Enslaved by Consumption author, Dominico Johnston, sits down and discusses his newly released work. Engage your mind and your pocket book.
The US Department of Agriculture (USDA) estimates the cost of raising a child in today’s environment averages around $250,00. Yes, that’s the cost per one child. Depending on the region of the country you live in, the average can range from over $280,000 to under $200,000. If we look at the cost categories where do the expenses exist and where can you find savings?
- Housing – 30%
- Food – 16%
- Transportation – 14%
- Clothing – 6%
- Healthcare – 8%
- Childcare & education – 18%
- Miscellaneous – 8%
The interesting part of the breakdown starts with housing costs. What the USDA is doing in their analysis is attempting to compartmentalize the idea of housing. By compartmentalizing per person, then a dollar value based on average mortgage costs can be associated per child. This is a reasonable way to estimate housing costs, but is it actually applicable to your living situation?
The assumption the USDA is making for housing is that your need for housing expands as you having more kids. This a logical assumption. What might cause you to consider the logic flawed for your situation is the fact that you may not have a mortgage to pay at the time of having a child or the fact that your given housing size would not increase or decrease with or without kids. Therefore, in many situations you could consider the housing cost a sunk cost that would have been incurred at the same level with or without kids.
The housing category does deserve special attention in you personal analysis of the USDA’s estimates. At 30% it comprises nearly 1/3rd of the estimated cost. Based on the $250,000 average, elimination of 30% of the cost means a reduction of $75,000.
The childcare area is another category that could have some significant variances. If you have a relative available to watch your child/children or have one parent able to stay at home, the childcare cost is going to be greatly reduced. In terms of education, private school versus public school for K-12 education will create a huge variance, as well.
It should be noted that the analysis the USDA did excluded college expenses, since the age range is from age 0 – 18 years.
In terms of personal finance, it’s important to understand when very general studies and statistics are provided, you must find where you fit into the mix. Often times news stories are written to capture your attention, which large figures are thrown around, such as $250,000. It’s not until you deconstruct the information that you’re able to see how you might not be “average” or the assumptions made in the model doesn’t fit into how you’ve structured your finances.
If you frequent personal finance sites, you probably have run across an article or two advocating the development of an annual budget to manage your personal finances. After reflecting about the topic and thinking about my own personal finances, I don’t think the focus on a full fledged budgeting process is the best method.
Here’s what I’ve come to believe…Most people will not dedicate the time to developing a budget and sticking with the budget set. Typically, the budgeting process and the up-keep to track actual activity versus the original budget is more than your average person is willing to deal with. So, if budgeting is beyond what most people want to do in terms of personal finances, then what alternative exists that will help promote and maintain fiscal control?
The alternative I’ve used for many years looks at budgeting as a secondary consideration and savings as the primary. Let me explain…When you get paid, you take home say $4,000 per month or $48,000 annually. Based on what you’re bringing home you need to set a savings percentage. If you’re only looking at retirement and have 30+ years ahead of yourself, then a savings rate of 10% is a decent minimum. In dollars that’s $400 per month or $4,800 annually.
Side note: If you save $400 a month and are able to average a rate of return around 7% annually, over a 30 year period, you’d end up with around $500,000 in savings.
What placing savings at the paramount of your personal finance decisions does is it creates a hierarchy in which all other activity must adhere. Everything is seen through your savings lens. If you want a new car you must ask yourself how will it fit within the goal of saving for retirement or some other goal you have. You will still need to “budget” for the expense, but you won’t have to incorporate it into some grand budget.
I understand that the idea posed above might sound a little too simplistic. It’s not. Take a look at your bills over the past month or two. Have you been able to save anything? What costs can you adjust? What costs cant you adjust within the next month or next quarter? The costs you can adjust are variable and they are you biggest asset to crafting a saving percentage into your personal finance regimen.
To help you determine where you are and where you want to be, I have available a Monthly Budget Worksheet. It identifies what your fixed and variable expenses are and shows graphically how the items measure compared to your monthly income. (It’s completely free, you don’t have to sign up for anything)
To conclude, putting your savings goal at the pinnacle of your personal finances (That means the piggy bank eats before any other need…) makes the rest of your personal finance choices take a subservient role. If you’re able to keep your focus on your savings goal and not falter, then the act of creating a full scale annual budget is not something you need.
It’s estimated that over 38 million American households have no liquid cash set aside for an unexpected financial calamity (That means about 1 in 3 fall into this category…38 / 115 million total households = 33%). Of this 38 million, 25 million of them cannot be classified as poor. This is a disparaging thought that 25 million households are choosing to live hand-to-mouth (Hand-to-mouth = Spending all your earnings and not saving.). This choice not only has personal ramifications, but national, as well.
