I was having a discussion the other day with a client of mine when we got on to the topic of rising costs. As you have all seen, the cost of gas, food, and just about everything else seems to be skyrocketing. Many of us will be forced soon to decide if we want to hold on to that 16 miles per gallon SUV, find any coupons we can to cut our grocery bill, and look to make major purchases in non peak times to lower our capital outlays. While the media is telling us that things are getting better, I continue to see more and more home inventory show up from people who had to walk away from their homes, and people uprooting their kids in prospects of finding a job that pays more money.
It did make me wonder, what is really cheaper today with all of the supposed advancements and improvements we made in the last twenty years? Technology gave us the promise that we would become more efficient and would help reduce overall costs. While I think that is probably true at the corporate level, on a personal level I think that everything around me continues to get more expensive. I mean when was the last time you opened one of your bills and were pleasantly surprised that the cost of things you are buying are going down?
Let's take the cell phone as an example. Not cheaper. More hardware and gadgets to buy all the time, and the cell phone companies are constantly changing data plans that make it like shooting that phaser into the Death Star like Luke Skywalker did in Star Wars. Cable. Not cheaper. The cable companies can do just about anything that they want to you between basic cable, premium channels, boxes, and DVR's so you bill is always in the $100+ dollar range. Fuel costs. Not cheaper. Just look at any of your major energy bills. Food costs. Not cheaper. If you haven't been to the grocery store to shop for a family of four to five, I recommend you go for the trip. Clothes. Might be cheaper. It really depends where you shop and what your taste is, but certainly at the higher end level it only gets more expensive. College Education. Certainly not cheaper. This one could be at the top of list as not for profit colleges continue to bank money in endowments like they are for profit institutions building up their retained earnings. Movie Tickets. Just laugh. I can remember going to 99 cent nights when Clint Eastwood put out Any Which Way You Can 30 years ago. That same ticket today would cost $10. That's no 3.5% inflation!
Do you ever wake up on Monday morning like many Americans do and ask the question, "Where is all of my possibly going?" I may have found the answer for you. According to www.payscale.com, from 2006 to 2008, wages grew over five percent. As the recession worsened at the end of 2008, wages dropped dramatically, settling on a new, lower plateau in Q2 2009. Through Q1 2011, national average wages have remained relatively flat. Wage levels in Q1 2011 were not much higher than they were in Q1 2008, three years earlier. However, in those three years, the cost of goods has increased, causing an overall reduction in consumer buying power. The only bright point is that wages are up, slightly (0.1-0.3 percent), over the previous year for the fourth quarter in a row. What this really means, is that overall wages are flat over the past five years. However, regular inflation has continued to increase roughly 3% per year (www.bls.gov/cpi). If CPI index has been roughly three, and the cost of many of the services and goods have been 5% to 15% growth per year, this is why it feels like our dollar isn't stretching further . . . because it is not!
All this means is that more than ever, you really need to sit down and watch your income and expenses like you were running a business. When times get tough, businesses figure out how to cut expenses and/or create additional revenue streams to grow the bottom line. I don't see things getting cheaper anytime soon. Not even a stay at home movie!
Ted Jenkin, CFP®, AAMS®, AWMA®, CRPC®, CMFC®, CRPS®
Co-CEO and Founder oXYGen Financial, Inc
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