Your friends will tell you that you look great in those jeans. Your family will celebrate your bang-up year in the annual holiday letter, even if your life was a train wreck for the past 12 months. I, however, have the luxury of a gazillion miles of Internet cable and a running head start. I can tell it like it is.

Take a good long look in the full-length mirror. Shine an unflattering fluorescent light on the details and begin to account for your assets (what you own, such as equity in your home and your savings) and your liabilities (what you owe to lenders, such as student loan companies and credit issuers).

This is what the average American's undressed finances look like:

  • Three-fourths of workers age 55 to 64 have less than $56,000 saved for retirement.
  • 20% of credit cards are maxed out.
  • 42% of workers cash out their 401(k)s rather than transfer (or "roll over") the assets to an IRA or a new employer's retirement plan.
  • One-third of "millennials" (those born after 1979) do not contribute a single dollar to their work-sponsored retirement savings plan.
  • Last year, the average household paid $1,000 in interest on the money it borrowed.
  • One out of every 73 U.S. households files for bankruptcy.

Not pretty, is it? Once you look at the black-and-white truth of your personal balance sheet, you might be inspired to make a few improvements. At GreenLight we're all about confronting such problems in front of the magnifying mirror and facilitating a full-color, Glamour-shot-worthy financial makeover.

Save more. Period.
Let's start with your savings. Or what little there is of it. One-quarter of you who have access to an employer-sponsored retirement plan evidently can't be bothered with such mundane details like actually putting money into it. And those of you who do participate in a retirement program can stop smirking -- we're on to you. A study by Hewitt Associates found that 22% of workers failed to contribute enough to even get the company match. And get this, one-quarter of workers have an outstanding loan against their balance.

Here's a pen. Go ahead and fill out a 401(k) contribution change form. Just suck it up -- you'll never even miss those pre-tax dollars taken out of your paycheck. And while you're at it, please remember to keep your mitts off the money when you leave your job. There's no reason for 55% of you to cash out your 401(k)s. Please show a little restraint and roll it over into a self-directed IRA.

Save smarter. Got it?
Oh, and another thing. We need to talk about how you're allocating your assets. In short: You're not.

More than half of you have your entire 401(k) in all stocks, or all fixed-income investments. And when the ERBI and the Investment Company Institute took a closer look at your portfolios, they found that nearly one-quarter of employees over the age of 60 had more than half of their 401(k) assets in their employer's stock, and 16% of them entrusted 80% of their retirement savings to the performance of their company.

Do I need to spell it out for you? I guess so.


Even employees of tried-and-true firms like General Electric, Microsoft, and Intel have been devastated by diversification nightmares. Those who put their financial security in the hands of one of these companies in 2000 are now looking at severely diminished 401(k) balances.

Then there are companies such as Hewlett-Packard (NYSE:HPQ), Raytheon (NYSE:RTN), Lockheed-Martin (NYSE:LMT), and IBM, all of which join the headline-grabbing automakers Ford (NYSE:F) and General Motors (NYSE:GM) in the top 20 U.S. companies with massively underfunded pension obligations, according to a 2005 Standard & Poor's study. In fact, the Pension Benefit Guaranty Corporation (PBGC) projects that 75% of all the pension plans that it guarantees are underfunded by a total of $95 billion.

Spend less. Finis.
While we're on the subject of your financial shortcomings, there's something else I need to get off my chest. It's that little matter about the plastic in your purse. Would it kill you to leave it at home once in a while?

We've had this talk before, but I suppose it doesn't hurt to repeat it: Carrie Bradshaw is a fictional character. The pals portrayed on Friends wouldn't really be able to afford that abode. The price of "wowing" your buddies is way too high. And those who are impressed by excess aren't likely to stick by you when you're hauled off to debtor's prison.

The naked truth
Look, you've got a lot going for you (very few cavities, for example, and decent taste in movies). But I want so much more for you and your future. Trust me, as hard as this has been for you to hear, it has been equally difficult for me to bring it up. I'm only having this conversation because I care.

When you do decide to tiptoe up to the financial looking glass, you won't be alone. Check out The Motley Fool's new personal finance service, GreenLight, for hands-on help getting your finances back in fighting shape. The service includes "Get It Done" guides, articles and advice organized by life stage and money topic, advisor blogs, and an amazing group of Fools on call on the dedicated discussion boards. To get started, just click here.

This article was originally published on Aug. 1, 2006. It has been updated.

Dayana Yochim can take it as well as she can dish it. She owns none of the companies (and has made only a handful of the mistakes) mentioned in this article. Microsoft and Intel are Inside Value recommendations. The Fool'sdisclosure policyrequires her to keep it real.