The reason choosing to live hand-to-mouth is such a disparaging thought is the same reason acrobats are heavily discouraged from performing stunts without a safety net. If your stunt goes awry and a net is there, you have an accident. If something goes wrong and you have no net, a tragedy occurs. As we experienced in the last recession, economic calamity can strike fast and hard. If you do not have savings to fall back on, you can find your household in a rather compromised situation. This situation is likely to impact not only your household, but your family and the entire society, if you must turn to some form of government assistance to recover.
When statistics are thrown out alerting the rest of society that a good portion (33%) of households are performing their personal finance routine without a net, not many solutions are provided to cure the problem. One reason stems from the fact that financial choices are not really ‘surface’ decisions. By ‘surface’ I mean that the decisions are not often lightly held beliefs. The way we spend and save our money is often the outworking of a deeply entrenched pattern of behavior that governs our lives.
For example cars, homes, clothing, technology and other tangible goods are purchased not simply for their functional value; they are purchased in part for the status they bring. For example, such purchases go beyond a decision to secure shelter with adequate space in a safe area. These decisions are made to establish a perception in one’s mind and the mind of others. This isn’t to deride such motivations. The issue becomes a problem when the superficiality suffocates practicality. In such cases, the safety net becomes a thing of scorn because it takes away from the splendor of materialism.
The wager made not to save causes society the same problem created when families forgo purchasing health insurance. Without health insurance the cost you might incur from an injury has not been hedged. No ‘net’ via insurance has been purchased to shield society from the burden of your health costs you cannot afford. A parallel situation exists when saving is foregone. Economic calamity strikes and society is left holding the bag. Food, housing and other subsidies are given to assuage the fiscal pain, while the bill is shouldered on the backs of others.
The reality is that we live in a consumer-centric society. Most outlets of influence whether it’s from the government, mainstream news, or entertainment push the idea that purchasing is one of the greatest goods. “You’re helping the economy when you…”, “You’re supporting a worker each time you…”, “The top ten fashion trends for fall are…”…The list is endless. The one message that holds true is that consumption is a virtue. The other side of the coin, saving, is like the dark side of the moon; hardly seen, sometimes spoken of, and far less glamorous.
To cure the ill that has fallen some 38 million families in the U.S., priorities and perception must change. The way we see the world must be reshaped. The only way I see this occurring is from rhetoric (talking about this issue), education and examples from the top. By the top I mean people that have visibility and those that are influencers. I do not see the modern family or the Protestant work ethic that Max Weber wrote about in the early 1900’s coming to the rescue. The former has disintegrated compared to what it once was and the latter has been largely filtered out of society over the last four generations.
For me to realize that we might be at a point where society must rely on politicians, movie stars, sports heroes and reality TV to encourage society to save its money is enough to make me want to move to the dark side of the moon.
A recent study from Tilburg University and the University of Chicago (see link below), estimate that American’s waste $44 billion annually on the purchase of name brands, while they could buy the exact same product via a store brand alternative.
On average, store brand products run 50% less than name brand. If you’re looking to find a quick way to cut the cost of your expenses, it might be easily found in changing from name brand to generic items. If you’re financially savvy, you likely already practice this approach when shopping. For example, if you go to Costco, they carry Aleve in a generic form, which sells for less than the name branded product and provides you with a greater quantity of pills.
Don’t get duped into having your emotions played with via such marketing messages as “Choosy mom’s choose jif!” Please, if you’re a choosy mom and care about your child’s college fund, you’re going to buy the generic at a discount. While you’re at it, you can teach your child/children a personal finance lesson. Killing two birds with one stone.
If you’re a brand name addict, take a step back and reevaluate what you’re doing and why you’re doing it. Your financial future matters more than the financial future of General Mills or Pfizer drug company. If a generic exists, give it a try and make sure to think about what you’re saving in percentage terms, not just dollars. Paying $5 rather than $7 means you just saved nearly 30%!
In the latest sign Americans are increasingly comfortable taking on more debt, auto buyers borrowed a record amount in the first quarter with the average monthly payment climbing to an all-time high of $474.
Not only that, buyers also continued to spread payments out over a longer period of time, with 24.8 percent of auto loans now coming with payment terms between six and seven years according to a new report from Experian Automotive.
Ten years ago, it was just four years and two months.
We’re living high on the debt hog.
Owning a vacation home is an aspiration that appeals to many people. In the region of the world where I reside, Lake Tahoe is a high profile vacation destination. People flock there year around, but primarily in the winters and summers. In 2012 USA Today named it “America’s Best Lake” and Rand McNally and Orbitz have dubbed it the number one ski destination in America. An area with so much to offer seems like a great place to own a vacation home.
