Earlier this year, the LA Times reported that household debt in the United States had recently jumped $241 billion to a total of $11.5 trillion. This $11.5 trillion in debt is 9.1% below its peak of $12.7 trillion just before the Great Recession. This is the biggest increase in debt since 2007.
While most see this as a good thing and proof that the economy is recovering, it also raises some troubling issues.
First, it is interesting to note that household debt is still $11.5 trillion. This is approximately four times the entire yearly budget of the United States Government. Admittedly, this includes home mortgages. However, it is still an astounding amount of debt for American citizens to be carrying.
Second, it means, obviously, that Americans are incurring more debt. After spending some time “de-leveraging” and getting their house in order, Americans are going back to the old, bad habits. On a personal and national level, this can’t be good.
Third, this also means that overall saving must be going down. A recent poll by bankrate.com indicated that only 51% of the respondents said that they had more in their rainy day fund than in credit card debt. That is the lowest level since they began doing their survey in 2011. Half of America has more short term debt than savings? Again, this can’t be good.
I want to propose something radical to you. Let’s let the rest of the country load up on debt and accelerate the economy. Not us. In other words, keep your same mind set with respect to keeping overhead low and debt to a minimum. Let’s you and I use this opportunity to enhance our savings. As the economy gets better, we will be in a much stronger position than everyone else who is loading up on debt again. In five years’ time, the effect of these efforts will be dramatic.
Remember, putting some positive cash flow in savings on a monthly basis is the cornerstone for long-term financial success.
