Take the Financial Health Test

The average American savings rate has declined to below0%—compared to the 10% savings rates of the early 1980s.This trend will spell trouble for our economy in theyears ahead if something isn't done soon.

Fight the Downward Spiral

What has caused this shift? Much ofthe shift can be attributed to easier creditpolicies by financial institutions.Lenders pitch so many credit cards, retailstore cards, and mortgage loan offers that everyonehas access to additional sources of funding for consumerpurchases. Perhaps most insidious are the new mortgage lendingpolicies. Mortgage lenders now offer no closing costs, interestonly, equity line of credit loans on 80% to 100% of thevalue of your home (ie, less your first mortgage). Today, manypeople view their mortgage as another source of funding forevery kind of consumer purchase from cars to appliances tovacations. Consequently, people are saving far too little forretirement and other long-term objectives.

So how are you doing? If your answer is "I don't know," youneed to take my Financial Health Check-up test. The first step isto determine your current net worth by completing a financialnet worth statement. To do this, take a sheet of paper and onthe top half list all of your assets at their current market valueand add them all up. Next on the bottom half of the page, listeverything that you owe and total them as well to determineyour total liabilities. Now, subtract your total assets from yourtotal liabilities and the result is your financial net worth. For afinancial net worth statement form, go to the Resource Centerat www.welchgroup.com and click on Asset/Liability Review.The next step is to measure your current net worth against abenchmark formula to see how you are doing. I have devised asimple formula to assist you. Simply divide the number ofyears you have been working by 2.5 and then multiplyyour answer by your current annual income.Your answer here indicates how large your networth should be now in order to be financiallyon track to accumulating enoughmoney for your retirement, assuming you will workapproximately 40 years.

Get a Grip on Where You Are

For many of you, this will be an eye-opening exercise thatwill show just how far behind you are. If that is the case, don'tthrow in the towel. Instead, do something positive. Increaseyour contributions to your IRA; reduce your expenses and startan automatic investment program; get a second job that usesyour medical knowledge. One of your best choices is to seek theadvice of a qualified professional advisor, preferably a CertifiedFinancial Planner™practitioner. To find one near you go towww.fpanet.org. Be sure to ask how they are compensated. Afee-only planner never receives commissions from any clients.

Stewart H. Welch III, CFP^®, AEP, is the founder of the Welch Group, LLC,which specializes in providing fee-only wealth management services toaffluent retirees and health care professionals throughout the UnitedStates. He is the coauthor of J.K. Lasser's New Rules for Estate and TaxPlanning (Wiley; 2005). He welcomes questions or comments at 800-709-7100 or visit www.welchgroup.com. This article was reprinted with permissionfrom the Birmingham Post-Herald.