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Confused, Concerned, Flustered, and/or Frustrated—Pick One or More!

The economy is currently running hotter and faster than many have ever seen—those who lived through the 1970s and 1980s might think not but remember we are experiencing an economy today that can make changes on the fly (i.e., that was not possible in the 1970s and 1980s). Pricing power has slipped away from consumers and is now firmly entrenched in business, particularly big business.

Depending on the lens one uses, the economy is running too hot, out of control, headed toward a recession, punishing consumers and/or handing big business big profits. While one or all may be true, the challenge is soaring prices (or inflation) amidst rising but fixed wages.

 Inflation is forcing some consumers to move down from brand names to generic products (to make ends meet) and other consumers to make choices of what to pay as prices rise (much) faster than incomes—result, for an increasing number of consumers, delinquency and collection.

Wage increases, while (much) larger than in past years, and (mostly) compelled by low unemployment, are not keep up with today’s inflation rate. And businesses, who once fought to be the lowest priced, are quickly raising prices as many consumers with unsatiated appetites and built up reserves (i.e., both from the Pandemic) ignore price increases (when incomes don’t suffice, dip into their savings) and buy.

Fighting this (which seems more like fueling this currently), the Fed’s attempt to rein in inflation by raising interest rates, which immediately hit consumers with credit cards and home equity lines of credit and businesses with loans tied to the prime rate. In addition, Pandemic fed consumer savings, which was expected to last for some years, is rapidly declining as consumers (have to) dip into their reserves to meet rising prices.

And, while we can cheer our ability to once again travel, gather, and celebrate together, there are constant reminders that the Pandemic has not gone away—we still need vigilance and maybe that savings that is slipping away.

So, what can you do in this era of uncertainty, uncharted paths, and unknown outcomes?

Put your worries to one side for a minute (i.e., they can be rejoined), step back, and take inventory.

See where you are, see where your finances are, and see how you are doing.

The following will help you do this. It will tell you if you are in the:

• Green zone (i.e., after all expenses are paid, you still have something left over each month and your reserves are untouched),
• Pink zone (i.e., before all expenses are paid, you have to dip into your reserves to make up a shortfall), or,
• Red zone (i.e., you cannot pay all your expenses and have to make choices; you do not have any reserves).

To see where you are, sit down with a pencil or a laptop. Complete the three TAKING INVENTORY by downloading here. You may have to gather some documents if you don’t know the answers (or to be as accurate as possible).

When you are done, the TAKING INVENTORY will let you know how you are doing.

Follow the instructions on the TAKING INVENTORY pages. Remember, “you” includes anyone who shares responsibility of paying your monthly expenses (e.g., a spouse).

WHERE YOU ARE

After completing the first two pages of the TAKING INVENTORY (i.e., Savings, Investments, Income and Expense and Score Card, if you obtain a:

• POSITIVE RESIDUAL amount and are in the GREEN ZONE, move to WORK/LIFE.
• POSITIVE RESIDUAL amount and are in the YELLOW ZONE, review the REDUCTION PROCESS, you may not need to take an action at this time but you should consider some of the steps since just one or two purchases could push you in the ORANGE ZONE, after that you can move to WORK/LIFE.
• POSITIVE RESIDUAL amount and are in the ORANGE ZONE, use the REDUCTION PROCESS begin to reduce your expenses—see the TAKING INVENTORY - REDUCTION PROCESS. After you complete the REDUCTION PROCESS, move to WORK/LIFE.
• NEGATIVE RESIDUAL amount and are in the BLUE, PINK, or RED ZONE, use the REDUCTION PROCESS to reduce your expenses see the TAKING INVENTORY - REDUCTION PROCESS attachment or excel spread sheet. After you complete the REDUCTION PROCESS, move to WORK/LIFE.

