Clark Howard's Tips

Could you withstand a 50% decline in income?

June 24, 2008

According to Business Week, you now have a 1 in 4 chance of experiencing a 50% decline in your income because of a job loss. That puts most of us in a very difficult spot as the average American family is not saving and continues to live on borrowed money.

The reality is that corporate America no longer has a lifelong compact with us. It used to be that you worked for one company for a lifetime; the company was good to you and you were good to them with your loyalty. But today, it's more like we rent each other. Employers are rewarded by Wall Street when they pink-slip you.

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About two-thirds of us have little or nothing saved for retirement, which means that one-third of us are saving. Meanwhile, about 30% of Americans pay their credit card balances off in full each month. Hmmm. Clark often wonders if the net credit card payers are the same sector that's also saving for retirement.

But back to the topic at hand: If you're in dire financial straits, you've got to tackle your problems slowly. Remember, a starvation diet hardly ever works. But those who moderate their diet over time can make great progress.

The same thinking applies to your financial health. If you have a 401(k) at work, start by investing as little as 1% -- that's 1 penny out of every dollar. Then you can bump it up by another 1% every 6 months or so. You'll hardly notice the difference in your wallet and you'll be developing a great habit.

On the other hand, Clark's advice about spending money comes from the school of shock therapy. If you know that the Visa or MasterCard in your wallet makes you spend money, then don't carry it in your wallet anymore!

More Clark Howard Money Management Tips Beware of impostor money market fund investments  Investigate charities thoroughly before giving them money  Clark's 529 Plan Guide has been updated!  Mandatory private accounts may solve SS dilemma  Free budgeting tools online!  Avoid the full-commission stock broker trap  Avoid the full-commission stock broker trap  Scams heat up when economy cools down  The dangers of purchasing employer stock  Free budgeting tools online!  Full list