12/01/2011 03:27 pm ET Updated Jan 31, 2012

How to Beat Pessimism, Boost Savings

A recent survey by Yahoo! Finance found disturbing levels of pessimism among Americans -- and an equally disturbing lack of retirement savings.

The combination of pessimism with low savings rates could be the subject of a chicken-and-egg debate: Does pessimism discourage people from saving for the future, or does a lack of savings make people pessimistic? But in terms of your financial well-being, the important thing isn't which comes first -- it's what you do to avoid the pattern altogether.

Are low savings rates a symptom of despair?

Signs of pessimism include the fact that 63 percent of the survey's respondents think the economy is getting worse, and that 41 percent think the American Dream has been permanently lost.

The disturbing news on the retirement savings front is that more than a third of respondents (37 percent) reported having absolutely nothing set aside for retirement.

So did pessimism about the future influence people to abandon the hope of saving for retirement, or did a lack of savings lead to the pessimism? One clue may be in the fact that the survey found people over 55 are even more gloomy about the future of the economy than the general population. Nearing retirement age with inadequate savings is enough to make anyone pessimistic.

Breaking the negative cycle

Pessimism may be a reflection of sustained money problems, but in an odd way, it can also be a catalyst for an improved approach to household finances. After all, blind optimism prior to the Great Recession caused people to neglect retirement savings and take on unrealistic financial obligations. Realizing that the economy isn't going to bail everyone out could be the first step towards taking better control of your finances. Here are three other steps toward doing that:

  1. Make a clean break from past expectations. For many households, lifestyle expectations were unrealistic, because they were based on living to the maximum of their credit limits. The longer you continue to chase those unrealistic expectations, the longer you will throw good money after bad. Instead, forget what your past expectations were, and start to plan your lifestyle based on what you can afford now.
  2. Figure out a sustainable plan. A debt-dependent lifestyle is unsustainable because it does not account for how to pay for that lifestyle when those debts come due, let alone when you reach retirement. A sustainable plan involves not just living within your means, but also setting aside enough to support your lifestyle in retirement. Planning on a modest but sustainable lifestyle is better than a few years of lavish spending followed by decades of poverty.
  3. Make the most of your savings. Low savings account interest rates might discourage you from paying much attention to your bank deposits, but often improving your finances is a matter of making several small steps rather than finding one big solution. Shopping for better interest rates can be one of those small steps that adds up to make a difference.

In a tough economy, your options for improving your financial circumstances are limited. However, even with reduced expectations about the future, taking control of your situation is one way to feel more confident. And that confidence could be the first step toward finding an older and wiser form of optimism.

The original article can be found at

"How to beat pessimism, boost savings"