But plenty of people do go broke. According to Debtscape, a national nonprofit credit counseling organization, more than 1.3 million Americans filed for bankruptcy last year--the highest in our nation's history. But it doesn't have to be that way.
"It's not what you earn. It is what you spend," says Frank Howard, a CPA at Howard & Waltrip and a guy who knows a thing or two about a thing or two. "Most everyone deals with the issue of savings and debt. It permeates our entire life."
That is, unless you happen to have a zero balance on your credit cards and a mortgage payment around 500 bucks. In which case, we hate you and our New Year's resolution is to keep doing so. For the rest of you, it's time to stop rolling those pennies and start analyzing your financial sitch.
Sitting down with your bank statement will bring up a number of pertinent questions. Such as: Why don't I ever save any of this bank I'm bringing home? Blame the government, says Perry Reed, CPA for Perry Reed and Co. Reed, a member of George W.H. Bush's Economic Advisory Council in 1992, says the government is responsible for deterring savings incentives. In laymen's terms: "They'll use any trick in the book to get your cash."
"We still have the death tax," Reed says. "Here you are a wage earner, and you accumulate wealth and make wise investment decisions. When you die, and you've accumulated over $1.5 million, any dollar after that is taxed by the inheritance tax. You can no longer give it to your kids. That's a problem." Of course, if you've earned $1.5 million in your life, it's not that big of a problem.
More troublesome, Reed explains, is our social environment. From the way our parents lived to the way our peers live, there's an underlying urgency for status. In other words, as Chuck Palahniuk said in Fight Club, "We are the middle children of history, raised by television to believe that someday we'll be millionaires and movie stars and rock stars, but we won't. And we're just learning this fact."
The final component is the individual himself. Reed believes saving is merely a pattern of behavior, and the quicker one establishes good practices, the better off he will be. Which is easy enough to say but harder to do. Oh, wait--there's more.
"There's a philosophy to 'learning to save money,'" Reed says. "Some people live in the moment. Some people work hard, save hard and accumulate wealth."
So suck it up.
A CPA saved my life
Before you even begin to crunch numbers, you have to make a decision for yourself to start saving... now.
"Desire is the first step," says Jeb Blount, financial representative for State Farm Insurance. "I can preach until I'm blue in the face--unless a person has the resolve to take the first step, whatever I say doesn't mean a hill of beans."
(You might also want to find a financial representative who can use fewer than two clichés in one sentence. It's not a bad idea.)
It's also best to start saving while you're still young. Before you are tied to marriage and children, while you have more opportunities to put money aside and that money has a longer duration to grow.
"Once you have a nest egg, your options are limited," Reed says. "If you save young and buy smart, it'll come back to you tenfold."
Blount also says to stop trying to keep up with "the Joneses." (Dude, seriously--that's three, and we didn't even speak to him that long.) They, of course, have always been around and always will be. Just know that playing catch-up with them will only lead to a dark, unsatisfying end. Possibly involving a pair of leather pants. Break the cycle of shame.
Just as important as that kind of saving is this kind: saving your money from the IRS. We're not advocating tax evasion, or even cheating on your forms. Just think about getting a pro to do the dirty work for you. Like hiring a hit man, only legal.
Many people feel competent enough to do their own income taxes, but they probably aren't. Sure, you might get some money back, but at what cost? Spend a few bucks and you might get more in return--on your return.
"You pay for what you get," Blount says. "In the short term, there may not be recognizable benefits. If you feel qualified to do your own taxes, the IRS may question your return, and you may not be comfortable with it. With tax advice, you'll be a lot better off."
It's like paying protection money to one bully to keep the other one from kicking your ass. So try to develop a relationship with H&R Block (www.hrblock.com) or some other legal tax adviser.
A CPA can also help with tax advice. Reed says it's important to shop around and find a CPA that's well-rounded and not just a tax firm or an audit firm. You want a bit of both, an accountant chocolate-and-vanilla swirl, if you will. And you will. Call around and make sure the CPA is in good standing, and your investment will pay off better. Also, make sure he doesn't sniffle or play with his nose, or hit the bathroom too often. If he does, that money is gone, my friend.
Anger? No, management.
You have to crawl before you walk. (A tribute to Jeb Blount.) Education is important when it comes to locating the slow leak in your bank account. According to both Reed and Howard, finding courses at local community colleges or universities is the most reliable way to go about becoming money smart. The University of Texas at Arlington (www.uta.edu) and the University of North Texas (www.unt.edu) offer a variety of finance and banking courses that can help build a stable understanding of monetary issues.
"Everyone has to write checks, manage their money, balance their checkbook, learn to save, learn to spend, learn to buy an automobile, buy a house," Reed says. "A lot of it is just learning the basics."
If you want to learn how to manage your debt--or better yet, get someone to manage it for you--you're going to need more than a class. The most popular debt-relief organization is Consumer Credit Counseling Services (www.cccs.net), which provides counseling and assists with managing and reducing your debt. But Reed, ever the stickler, says to take caution when calling upon CCCS to clean up your mess. Over time, it may be just as bad.
"All they talk about today is going to CCCS and they'll consolidate their credit cards," Reed says. "And then they screw you to the wall in fees. It's just not good."
Instead of CCCS, you can check out seminars sponsored by banks and other entities. Reed offers this handy rule of thumb: If more than one-third of your net income goes out every month in debt, you are spending too much and could find yourself in trouble.
Seriously, suck it up
The best time to start saving? You probably know the answer to that one. No matter where your financial situation stands, it can only improve through savings and responsible spending. Sacrifice is inevitable in order to get a handle on your situation, says CPA Howard.
"It's never too late," Howard says. "You can only start where you are now. You can't go back in time. The sooner you deal with your financial situation, the better."