Personal Finances and the American Dream

by Laura Adams

For generations, the way most Americans defined success was a singular, mythic dream that included having a high-paying job, buying a home, driving a fancy car, and having a family. While that traditional American Dream isn’t dead, a recent study by MetLife reveals that our mindset has evolved into something much more complex.

I’ll tell you more about the new American Dream and give you 5 ways to build safety nets for your personal finances that give you financial security.

What is the DIY American Dream?

The American Dream of a White Picket Fence

Is the "white picket fence" your American Dream?

Our new outlook has been coined the “Do-It-Yourself (DIY) American Dream.” It’s the result of many factors, including:

  • fundamental shifts in the way we view adulthood, marriage, and family
  • our emphasis on social networking and sharing
  • financial challenges due to the long recession

Americans are now taking longer to become financially independent. They’re staying single longer and declining marriage more frequently. The new DIY American Dream is less about family and career success and more about creating personal fulfillment, enjoying close friendships, and having enough money to support a desired lifestyle.

The American Dream has actually gone social because it extends far beyond our personal finances into our personal relationships. For the first time, the American Dream isn’t about “living large” and achieving massive wealth—it’s about attaining a comfortable and modest level of financial security.

Lifestyle now trumps materialism because the MetLife 2011 Study of the American Dream reveals that over 70% feel they already have enough. Our hunger for financial success has been replaced by the desire for financial security.

How to Achieve the DIY American Dream

While Americans’ financial goals are more modest, achieving them is still challenging due to the tough economy and our high unemployment rate. Americans don’t want to rely on traditional social safety nets, like government assistance. Instead, we want to provide financial safety nets for ourselves and we’re willing to take drastic steps—like relocating, downsizing, taking a second job, starting a business, or enrolling in job training—to create financial security.

But the troubling part is that while nearly three quarters of those surveyed believe they need a financial safety net to achieve the American dream, only 30% say theirs is adequate.

How to Create Financial Safety Nets

A financial safety net is simply a way to take control of your money and be prepared for the unexpected. It includes having an emergency fund to cover your living expenses if you lose your job or business. It also includes financial products such as health insurance, disability insurance, and a retirement account, that provide for you no matter what happens.

The exact types of financial safety nets you need depend on your personal and family situation, but here are 5 tips for how to create more security:

Tip #1: Live Within Your Means

Living within your means allows you to avoid taking on debt that can get you into financial trouble. The new American Dream is more about having a desired lifestyle and less about being materialistic. Creating a meaningful life that’s full of personal fulfillment, regardless of how it compares to your neighbors’ or your parents’ lifestyle is critical for achieving financial security.

Tip #2: Build an Emergency Fund

Having cash reserves that you never touch except in the case of a dire emergency, gives you the ability to withstand a financial hardship without having to solve the problem by going into credit card debt.

Build up your emergency fund by automating a monthly transfer from your checking account into an FDIC-insured savings or money market deposit account. Don’t even think about investing your emergency money. The goal is to keep your reserve fund completely safe so it’s there for you the moment you need to fall back on it.

Tip #3: Have Adequate Insurance

For most people, having an expensive medical treatment or debilitating injury could be the difference between financial success and bankruptcy. Insurance is inexpensive when you consider how devastating not having it could be to your finances.

Meet with an insurance agent about having enough of the right kinds of insurance, such as health, disability, life, and long-term care so you can protect the financial assets you’ve worked hard to accumulate.

Tip #4: Invest for the Future

Putting aside a minimum of 10% of your gross income for your future retirement is one of the best financial safety nets to create. Even if you receive Social Security benefits, they aren’t likely to be enough for a safe and happy retirement.

So be sure to max out every tax-advantaged account that you can, like a workplace 401(k) and an Individual Retirement Arrangement (IRA) before you put money in a taxable brokerage account. That makes the most of your long-term retirement savings.

To learn more about how retirement accounts work and the right ways to invest, pick up a copy of my book Money Girl’s Smart Moves to Grow Rich.

Tip #5: Diversify Your Income

Since you never know what might happen to your job or industry, having more than one source of income is a smart financial safety net to put into place. Consider ways to make money on the side by doing freelance work, consulting, or starting a part-time business that helps you pay the bills and gives you added security.

Branching out into a new work opportunity might mean you have to get up earlier or work weekends, but it can result in rewarding experiences, valuable personal contacts, and a stronger financial safety net to keep you and your family safe.

Photo credit: Wonderlane

Published or updated January 3, 2012.
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{ 2 comments… read them below or add one }

1 K.C.

Thank you for this post and your observations. Rosa and I have been way ahead of the curve on this trend toward financial security. We have lived modestly the last 30 years in order to enjoy financial independence. As you point out, financial independence is the new luxury. But it doesn’t come cheap. Even at a reduced standard of living, it is still an ambitious undertaking for the average person. It takes a lot of money in savings to sustain even a modest lifestyle through the financial ups and downs of a typical person’s life and through retirement. It requires a very high rate of saving. We averaged saving in excess of 35% of our annual income. When we both earned an income, we lived on the equivalent of one income and saved the other. Some years we saved 65% of our take-home pay. And we’re still saving three years into retirement.

Are Americans prepared to save at those rates to achieve the new American Dream? Are they willing to downsize to a standard of living they can sustain with their savings after having lived beyond their means on credit for so long? It will require a huge adjustment in values for most folks.


2 MyMoneyDesign

Laura: It’s ironic to me that something as sacred as the American Dream depends so much upon our financial security. Yet, little attention or education is ever given to this topic as we grow up. I had no idea what a 401k or retirement plan was even about until I started my career. Thanks for giving the safety net some well deserved attention and good luck with your book.


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