Improve Your Personal Savings Rate Feb 06, 2012, 8:00 am By Emily Haleck

Guest post by Dale Gunther, Vice Chairman of the Board, People’s Utah Bancorp

When the economy was hard hit in late 2008, consumers began to worry about their future. With unemployment rising and investments faltering, many began to get serious about paying down debt and setting aside rainy day funds. Now, as the economic recovery unfolds, guards are falling—and so is the personal savings rate.

Today’s personal savings rate

In 2009, the personal savings rate  (personal saving as a percentage of disposable personal income) surpassed 7 percent but has been creeping back down as  consumer spending increases. The fourth quarter 2011 personal savings rate was an unimpressive [Oct: 3.6 percent, Nov: 3.5 percent, Dec: pending].

We shouldn’t be surprised. This is a pattern we’ve seen since the Bureau of Economic Analysis (BEA) began tracking personal savings rates in 1959. A brief history according to BEA data:

1960s-early 1980s

Throughout the ‘60s, the personal savings rate averaged 8.3 percent. Savings spiked in the early ‘70s when the country was in deep recession, reaching an all-time high of 14.6 percent in May 1975. By the end of the decade, the savings rate fell back to 8 percent range, only to jump back up to 12.2 percent during a recession in the early ‘80s.

1984-1990s

By 1984 when the economy was in recovery mode, the rate was 10.2 percent and continued to decrease throughout the decade. The early ‘90s saw rates around 7 percent, despite another recession, while the prosperous mid-‘90s produced a freefall in the personal savings rate until it hit a low of 2 percent in September 1999.

2000s

In the first decade of the new millennium, greater access to credit led the savings rate to dip below a meager 1 percent, with more and more individuals getting trapped in a negative savings rate environment. Enter the recession in late 2008 and the rate started inching back up, peaking at 7.1 percent in May 2009.

What history teaches us

The ironic reality, as evidenced by the above history, is that personal savings rates go up during recessions—when consumers can least “afford” to save—and, lately, have been much lower or even nonexistent during economic boom times.

It is evident that history repeats itself, but you can break the cycle.

Start with a savings plan and a commitment to spend less than you earn. One way to stay on track is with Bank of American Fork’s new Online Money Manager tool, which allows you to categorize transactions, set saving goals and get a complete financial picture of all your financial accounts—including those at other financial institutions—in one place.

The important thing is to take steps now to prepare for the future.

Dale Gunther is vice chairman of the board of People’s Utah Bancorp, the holding company for Bank of American Fork , which is an Equal Housing Lender and Member FDIC. At the start of his 16-year tenure as CEO at Bank of American Fork, the bank had two branches and $80 million in assets; it now has 13 offices and more than $890 million in assets. Dale has served as chairman of the Utah Bankers Association and currently serves as an American Fork city councilman. This article should not be considered legal or investment advice. Seek legal and investment advice from your own qualified professional.

 
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One Response to Improve Your Personal Savings Rate

  1. Nora says:

    Well that is a very vague question.Debt or Saving.Lets say your debt is a car loan @6%I would say lsneus you can pay it off, there is no point in paying extra. Because you will not increase your cash flow, and depending on where you are in the loan you may be saving very little in interest. Say a 5 year loan and your in the 3rd year of payments. You already paid most of the interest.Lets say your debt is a credit card @ 15% I would pay that down immediately. Because that increases cash flow and reduces interest being paid. Say you owe $6000 on credit card. Your minimum is probaly around $150/month. but of that $150, roughly $75 is interest. Pay that down $4000 and your minimum payment drops from $150 to $50 (increased cash flow) and your interest drops from $75 to $25.Sometimes it is better to pay off debt, sometimes it is better to invest. As a rule of thumb if the interest rate is 8% or higher pay off the debt as fast as you can. If the interest rate is 6% or less take your time paying it off and invest your money elsewhere (that doesn’t mean spend it wildly on useless crap) When the interest rate is between 6% and 8% it depends how good of and invester your are and what other options you have for your money. A safe bet would be to just pay the debt because it is guaranteed return. But every situaton is different.References :

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