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Americans must learn to pay themselves

There is a constant to the U.S. economy and that is, it’s always changing. Some years are a boon and everyone who wants a job has one and some years are a bust, like now, and we have to live off of our savings for awhile. Despite what our kids may think, it’s not their inheritance. It’s really a prudent reserve that comes in handy during times like these.

However, that’s not the scenario that played out for most of us this time. Wall Street was not the only place playing fast and loose with their resources. The average American was doing the same thing with the family purse strings.

That’s the part that economists and trend watchers constantly point out to us that never really gets trumpeted. Americans are not always the greatest savers.

In January of 2007, just as we were slipping into the beginning of the downturn, Americans were spending more than they were saving, according to the U.S. Bureau of Economic Analysis, www.bea.gov. It was the first time that had happened since the Great Depression. Feels a little eerie looking back, doesn’t it.

The new benchmark made the news but we weren’t paying attention yet. Fortunately, the Great Recession was like a cold slap of water and we’re paying attention now. This year, according to the BEA, the trend has changed and in 2009 the savings rate increased to 4.6 percent of net income, the highest that decade.

Economists are quick to point out that the rate always increases during a recession and this one is deeper than perhaps any other so, of course, the rate is higher.

However, it’s also possible, that much like the generation that survived the Great Depression, we have learned a more permanent lesson or two. A good example would be, no matter how big or old the corporation or how well you have been performing your job, both can suddenly disappear, sometimes right along with your retirement fund.

In order to ensure that you have as many options as possible should this come around again, start paying yourself now. A good rule of thumb is to set aside 10 percent of your paycheck in a savings account that you can get to if you need it, and then forget about it.

The money needs to be in a low risk investment like a CD insured by the FDIC and not in any kind of market. The rule is, you don’t invest what you can’t afford to lose and your prudent reserve is the underpinnings to your peace of mind. You can’t afford to lose that.

The goal is to sock away at least eight months worth of expenses so if that amount hasn’t been met yet and there’s a little extra one month, add it to the reserve instead of buying that extra pair of shoes. Teach this same rule of 10 percent to your children as well and start the account for them.

This is a way of passing on a lifetime without quite so many financial hills and valleys and is a lesson in how to build toward any goal by focusing on the next step.

Even if all that gets set aside is $100 a month, it’s a gain of $1,200 a year and it’s a start toward a stronger financial footing.

Plus, it will keep our awareness on the need to save even more so that when opportunities arise to make a little extra or we get an unexpected check we have an idea of where at least some of it ought to go.

We are also aware of our financial health instead of just a vague sense of what’s in our checking account.

If Americans adopt this simple strategy in ever increasing numbers we will be less likely to buy our way into another financial crisis because we’ll know the real price of living beyond our means.

Martha Randolph Carr. Martha’s column is distributed exclusively by Cagle Cartoons. Inc. newspaper syndicate.