Does owning a vacation property in the Tahoe area make financial sense?
For our example we’ll look to the north eastern shore of the lake. The town of Incline Village was recently ranked as the best place to live in Nevada by the Movoto Real Estate blog. It’s a pristine area with some, if not the best, beaches that Lake Tahoe has to offer. In the winter it has access to a number of skiing areas around the northern side of the lake and in summer it’s home to every warm weather activity you can associate with a lake.
To purchase a single family home that is around 2,000 square feet and has at least 3 bedrooms, 2 bathrooms and a garage, which is located a block or two away from the shoreline of Incline Village, will cost around $850,000 based on my market research. Given that price tag, the 20% down payment will come in around $170,000 and the financing would need to be based on the remaining $680,000. At 4.22% the monthly payment would be $3,331.67 (30 year fixed). If we assume taxes and insurance would cost around 1.3% of the sales price, an additional $920.83 should be budgeted per month. This would take the monthly cost to please the bank, government and insurance company to $4,252.50. Annually that equates to $51,030.04.
Using VRBO.com as a gauge, an average of $230 per night of rental income is a reasonable estimate for our conceptual house in the location of Incline Village described above. If we assume that summer and winter occupancy run 80% and spring and fall run 35%, we can extrapolate how our rental income will cover our annual expense of $51k.
As we see, the estimated income generated, less our assumed 15% expense to cover cleaning and regular maintenance, leaves us with roughly 40% of our annual loan, tax and insurance costs. This isn’t exactly ideal. Heck, it isn’t even half way to covering the baseline expense with buying the property.
Does another option exist? Yes, it does.
The other option that could make this investment ‘work’ would be to have a situation in which you live in the house for the general period when vacation occupancy is at its lower levels. In our model, we assumed that fall and spring would be the seasons where occupancy would be at its lowest. If your need or want puts you in Incline Village for two seasons of the year, then you could factor in your occupancy as a cost you would incur, if you didn’t have the house (A sunk cost). This method isn’t so much ‘investment minded’ as it is ‘living minded’, but still keeps your situation in a financial perspective. Consider the following…
Surprisingly, looking at our living cost as a sunk cost with the combination of the vacation rental during the high season, brings us to a total slightly above our estimated annual baseline cost of ownership.
So, does owning a vacation property in Tahoe make financial sense? If you’re looking at the property as a pure vacation home that must generate enough rental income to cover your fiscal costs, then the answer is no. If the property is used partially as a primary residence during the “off season” and a vacation property during “peak season”, then the answer moves to maybe.
What’s your situation? What are your goals? Where and how do you want to live? What can you afford? There are so many questions to answer when considering to buy a home, let alone a home that is fully or partially a vacation property.
Over at The Economic Collapse Blog, an entry caught my eye. Below are 17 recent news stories that are aren’t the rosiest. Actually, they are pretty shocking in a bad way.
These facts speak to the contention that many observers have regarding the patchiness of this economic recovery. Many areas of the country that were hit hard by the recession aren’t necessarily falling further, but are not bouncing back. It’s sort of like a fighter that has been getting punched a lot. Now that they aren’t getting hit over and over they feel a heck of a lot better than when they were getting smashed, yet they’re not in a state where they’re playing offense.
Here’s the list…prepare to be blown away…
#1 The homeownership rate in the United States has dropped to the lowest level in 19 years.
#2 Consumer spending for durable goods has dropped by 3.23 percent since November. This is a clear sign that an economic slowdown is ahead.
#3 Major retailers are closing stores at the fastest pace that we have seen since the collapse of Lehman Brothers.
#4 According to the Bureau of Labor Statistics, 20 percent of all families in the United States do not have a single member that is employed. That means that one out of every five families in the entire country is completely unemployed.
#5 There are 1.3 million fewer jobs in the U.S. economy than when the last recession began in December 2007. Meanwhile, our population has continued to grow steadily since that time.
#6 According to a new report from the National Employment Law Project, the quality of the jobs that have been “created” since the end of the last recession does not match the quality of the jobs lost during the last recession…
- Lower-wage industries constituted 22 percent of recession losses, but 44 percent of recovery growth.
- Mid-wage industries constituted 37 percent of recession losses, but only 26 percent of recovery growth.
- Higher-wage industries constituted 41 percent of recession losses, and 30 percent of recovery growth.
#7 After adjusting for inflation, men who work full-time in America today make less money than men who worked full-time in America 40 years ago.
#8 It is hard to believe, but 62 percent of all Americans make $20 or less an hour at this point.
#9 Nine of the top ten occupations in the U.S. pay an average wage of less than $35,000 a year.