REDUCTION PROCESS—a 2 STEP PROGRESSION    

1. Stop adding new monthly payments to your current monthly expenses—the only way to do this is to stop spending on things that you want versus things that you need. Your current expenses are based on both what you want and what need (see Step 1 section). This is a need and want step: if it something that is needed (e.g., medication), then make the purchase but don’t justify everything as needed, which often happens over time.
2. Cut expenses in your current budget—many who go through the cutting process find it hard—too often, everything is necessary. While that is usually not correct, from the view of the person who has to make the cuts, it is. This is hard to do—it may take a little time, be patient but also be determined (See Step 2).

Step 1 STOP NEW SPENDING     

The first step is to stop new spending, not cut existing spending. The culprit in this step: your credit and debit cards. They are easy and quick to use, swipe and your off. Many see this as okay and often justify it as follows:

• Credit card: “it’s just a $100, the monthly payment will only go up $2.” How many $2 before it’s a lot more dollars?
• Debit card: “I have money in my checking account.”  Until there is no more money in “my” checking account!

To ensure your financial security, make a real effort to not buy anything that is not absolutely necessary (which can be hard, especially if your kids are asking  please, please, please!

Three areas that you can immediately impact: 

•   Eating out—trips to McDonalds, In and Out, Pizza Place, etc., add up. Reducing this spending may require a behavior change: eating more at home requires someone to shop for meals, prepare meals, and clean up after meals—while this could be a family affair, it may take time. Also, there is the convenience of eating out, especially after a long day or once the kids practices or programs are over.

To make this change tolerable, do it in stages. Begin by not eating out one day a week; make that a meal day at home for everyone. After about four weeks, move it up to two days, then three days, etc. Gauge reaction, talk to everyone about why you are doing it—it is a family affair, one to benefit all.

•   Apps—one for almost everything and each one only costs a little. Notably, research shows that iPhone users spent up to $200 a month for apps in 2021 (what is your monthly app cost—remember to add the monthly app cost for each iPhone or Android phone you have).

Current: App use is popular; apps are fast, easy, and rewarding. However, not all apps may be necessary or needed. Talk with your family about the need for the apps everyone has. See if there are apps that are no longer used, are seldom used, or are not really wanted. This is a simple way to achieve a cost reduction.

If you require apps to be given up in order to reduce this cost, it is a change in behavior—it should be done over time, rapid change may incur long term discord and disruption for a relatively small savings.

Future: set up a monthly budget for apps; the budget amount should begin with where everyone is today. Determine if the monthly amount can be added to and if so, by how much (is the monthly amount for all or per family member—if per family member, this can be costly). Work and school apps should be  excluded (i.e., they are considered needed).

•   Scheduled or Unscheduled vacation—"we haven’t taken a vacation since the Pandemic began. The kids are looking forward to it and so are we.”

While cancelling a vacation will save money, it could also result in a very unhappy and unhealthy family environment. Also, cancelling a scheduled vacation, particularly when costs have already been paid and are not refundable, may not really be saving money.

If a vacation is scheduled, review what you are doing and see if there are ways to reduce costs without creating significant family issues—a vacation where everyone complains all the time is not a vacation. Make smart decisions about what you do, how you do it, and who does it (some may not want to do everything that is scheduled which can reduce costs). Reducing a little is better than no reduction at all.

From a member: we took a family vacation to an amusement parks area in southern California (just open your wallet); it was also near the beach. “We thought we would be at amusement parks for several days until we asked the kids. They wanted more time at the beach, so we did and it saved us hundreds of dollars.”

Step 2  REDUCE EXPENSES        

Start small. Make small cuts in every category possible. Eventually small cuts will add up. This is hard; it will take thought, determination, and enthusiasm (particularly if a family is involved).

Here are some ideas for (small) cuts that will help reduce your current monthly expenses.

