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Americans today are facing increasing financial responsibilities and pressures: the economy is sluggish, many companies are "downsizing," and there is widespread concern about the future of Social Security, the safety of banking and insurance investments, and the consequences of a growing national debt. On a more immediate level, the biggest financial challenge for many is making ends meet from paycheck to paycheck.

To understand how best to meet the financial challenges of today and tomorrow, it helps to take a look at the key financial issues now facing the American consumer.

MEETING DAY-TO-DAY NEEDS

As our economic doldrums continue, meeting cash flow needs has become one of the key concerns of many people today. This is due in large part to the American consumer’s love affair with credit, which has only recently begun to cool.

During the past 20 years, consumers increasingly borrowed to buy not only the traditional family home or car, but to pay for impulse purchases like clothing, entertainment and gifts. The result of this "buy now, pay later" mentality is a population with a disproportionately heavy load of debt.

Now that income growth has begun to slow, many consumers find themselves in a cash-flow crunch, barely able to meet their debt payments while maintaining their current lifestyle.

Contributing to the cash flow squeeze is a lack of disciplined saving. The average American saves only 3.4% of his or her discretionary income annually; the minimum recommended level is 5% or more. Without a savings "cushion" as protection, almost any emergency can spell financial hardship for the typical family.

SENDING CHILDREN TO COLLEGE

Many American consumers feel less than optimistic about being able to afford a college education for children. Older couples are concerned that their children will not be able to afford a good education for the grandchildren. College costs continue to rise each year, and the average annual bill now totals $10,000 or more for tuition and expenses. Another negative: a shrinking number of student loan and grant programs mean that more parents will have to foot the total tab for college costs.

If you think that sending children to college will greatly or somewhat affect your standard of living, you are not alone. In a recent survey, 75% of those between the ages of 35 and 44 said they are critically concerned with this issue.

CARING FOR AGING PARENTS

There are now more than 29 million Americans over the age of 65, and by the year 2031, one in five people in our country will be 65 or older. Even as advances in medical technology are helping us live longer, the increasing costs of health care and nursing care threaten to destroy the future financial security of those who do not make adequate preparations.

As our population grows older, more individuals will face the possibility of having to fill the financial gaps left between health services and family savings, for both themselves and their aging parents. Yet many feel they may not be adequately prepared should they or their parents require long-term care or medical attention.

At one time, retirement meant a gold watch and a comfortable company pension. Today’s employee, however, rarely works for the same company long enough to guarantee an adequate pension.

Affording retirement now means accumulating pension dollars, Social Security benefits, and personal savings into a fund that will allow you to stop working without substantially decreasing your standard of living. However, most Americans polled in a recent survey were skeptical about their ability to achieve this goal.

Twenty-five percent of Americans are now between the ages of 35 and 44. This age group is sandwiched into taking responsibility not only for themselves, but also for their parents as well as their children. This group faces a myriad of financial challenges, because they may have to juggle meeting day-to-day expenses, educating their children, caring for aging parents, and trying to prepare for their own retirement.

No matter what your age or financial situation, you can begin today to pursue financial security by setting goals, saving, and planning.

The first step in securing your financial future lies in setting financial goals, such as funding college costs or saving for retirement. List your goals, and decide which are most important. Then estimate how much you think you will need to fund each goal, so that you will have an idea of how much you need to save.

Stop creating debt by making purchases only with cash - not credit. (Cut up your credit cards if necessary.) Then start paying off any debt you have now. You might also consider ways to consolidate your bills, such as paying off high-interest credit card balances with a low-interest line of credit. As you reduce the amount you owe, you can increase the amount you contribute toward savings.

Start saving regularly, even if you can only set aside a small amount from each paycheck. Financial advisors recommend that you save no less than 5% of your after-tax income each year. While this may sound like a lot, you can make it less "painful" by taking advantage of such options as payroll deduction through your employer or automatic withdrawals from your bank account. Even as little as, $5 each week invested in an interest earning account adds up quickly.

Make your investment choices based on how much risk you can afford to take. In general, the more you are willing to risk, the higher your earnings are likely to be. However, if protecting your original investment is more important to you than a high rate of return, you are likely to be more comfortable with low-risk investment options.

Take advantage of the expertise of a financial advisor to help you formalize your goals into an achievable plan. Once you have set your priorities, he or she can help you put your plan into action. Remember, a plan is just a plan - until you DO something. You can start working toward a secure financial future today, by obtaining professional answers to your questions and assistance in the analysis and developing a plan of action.

Securities offered through Sigma Financial Corporation. A registered broker/dealer. Member FINRA & SIPC.

Planning Services offered through Sigma Planning Corporation, a registered investment advisor.

Any information contained on this site does not constitute financial advice. The Website is intended to provide general information only and does not attempt to give you advice that relates to your specific circumstances. You are advised to discuss your specific requirements with an independent financial adviser licensed in your state.

We do not offer legal advice. All information provided on this website is for informational purposes only and is not a substitute for proper legal advice. If you have legal questions, we recommend that you seek the advice of legal professionals.

IRS Circular 230 Disclaimer: To ensure compliance with IRS Circular 230, any U.S. federal tax advice provided in this communication is not intended or written to be used, and it cannot be used by the recipient or any other taxpayer (i) for the purpose of avoiding tax penalties that may be imposed on the recipient or any other taxpayer under the Internal Revenue Code, or (ii) in promoting, marketing or recommending to another party a partnership or other entity, investment plan, arrangement or other transaction addressed herein.

Asset allocation, diversification and rebalancing do not assure a profit or protect against loss in declining markets. Investing in securities involves risks, and there is always the potential of losing money when you invest in securities. Past performance is no guarantee of future results.

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Last modified: 05/11/10