Farrell: In 2014, save more, borrow warily and work in retirement

Welcome to the new year.

No, I haven’t lost it. I know that Jan. 1 marks the official launch of a new year.

But for many of us, Labor Day feels more like the real beginning. The summer is over. The kids are back in school or they’re off to college. The highways are more crowded during commuting hours than in the summer months. The intensity of meetings at work picks up. Vacations fade into memories. Congress returns to Washington.

In other words, Labor Day is a good time for making new year’s resolutions. Since this is a personal-finance column, I’d like to offer up three money-related goals for the new year.

My suggested resolutions: Save more, borrow carefully and think about jobs in retirement.

Save more: Economists define savings as your income minus your consumption. In other words, you have money coming into your household. You spend it on food, clothing, shelter, newspaper subscriptions (thank you), Internet service and so on. What’s left over is savings. Investment is the term for capturing how you allocate the money you’ve saved, from a savings account to stock mutual funds.

Too much attention is paid to recommendations about how best to invest our savings and not enough is put on increasing the amount saved. The simplest, most effective way to boost your savings over time is to “automate” the act. If you participate in an employer-sponsored retirement savings plan, such as a 401(k), the money is automatically taken out of your paycheck and deposited into your 401(k). You can’t spend the money because it’s gone before your paycheck reaches your checking account. You can easily automate your savings with your checking account, say, by setting up a schedule with your bank to put $10, $30, a $100 or some other sum automatically from your checking account into a savings account every month.

Borrow carefully: The typical American household has made enormous strides bringing debts under better control. The Federal Reserve Bank of New York’s latest quarterly report on household debt shows that households have reduced their loan burdens by $1.53 trillion — 12 percent — from the peak reached in 2008. You don’t want to let the hard-earned progress fade.

This doesn’t mean don’t borrow, just borrow smartly and warily, taking out a loan only when it’s truly justified and the repayment schedule is manageable. Don’t carry a credit-card balance.

Jobs in retirement: That phrase reads like an oxymoron. It isn’t. The realization is growing in much of society that many of us will want to work — and need to work — well into the traditional retirement years.

Question is, what does that mean? What would you like to do? What you’re doing now or something different? What is it you would like to get from your job and your career as you age? Most important, how can you best marry the need for an income with the desire for meaning in life? These are critical questions to think through, and for many of us the answers aren’t obvious. But thinking about jobs and careers over a long span of time is just as important as saving for your retirement.

Those are my three personal finance resolutions for the new year. You’ll probably come up with a different list. Tell me about your ­resolutions.

 

Chris Farrell is economics editor for “Marketplace Money.” His e-mail is cfarrell@mpr.org.

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