• Recurring payments (see PART 1, EXPENSES):
  •     Credit Cards: replace credit card purchases with your Debit card. You will need to have sufficient funds in the account the Debit card is tied to, or you could pay for things with cash. By doing this, you will not increase you credit card balances or your monthly credit card payments. Using your Debt Card or paying cash will reduce your reserves (i.e., checking account, savings account, etc.).
  •   Auto and Installment Loans: if the loan balance is or loan balances are small (under $1,000) try to add $10 to $100 per month to your current payment(s) on these loan balance loans; this will pay down the balance(s) faster and have more sooner to pay toward your bigger payments.

This will increase your negative RESIDUAL or the amount you withdraw from your SAVINGS and INVESTMENTS. Before doing this, check to see the impact to the number months your SAVINGS and INVESTMENTS will be able to supplement your higher EXPENSES—if there is a small reduction, say 1 to 3 months from the 18 months, consider making the change. If the reduction in months is over 3 months, stay on schedule (i.e., don’t increase your monthly payments).

• Regular Monthly Payments
  •   Utilities (i.e., water, gas and electricity): look at reducing your air conditioner use (i.e., turn the thermostat up), your heater (i.e., turn the thermostat down), and water for landscaping (i.e., shedding heavy water use plants, not the whole lawn—remember small steps). And,  while these may good conservation steps, they really are ways to incrementally lower you monthly EXPENSES.
  •  Gas for work: If possible drive to and from work during non-congested times, fill up at gas stations away from highway entrances/exits (i.e., they tend to be more expensive), and/or try to find low cost alternatives to gas stations (e.g., Costco).
  •   Landscaping: if you use a landscape service, consider doing it yourself; it can reduce your monthly cost while providing you a healthy outlet and great satisfaction at a job well done.
• Food and Entertainment
  •  Fast Food and Restaurants: one of the hardest to cut, but also one that delivers a big bang for the buck. Eating out is expensive; eating at home is not cheap but less than eating out—and may be healthier (i.e., for Restaurants, skip desserts and higher priced meals). See Eating Out in Step 1.
  •  Door Dash/Grubhub: convenient and expensive; it simple to cut, get it yourself or revert to in home dining—the high cost of gas for you to travel is a red-herring.
  •  Entertainment: with the Pandemic closing concerts, games, and all sorts of social gatherings, limiting this now can be distressing—it need not be. Choose carefully, low price tickets but still at a gathering, and choose sensibly, one or two events instead of four or five.

WORK/LIFE

Changing Jobs

This is a good time to look at your job, your satisfaction with it, your work and family relationship. Are you happy where you are? Money may not be a roadblock but work related stresses may—such stresses will show through as you try to reduce your monthly costs.

If there are any reservations, concerns, or stresses about your job, now may be time to evaluate alternatives—nothing more than just looking is fine. You don’t have to make a change but there may be something that is better or what you really want to do. It may be closer to home, it may mean less hours, it may reduce stress, it may bring more satisfaction—which in turn, may give you an improved family life.

Caution: changing jobs just for money and not making any reductions to your EXPENSES may not solve SAVINGS and INVESTMENTS or RESIDUAL issues. Studies show those who change jobs just for money often increase their EXPENSES to a higher level than before (i.e., as income goes up, so do expenses).

Inflation

It is not going away soon; inflation impacts just about everything you buy. Cost increases hide in plain sight—whether it is easily changed price boards, shrinking package sizes, or more coupon offers. Consumers will continue to pay higher costs until they stop buying or slow their spending.

Don’t’ expect prices to slowdown soon (i.e., taming inflation is hard), and don’t expect wages to keep up. Businesses continue to cut costs; they closely monitor payrolls, which is often their single biggest cost.

Plan to pay more for everything (except your fixed rate loans). If your RESIDUAL is negative, it will only get worse unless you begin to cut EXPENSES. If it is positive, be vigilant—don’t let it slip to negative.

CONCLUSION

You have the power to make change and improve your situation, you just need to grab the wheel and do it. If you have a family, make sure they know what you are doing and why.

The US economy is racing forward and casting out consumers as it goes along. Regain control of the race. The only way that will happen is through your discipline and hard work.

Good Luck!