rates (loss of a job, rising cost of goods and services, etc.), I think the fundamental reason for low savings is a lack of focus on a purpose-driven financial plan.
Purpose is the end or ultimate reason for doing something. The financial planning profession focuses on defining financial goals, but these goals must be directed towards a purpose. Without a purpose, goals become meaningless and arbitrary. This leads to disastrous results in personal finance. Specifically, no motivation to save money can be sustained over long periods of time without a purpose.
But, do financial advisers help clients define a purpose for their financial plan? Kind of. The purpose is often implied. Financial advisers often paint all clients with the same brush. They assume the purpose of a financial plan is, in a broad sense, to build a savings for “retirement”. While this might be true for many clients, on some level, it cannot be dictated to a client. And, a purpose cannot be universal for all clients (for a more in-depth explanation, sign up to receive my paper on how to choose a financial adviser).
Savings is necessary if an individual wants to live off of that savings some day, or if an individual has long-range financial goals. Ultimately, the only way to increase savings is to develop a (long-range) purpose for a financial plan. Then, and only then, can a person drive goals towards that purpose. That, necessarily, will increase savings._________________________
January 15th, 2013 | by David | No Comments