Connect with us

Company

The surprisingly small amount of cash savings that could save you from financial shocks —‘Even a small dollar cushion can improve a household’s financial situation’

Published

on


When it comes to money in a savings account, a new survey finds even a little can go a long way — towards keeping the lights on, avoiding high-interest loans and staying in your house.

As the personal savings rates slips nationally and lawmakers debate a COVID-19 relief package injecting more cash into struggling households, Thursday’s survey suggests noticeable benefits can come with keeping as little as $100 in a savings account.

It’s a bit of good news for people who find the advice about maintaining an emergency fund for three months’ expenses a tip that’s simply out of reach.

The study, from the FINRA Investor Education Foundation and SaverLife, looked at savings account activity for nearly 700 people between January and March, and then caught up with them for a survey in February and May.

The researchers found:

• On average, 19% of people who kept at least $100 in their account over three months experienced a utility shutdown of some sort in the past five years, like a cutoff on gas, electricity or a cell phone. 37% of people with accounts at $100 or below went through the same thing.

• On average, 23% of people with at least $100 used high-interest loans, like payday loans and auto title loans and went to places like pawn shops in the past five years. It was 42% for people who had $100 or less.

• On average, 17% of people maintaining at least $250 in their account for three months said they had to move in the last five years because they could not afford their place. By contrast, 29% of people with $250 or less said they had to move in the past five years due to finances.

“Even a small dollar cushion can improve a household’s financial situation,” said Gary Mottola, research director at the FINRA Investor Education Foundation, the educational arm of the nonprofit organization regulating the brokerage industry. SaverLife, which teamed up with the FINRA Foundation on the survey, is a financial-technology company incentivizing savings.

It’s easy to figure how more money can make everyday life easier, but how exactly do these savings factor in here? It’s unclear whether there’s something special about dollar thresholds like $100 and $250, Mottola said, but he thinks it’s a matter of correlation, not causation.

Someone with enough money in their account could afford at least partial utility payments to keep the lights on and they have some liquidity to sidestep high-cost loans that offer quick money upfront, Mottola said. But people typically can’t make partial rent or mortgage payments, he said.

“One hypothesis is small dollar amounts prevent negative chains of events,” Mottola said. With even a little bit of extra money to partially pay other costs, Mottola said a person may still have enough for rent and be able to avoid high-cost loans that could make rent and mortgage payments more difficult down the road.

While the goal of three months of expenses in a rainy day account may seem difficult and “demotivating,” Mottola said “smaller achievable saving goals can motivate families to save and give them a sense of hope that they can handle unexpected financial challenges.”

In October, Americans, on average, saved 13.6% of their disposable monthly income, according to the Commerce Department’s Bureau of Economic Analysis. That continues a months-long slide from April, when the rate hit a record high of 33% as consumer monthly spending fell and income rose, boosted by stimulus money.

Don’t miss:Here’s the case for Elon Musk, Warren Buffett and the rest of America’s billionaires sending $3,000 stimulus checks to everybody

As talks over another relief package continue, direct $600 checks and supplemental federal $300 unemployment insurance payments are some of the debated provisions.

‘The journey towards a savings goal doesn’t exist in a vacuum’

The latest survey may serve as another reminder on the importance of having a savings account — but that’s easier said than done if the pandemic is making household cash is sparse and snuffing job prospects. Nearly one in four people recently said they’d be in financial “survival mode” in 2021, where they’d be focusing on getting by day to day, not saving for the future.

Bruce McClary, the National Foundation for Credit Counseling’s senior vice president of communications, gets that. “Reality can be pretty harsh,” he said. “The journey toward a savings goal doesn’t exist in a vacuum.”

Nevertheless, there are things people can do to get on the right path, he said.

Websites like AmericaSaves.org, a campaign run by the Consumer Federation of America, and the Consumer Financial Protection Bureau offer free resources for people who want to learn more about how to build up their savings.

McClary’s organization is a network of non-profit financial counseling organization across the country and the NFCC website offers ways for people to get in touch with non-profit counselors who can help them with budgeting plans, savings goals and debt management.

Savings is a matter of dollars and cents, but it’s also a psychological matter that involves motivations and habits, McClary said. For example, there are two different approaches to paying down debt and building savings. There’s the so-called “snowball” method of paying off debts from the smallest to the largest and there’s the “avalanche” method of paying off debts, starting with the ones with the highest interest rates.

It comes down to which approaches keep someone personally engaged in getting ahead, McClary said.

Someone building their savings right now shouldn’t beat themselves up for using it or contributing less than occasionally planned, McClary said. “There are acceptable purposes for dipping into savings. It’s not like you’re creating something you never intended to use. … You set the rules. You’re the one who defines what’s an acceptable purpose.”



Source link

Continue Reading
Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Company

‘I could live on my Social Security and still save money’: This 66-year-old left Chicago for ‘calming’ Costa Rica — where he now plans to live indefinitely

Published

on

By


Editor’s note: This article was first published in September 2019.

A school break changed 66-year-old Martin Farber’s life forever.

In 2007, his daughter — who at the time was attending Illinois State University — decided she wanted to spend a college holiday volunteering in Costa Rica and staying with a local family, he explains. She came home raving about the experience, so, in 2008, Farber — who at the time was living in Evanston, Ill., just outside Chicago, and selling cars — took his first trip there.

“It was a big surprise to me — bumpy roads, dogs barking in the streets,” he says. “I wasn’t enamored at first.”

