Roughly 30% of American adults have no emergency savings. On top of that, the average American couple has only saved $5,000 for their retirement. It’s pretty difficult to think about retirement and personal finance when many Americans are living paycheck to paycheck, especially after being hit by the Great Recession.
Still, when it comes to everyday living and retiring comfortably, it’s important to have a personal finance management system in place. Financial decisions that will impact personal finance include budgeting, investments, mortgage planning, savings, and retirement planning.
That said, everyone’s personal finance is different and will depend on earnings, living expenses, and short and long-term goals. Some of the most important factors impacting long-term personal finance include savings and investment.
That’s because today, the average retired worker in the U.S. receives approximately $16,092 annually, or $1,341 per month. That isn’t a lot to live on, especially when you consider the average life expectancy is around 80 years of age and climbing. Those who retire at 60 need to have enough savings for at least 20 years.
It’s critically important for Americans to take control of their personal finance and not only rely on Social Security but also have additional income vehicles to take advantage of. When it comes to personal finance and investing, in the past, it was pretty simple: invest 60% in stocks and 40% in bonds and rebalance annually. It’s not that easy anymore.
Because of the artificially low interest rate environment, Treasury bonds now yield less than 1.5%. That adds up to just $150.00 annually on a $10,000 investment. Before the Great Recession, yields were around five percent. In the 1990s, the yield on a 10-year Treasury bond was close to seven percent.
While the 60/40 rule of stocks to bonds was always just a rule of thumb, today, personal finance allocation for stocks across all age groups and risk tolerances may need to be considerably higher than traditional bonds.
Even then, the definition of “bonds” might need to be broadened to include popular income streams, such as solid, high dividend-yielding stocks, which can be above five percent a year. After all, personal finance is a marathon, not a sprint, and includes a diversified portfolio that couples long-term investing strategies and growth opportunities with risk tolerance.
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