09/14/2024
Listening to an episode of Ed Mylett's podcast and his guest nailed it on why Americans have been so used to spending all we earn. This is the lesson learned: It comes back to how the business model was for middle class jobs, where you'd work and the company would provide a pension, which would provide money for the rest of your life. So you could have 2 piles of money, one for taxes and one for spending (maybe 3 piles if you were Christian and tithing).
The model then changed to 401k/IRAs/Etc. where we were encouraged to take money from our current paychecks to set up investments for our future income (some employers contribute to match). Much of our financial education came from people who were still earning pensions, so we divided our income the same ways they did: 2 piles. But now we are expected to take those piles to not just spend and pay taxes, but now we're expected to invest in our future too. This leaves us with less disposable income, and potentially less available later in life if the market takes a turn as we need to access the money.
Yes some may argue that we are earning more than the generations before us, but one could counter that the costs of most items has also gone up well beyond what historic proportions had been. Fortunately there are a variety of tools that are available to us to allow for growth while also providing protection against the downside of the market. As with any savings, there are no guarantees of growth, the odds are great that many of the strategies have historically averaged well over the inflationary rate.
If you're interested in which strategy might work for you, give us a call!
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