But as his daughter began traveling there more and eventually moved there for a year, he took additional trips to Costa Rica. It quickly grew on him — in particular, the people. “The Costa Rican people are warm, open and friendly. I felt less invisible in a strange country in a strange town where I didn’t speak the language than I did in Evanston.”

And the more time he spent there, the more it impacted him: “On one of my trips there, I thought: My daughter’s life makes more sense than mine,” he says. “There was nothing wrong with my life, but I felt that my life was out of context with who I’d become. … I would have bills and make money to pay them, but that had ceased to be satisfying,” he recalls. “I knew I needed to change my life — there was no more joy in what I was doing.”

What’s more, when he’d return from his Costa Rica trips, people noticed. “I would come back, and my friends and therapist would say: You seem better after you go,” he says with a laugh.

A view from the hot springs near Martin Farber’s home in Costa Rica.


Martin Farber

So in 2014, he packed up and moved to Orosi — a picturesque, lush small town with waterfalls and hot springs a little over an hour’s drive from San Jose — promising himself he’d stay for two years. It’s been five, and he now plans to stay in Costa Rica indefinitely. (Though Farber notes that, to him, “it’s not a retirement; it’s a chance to lead a new and different life.”)

Here’s what his life is like, from costs to health care to residency to everyday life:

The cost: While many expats spend way more living in Costa Rica, Farber says: “I could live on my Social Security and still save money.” He says “a person can live on $1,200 per month, two people on $2,000.” The key, he says, is to live more like he does and as the Costa Ricans do — in a modest home, eating local food and purchasing local goods.

Indeed, Farber himself spends just $300 a month for rent (he rents a home from a friend who moved recently and gave him a good deal), roughly $225 a month on groceries and just $50 a month total on water and electricity (the temperate climate in Orosi means you rarely need heat or air conditioning). The veteran Volkswagen
VOW,
+0.96%

 
VLKAF,
+0.98%

salesman saves money by not owning a car (those over 65 ride municipal buses for free), which can be a significant expense in Costa Rica; for his cellphone, “I pay as I go … roughly $10 may last me a couple weeks or more,” he says, adding that “many people handle there their cellphones this way. You can get them recharged anywhere.”

His major expense is travel: He goes back to the U.S. to visit his mother in Florida several times a year and lately has spent part of the summer in Chicago helping out a friend with a dealership there. He also spends a good amount of money on health care. He says that while flights can be had for as little as $350 roundtrip during offseasons, the cost can be much higher the rest of the year.

In the saddle.


Martin Farber

Health care: Farber, who has permanent resident status in Costa Rica, says he pays about $90 per month to participate in the country’s health-care system — adding that the health care he’s received has been very good. (A 2018 study of health-care quality and access in more than 190 nations ranked Costa Rica No. 62.)

When he developed a detached retina, though, he paid for the procedure out of pocket so that he didn’t have to wait for the required surgery, he says — adding that the entire procedure cost him about $5,000. “I would have had to have waited four days,” he says, if he had not paid to expedite matters. “That might have been fine, but it might not.” And he adds that the quality of care depends on where you get it in the country.

Lifestyle: Though Farber says that he “moved here with no goals and no agenda,” he’s found plenty to do. “I take Spanish lessons two days a week for two hours a day. It’s been great. I never thought I would acquire a usable language in my 60s,” he says. He also rides his bike all around the area, does some writing and belongs to a community group that undertakes projects to improve the area.

And he often simply takes in nature, which he says has been an essential part of why he feels calmer and more relaxed in Costa Rica than in the U.S. “I live at 3,000 feet but in a valley surrounded by coffee fields and lime trees and water. At night, if I open the windows, I can hear the river rushing by,” he says. “It is very calming … hundreds of trees everywhere … you know the Earth is alive.”

The historic Iglesia de San José de Orosi.


iStock

Cons: “I don’t want to overglorify. It’s not without its problems,” Farber says of Costa Rica. “There are social problems and downsides.” He notes that crime and petty theft can be a problem (“I am cautious,” he says of his approach) and seem to have increased since he moved there, and adds that he misses out on some cultural things because of where he lives. And, he says with a laugh, “I can’t order Thai food at 9 at night.” But, he adds: “These are trade-offs — in the afternoon, I get to walk in the coffee fields and see flocks of parrots.”

Residency: To qualify for Costa Rica’s pensionado visa, expats must prove that they have a pension of at least $1,000 coming in each month. (Here are the details of that program.) Once you have lived in Costa Rica for three years, you can apply for permanent residency. Farber used a lawyer to help him figure out the ins and outs of residency options; his entire path to permanent residency took about a year, he says.

The bottom line: “After five years I am still amazed and surprised that I made the decision to lead a life I never thought I would,” he says. And while he may not stay in Orosi forever — “the town doesn’t have an ambulance, [and] I don’t know what it will be like to be 80 there,” he says — he does plan to stay in Costa Rica in no small part because of the people and sense of community. “I have the feeling that life is good here,” he says. “It’s hard sometimes, but we are all in it together.”



Source link

Continue Reading

Company

Mutual Funds Weekly: These money and investing tips can help you read the market’s signs and stay on your path

Published

on

By



These money and investing stories were popular with MarketWatch readers over the past week.





Source link

Continue Reading

Company

Mutual Funds Weekly: These money and investing tips can help you read the market’s signs and stay on your path

Published

on

By



These money and investing stories were popular with MarketWatch readers over the past week.





Source link

Continue Reading

Trending