Resolved to Save in '07
At the beginning of every new year, so many people promise to get their personal finances straight.
They vow to budget, save or get out of debt -- or in some cases resolve to do all three. In 2007, according to a survey by Money magazine and the market r esearch firm ICR, 37 percent of Americans say they plan to make a financial New Year's resolution.
Unfortunately, many of those promises will go unfulfilled long before the year ends. The Money/ICR survey found that of those who have made financial resolutions in the past, only 24 percent were successful.
Why do so many people fail to keep their goals?
Research shows that they don't have a plan from the start. Or they falter because they aren't accountable to anyone. If no one is tracking their progress or pushing them to succeed, they fall back to the same bad habits that landed them in financial jeopardy in the first place.
For 2007, I've vowed to break that cycle by helping four people -- two single women and one couple -- achieve their financial New Year's resolutions. I'm calling this the Color of Money Challenge, and I'll be following the decisions the participants need to make to strengthen their financial lives.
As part of the challenge, I'll help them stick to a budget, pay down their debts, and save for emergencies and their retirement. I will hold them accountable and push them to do what they couldn't do on their own.
These three households represent what many Americans are going through right now. They are living paycheck to paycheck. But I admire their courage in agreeing to step forward and do something about it -- especially because they are doing so in the public eye.
About 65 percent of Americans rely on their next paycheck to meet current living expenses, according to an online survey conducted for the American Payroll Association. Last year, for the first time since the Great Depression, the national savings rate dipped to less than zero.
Ask yourself if you are one missed paycheck away from a major money crisis. Even if you aren't, someone you care about probably is. The fact is, easy credit and insufficient financial training at home or in school have left many people unable to manage their money.
It was easy access to credit that hobbled Carlesa Washington, one of my Color of Money Challenge participants. Washington, 23, is a college graduate living in the District who earns about $32,000 a year. She has no student loan debt and lives rent-free at home with her mother. Washington should be banking most of her pay. Instead she's racked up about $6,500 in debt, the majority of it on one credit card.
"I've become depressed and disappointed," Washington said. "Like most young people, you think that it's going to disappear."
But debt doesn't disappear. It haunts you.
"I am lost as to where I should start," Washington wrote in asking to be a part of this New Year's challenge. "I want to buy a home, raise a family, and be debt free."
Then there is Annie Schleicher, a 35-year-old former high school teacher who now works as an associate editor for an online news Web site for high school students. Schleicher said she watched her homemaker mother struggle after she separated from her father. Her mother, who died 10 years ago from a rare cancer, made her daughter promise to be a better money manager.
It was a promise she hasn't been able to keep.
Yet Schleicher does not live an extravagant life, although she admits she eats out too much. She owns a small studio co-op in the District. She drives a 1992 car. Still, she just can't seem to save anything from her $44,000 salary. She hasn't been able to make a dent in the $4,500 she owes on her only credit card. She also has $10,754 in student loans. (Before we talked, she didn't know for sure how much she owed. She thought it was $16,000.)
"I really want to pay off my debts and create a realistic savings plan," Schleicher said. "I want to maximize my retirement. I want to stop living paycheck to paycheck. I want to be the woman my mom wanted me to be -- strong and independent."
Trouble saving was a common problem for all the participants. It certainly is for Tania and Carl Chandler.
From outward appearances, the Maryland couple is doing just fine. They own a large and beautiful single-family home. They have two adorable children, ages 5 and 2 1/2 . They have good jobs. She's a professional school counselor and he's a systems consultant. Together they make about $137,000 a year.
However, this couple, like many others, is doing well as long as everything goes well.
But one major illness, layoff or large unexpected expense could cause their financial world to crumble.
"Our savings, or mostly lack of, isn't worth mentioning," Tania Chandler wrote. "I think about a 529 [college savings] plan for our kids but we haven't started one. I do have a retirement account that I dip into, so that's not good. We talk about doing better, but it's just that, talk. We would love to be chosen to take this journey to better our financial situation."
A journey is exactly what this will be for the Chandlers and the other challenge participants. Although at times it's going to be a rough ride, they can meet all their goals by creating a plan and sticking to it. I'll occasionally get outside experts to also help them with specific problems.
Most of all, I'll be there all along the way to keep them on the right path.
Research and reporting assistant Charity Brown contributed to this column.
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