University of Wisconsin - Extension

NEILLSVILLE, Wis.—The percent of income saved by Americans dipped into negative territory in 2005 and it remains there today. Simply put, Americans spend more than they earn, financing their spending by exhausting their savings funds and increasing their credit obligations. The Association for Financial Counseling and Planning Education® and its 800 members have launched the 10% Solution — a five-year campaign designed to increase the savings rate of Americans to ten percent.

The 10% Solution takes the math out of saving. And, it makes good financial sense. To figure out how much you have to save with the 10% Solution, simply take your gross pay each period and “drop” the last digit. If your monthly gross income is $2,000 per month, then save $200. If your household income is $60,000 each year, then save $6,000 per year or $500 each month.

What can saving do for you? “More than you might think,” says Gayle Rose Martinez, Clark County University of Wisconsin-Extension Family Living Educator.

• Saving relieves personal stress and improves relationships. Financial distress is a major factor in general dissatisfaction and unhappiness. Many studies suggest that disagreement over finances is a major reason for marital conflict and divorce. Studies show that financial stress is not necessarily due to a lack of income; rather, it’s the result of unsustainable spending, saving and investing patterns.
• Saving reduces reliance on credit and can save thousands of dollars in interest. The percentage of disposable income used to pay debts is still near record highs. The American Bankers Association reported in 2005 that 43 percent of consumers carry balances each month on their credit cards. Many Americans owe $2000 or more in credit card debt; earning a rate of 15 percent per year, this pattern would result in $45 in interest accruing (without compounding) every month.
• Saving helps fund a comfortable retirement, yet most Americans are not putting enough away for retirement. As employers continue to decrease or eliminate pension benefits, private saving is the only remedy. Social Security benefits will not — nor were they designed to — provide enough income for a sustainable retirement.
• Saving increases confidence and the likelihood of getting out of poverty. Persons with even small amounts of savings are more likely to continue saving — even after depleting their savings to zero to meet an emergency.
• Saving is habit forming. If ten percent is too daunting, start with five percent, or three percent. Small amounts of savings quickly add up. Begin today.

Where should the money you’re saving go? Consider putting one-half into a retirement plan—a 401(k) or 403(b) plan at work, or an individual IRA or Roth IRA. Save one-third for emergencies – in a savings or money market account. These funds can help pay for unexpected household or auto repairs, medical deductibles, or other unplanned expenditures. Place the remainder in a savings account to fund future goals such as a vacation, roof repairs, or college education.

For more information about saving strategies and family financial management, contact your county UW-Extension office.