#10 The middle class in Canada now makes more money than the middle class in the United States does.
#11 According to one recent study, 40 percent of all Americans could not come up with $2000 right now even if there was a major emergency.
#12 Less than one out of every four Americans has enough money put away to cover six months of expenses if there was a job loss or major emergency.
#13 An astounding 56 percent of all Americans have subprime credit in 2014.
#14 As I wrote about the other day, there are now 49 million Americans that are dealing with food insecurity.
#15 Ten years ago, the number of women in the U.S. that had jobs outnumbered the number of women in the U.S. on food stamps by more than a 2 to 1 margin. But now the number of women in the U.S. on food stamps actually exceeds the number of women that have jobs.
#16 69 percent of the federal budget is spent either on entitlements or on welfare programs.
#17 The number of Americans receiving benefits from the federal government each month exceeds the number of full-time workers in the private sector by more than 60 million.
You may be working on various ways to tackle your financial obligations and shore up your credit worthiness. Though you have several choices to make in order to become debt free, yet you need to smarten up your plan of attack to take on those troublesome debts effortlessly. For that reason, it is important that your approach to debt repayment is practical and an effective one.
Are you aware of your credit?
Prior to creating a debt repayment plan, it is important that you get a stronghold of your credit reports and credit scores. These are what will make or break your efforts to become debt free. Here some of the justifications for you that establish the importance of tracking your credit:
- A good head-start – According to the debt experts, most of the debtors like you have misconceptions regarding the total amount of outstanding balance owed by them. However, if you want to become debt free, then it is best to list all the details of your loans as well as respective creditors in an organized manner.In this case, your credit report will come in handy since they’ll contain all such financial information that you may require to create a smart debt repayment plan. For instance, you can locate any collection account that you’ve forgotten or find out the recently added outstanding balances that you owe through your credit reports (it can be from Experian, TransUnion or Equifax).
- Better credit awareness – Though you may believe to have a good credit rating after making regular monthly payments, yet the reality might be something very different. On the flipside, the amount of outstanding balance you owe may be the cause of a slumped credit score. However, it is difficult for any of you to decipher and analyze the actual financial condition through a credit report.Simply put, your credit report will only provide you with information related to all the credit accounts that you have, their balances and your payment history. Additionally, you can easily make out the impact of your debts on your credit rating through your credit scores. So, the moment your outstanding credit card balances approaches the set credit limit, from then on your credit score will start to suffer.
- Improved credit report – Usually, it takes a considerable amount of your time and commitment to repay all that you’ve amassed over the past few months or years. Just remember you aren’t going for a sprint, rather debt repayment is a marathon and so, you’ll have to be strong in your resolution to become debt free and agile with your budget to cut down bad expenses as well as build up an emergency fund.You must find your own sources of inspiration and stick with the repayment plan till you have no debts to repay. Another important thing that you shouldn’t forget is to monitor your credit report and this applies even if there is no financial obligation for you to take care of. This is one of the best ways to keep yourself motivated and manage your debts with ease.
Once you have become disciplined and have been paying off your dues on time, all these activities will be reported to the credit bureaus and that’ll show on your credit reports. As a result of a widening gap between credit limits and your outstanding balances, there is are high chances that your credit score will also improve. However, if you had opted to settle your loans or file for bankruptcy, then keeping a tab on your score can at least assist you in monitoring your development as you put in all the efforts to rebuild your credit and ultimately your life.
By: Brian Johnson
I happened across an article the other day and was surprised to read that the average cable television bill in 2011 was $78 per month. This surprised me because my Comcast bill is significantly less than this figure. In fact, my Comcast cable, ATT internet, and Netflix bill total less than $78 per month – $62.28 to be exact.
This had me thinking…what is the real cost of those extra channels?
Out of curiosity, or pure boredom, I decided to find out.
Last month my Comcast bill was $20.21. The difference between the average cable bill in 2011, $78, and my cable bill is $57.79.
When this difference is saved for a year it totals $693.48.
If someone saved this yearly amount for a 30 year period, without earning interest, they would have $20,804.40. Of course this isn’t accounting for inflation, but it’s not accounting for possible interest earned, either. Not a bad little nest egg.
But what if we did earn a bit of interest on our money?
$57.79 invested each month for 30 years, earning a modest 5% return, would total just over $48,000. Ah…our nest egg grew a bit.
When building a budget it is important to think about the small things. When committing yourself to a fixed monthly payment, take a moment to reflect on the real cost of that particular service or product and what value it brings to you. Do you receive that much joy from a few extra channels? You know…there’s really nothing on anyways.
 We have a limited basic cable package and receive all of the major network channels in HD. This is not a promotional price.