6 steps to financial rehab for America Saves Week
February 21, 2011
One of the strange twists of 21st century culture is that rehab has become almost chic. Amy Winehouse and Rihanna have performed songs about it, you could cast a movie made up of Hollywood figures who have been very public about their rehab stints, and there's even a reality TV show called "Celebrity Rehab."
In this spirit of embracing a clean break from destructive habits, maybe you should consider rehab to address a problem that's even more pervasive in America than substance abuse: financial abuse.
America Saves Week (February 20-27) is a perfect opportunity to put yourself into financial rehab, getting your spending under control and your savings rates on track.
The problem of financial abuse
Despite the often-sensationalized media coverage of celebrity rehab, substance abuse is a serious problem. So is financial abuse. It affects not just individuals, but families. Its impacts can be long-lasting, and it can damage the emotional and physical health of those involved.
One example of this financial derailment is evident in a 2010 study by the Center for Retirement Research at Boston College which estimated that Americans between the ages of 32 and 64 will be a total of $6.6 trillion short of what they need for a comfortable retirement. This problem affects 70 million households, to the tune of $90,000 per household.
How can you get your current finances on track and save for your future?
6 steps to financial rehab
With the government also in dire financial straits, nobody is going to fix your financial problems but you. Here are six steps towards getting on the right track:
- Admit the problem to yourself. Don't dismiss financial difficulties as "temporary." You're either on track towards a viable retirement plan, tucking money regularly into a retirement savings account, or you're off track.
- Get your co-dependents on board. Often, people don't get themselves into financial trouble alone. Spouses and even children can be complicit in a household's spending beyond its means. Everyone who lives with you needs to acknowledge the problem, and the sacrifices they'll have to make to address it.
- Talk openly about your problem. Keeping up appearances can be a source of bad financial habits, so do away with this pressure by openly acknowledging your difficulties to your friends. With 70 million households facing financial a retirement shortfall, chances are you'll find you are not alone, and you might even inspire others to get into financial rehab.
- Separate the past from the future. You need two separate plans--one to deal with paying down debt you've accumulated in the past, and one for building savings rates to meet retirement goals in the future. To put it simply, you need to think both short-term and long-term.
- Banish your credit card. If you have trouble staying on-budget, get credit and debit cards out of your wallet. Lock them up somewhere in your house until you get spending under control, and if that doesn't work, cut them up.
- Hold yourself accountable. Set savings benchmarks in advance, and then measure your progress towards those benchmarks regularly. Report those results to your family, so everyone who has a stake in your financial rehab knows what the situation is.
Debt problems can't generally be solved overnight, nor can a retirement nest egg be built in a day. Financial rehab is a lifelong process, not a quick fix, but once you get your spending habits under control and your savings accounts on track, everything else will fall into place in the long run.