Stay the Course Financially

When the Great Recession began in 2008/2009, my boss at the time (a Vice President of the company) and her spouse consulted their financial adviser to see what they should do. They asked him what would likely cause us to come out of recession. His answer, which she relayed with some derision to us, was ‘Everybody needs to spend and keep spending!’. While there is some macro economic sense in consumer spending causing an impact on the country’s growth, it doesn’t necessarily play well at the individual consumer finance level.

During the long 7 years since the crisis, many people lost jobs and houses. Even today, many are still unemployed or underemployed.

My grandchildren’s other set of grandparents are just one example. She lost both of her jobs in the course of a month, and they consequently couldn’t meet the mortgage payments on their almost new home as a result. She looked and looked for new work in her field, but just couldn’t land any of the few openings around. He was retired and unable to resume work. Eventually they did a short sale to get out from under the mortgage, moved to the mid-West to take advantage of nearness of family and lower living costs and she took jobs as waitresses.

Recent graduates were also hard hit. With so many experienced and competent workers on the prowl for jobs, it became very difficult for inexperienced young folks to gain traction.

As a result, many people learned the hard way that having a solid financial background in times of stress is so important. Young folks, especially, became (like their great-grandparent’s WWII generation) savers.

History has shown us, though, that good times, easy money and easy credit can quickly change us into spenders.

The Bureau of Labor Statistics does a survey multiple times a year, called the Consumer Expenditure Survey.

One of the most recent survey’s available reported:

“Average expenditures per consumer unit1 for July 2014 through June 2015 were up 5.9 percent compared with the July 2013 through June 2014 midyear average, the U.S. Bureau of Labor Statistics (BLS) reported today. Average incomes also increased, up 6.6 percent.”

The survey released in 2010  indicated:

“Average annual expenditures per consumer unit1 fell 2.0 percent in 2010 following a decrease of 2.8 percent in 2009, the U.S. Bureau of Labor Statistics reported today.”

Spending is up, but saving isn’t, according to the Bureau of Economic Analysis  April 2016 news release,

“Personal saving — DPI [disposable personal income] less personal outlays — was $751.1 billion in April, compared with $809.4 billion in March. The personal saving rate — personal saving as a percentage of disposable personal income — was 5.4 percent, compared with 5.9 percent “

This, in spite of the fact that incomes were up in general. Wages and salaries increased $38.6 billion in April, compared with an increase of $30.7 billion in March – according to that same report.

Why are we spending more?

The wealth effect.

As noted by the New York Federal Reserve in a report from 1999 called How Important Is the Stock Market Effect on Consumption?

“Other things equal, an increase in the stock market makes people wealthier. In general, the wealthier people are, the more they spend.”

The easy money effect.

With interest rates so low, why not spend now, using debt, instead of waiting for inflation and higher interest rates to kick in and raise the price of goods and services.

San Francisco’s Federal Reserve published a report: Consumers and the Economy, Part I: Household Credit and Personal Saving examining the relationship between the availability of credit and the household savings rate. They said:

“Following a 20-year decline, the U.S. personal saving rate bottomed out at around 1% in the third quarter of 2005. Since then, the rate has been trending upward, reaching around 6% in the third quarter of 2010. The era of declining saving rates coincided with a period of expanding credit availability for households that contributed to a dramatic increase in leverage as measured by the ratio of household debt to personal disposable income.”

The tired of scrimping effect.

We all are typically affected by the conditions around us, including economic conditions. The world wide recession made us all (either of necessity or by choice) a bit more frugal. After 7+ years, folks get tired of constant frugality. We want a splurge now and again, a night out, a new dress, a nice meal and etc.

Why stay the course?

Why should you keep saving? Life is short, money is easy, good times are at hand. Why shouldn’t we take that overseas vacation, buy that luxury condo at the lake, get new clothes every change of season, have that spiffy new car?

If you can get what you want, when you want it, without any future consequences, why not?

Because there are consequences, including emotional duress, stress, and loss of opportunity.

Folks who stay the course become more and more self sufficient financially as time goes one, eventually leading to the ability to weather economic, medical, and catastrophic storms that may come to each of us at any time.

To someday be your own boss, without fear of running out of money, takes time and lots of persistence. To be financially free, you have to stay the course financially.

How to stay the course.

Although some findings indicate that savers are born, not made, you are in charge.

In spite of a 2009 study by Scott I. Rick Cynthia E. Cryder George Loewenstein titled “Tightwads and Spendthrifts” which found that:

“Consumers often behave differently than they would ideally like to behave. We propose that an anticipatory pain of paying drives “tightwads” to spend less than they would ideally like to spend. “Spendthrifts,” by contrast, experience too little pain of paying and typically spend more than they would ideally like to spend.”

During the study, they tested around 13,000 people and from those tests, devised a “spendthrift-tighwad’ scale. Interestingly, the overall results showed more tightwads than spendthrifts but both were dwarfed by the number of participants that couldn’t be classified either way.

But, whether you love to spend or get pleasure from saving, there are certain very basic, yet not so easy things to do to stay the course.

Live within your means.

Don’t spend more than you get. Save the difference, then at the right time, invest the savings.

This simple axiom will help you learn to save on things you need or want, thus increasing the amount you can save. It will help you learn to set and meet financial goals, start auto investment programs and increase your savings when your income increases.

Enjoy living, not spending.

Don’t deny yourself the pleasures of life, just redefine what those pleasures are. When you are on your deathbed, what will matter most to you – having had that new car every two years, or living a peaceful and contended life with the ones you love.

Life is full of simple pleasures. The pleasure of accomplishment you get in setting and meeting a goal. The sensual pleasure of the wind in your face, the sun on your arm or the cool dip in the lake. The comfort of an evening in company of your long time spouse or good friend.

It really is that simple, but it can take a really long time. You have to stay the course to get there, you have to persevere to reach a state of financial freedom.


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