Tag Archives: consumer spending

It’s Just “Stuff”

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A few years ago, after decades in our family home, my parents could no longer handle the physical upkeep of a large single family home. It turned out that the trauma of selling our family home wasn’t nearly as bad as what us ‘kids,’ now middle aged ourselves, had to do in order to make it happen.

One Friday we ordered one of the big commercial dumpster bins to be delivered to the house. After giving away stuff family members, friends and neighbors wanted, we knew there’d still be a lot of things that had to be thrown out: sleeping bags to tools, furniture to books, and extra dishes to everything else, none of which could go into a one bedroom nursing home unit. What we weren’t prepared for was the visual impact of a huge and full bin being hauled away, then a second bin, and a third bin. In total, the stuff accumulated over a lifetime added up to over 14,000 pounds – in the dump.  Few things in life have had such a powerful and visual impact on us.

Literally hundreds of thousands of dollars of stuff, purchased one thing at a time, over a lifetime, boiled down to 14,000 pounds of trash. It sure put things into perspective. You’ll now understand why I’m just not that excited about buying that newest whatever, the next model of some gadget or another, or running up my credit cards. Hopefully it won’t take that kind of experience for you to look at “stuff” a little different in your life, or with Christmas presents this year.

When you decide you want to reach financial independence and become debt free, it needs to start by turning off the buying and borrowing tap, to end your continuous borrowing and payment cycle. That decision comes with good news and bad news. The good news is that ending your borrowing cycle rapidly accelerates the date of your debt freedom.  After all, you’ve now stopped digging and stopped making things worse. Besides, if you look at all the debt you have, there’s a good chance that today, most of it couldn’t be sold on e-Bay or given away on Kijiji.

Are We Gaining Ground or Going Broke?

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In a recent survey, 71% of respondents felt that their standard of living would be lower coming out of the current recession.

What? I was quite shocked when I read that. But to start with, what is a lower standard of living? Is it less income? Is it less cash flow to buy all kinds of stuff? I would bet, for the majority of people, those two make up majority of the responses.

But does our standard of living decrease when we cannot buy a new iPod every year? Are we somehow deprived when we cannot afford to go out for dinner twice a week, or afford the payments on a new car every three or four years?

How many of us are confusing consumer spending with wealth building? How many would take a cut in pay, if we were assured we would have more savings, a growing RRSP, and at least an emergency savings account? All of those build wealth, whereas our spending is a wealth robber!

Is our standard of living somehow affected when we DON’T drive a new car? I would bet for most people that may be their thinking. But isn’t it exactly backwards? If we drive a new car, we now have a big payment going out the door, and our standard of living decreases exactly BECAUSE we have this new car to finance! So is someone’s standard of living better or worse when they can bank a ton of money by not having car payments?

I ran into a lady recently, who really wanted some help in getting her monthly expenses under control. When I asked her how much a month she wanted to save, she didn’t have a number in mind at all. Well, isn’t that kind of like getting into the car and starting to drive, with no idea where you want to go? In order to save money, you need a number – a firm goal of where you want to go and what you want to accomplish! After that, it’ll become a whole lot easier, exactly because you have a goal and a fixed plan.

But while I was talking to her, she was playing with her iPhone. When I asked what her monthly bill was for the iPhone, she became rather sheepish, and it took a bit to confess that it was around $130 a month. Yikes! Mine is around $25 a month, and it makes phone calls, too. Yet, that was something she just didn’t think she could ever do without, and proceeded to attempt to “sell me” on the cool features and gadgets. Nice try.

There is something economists refer to as our marginal propensity to consume. It’s a fancy term for saying: when we make more income, we spend more money right along with it. A $500 raise, and pretty soon, we’re spending to our new and higher income level. It works for us average people just as much as the rich. It’s how Michael Jackson earned around a billion dollars, yet died about $500 million in debt!

We need to be careful with the yardstick we use to measure our standard of living and not confuse “stuff” with wealth. For many people, their thinking is backwards: It is their stuff which reduces their wealth, and not the other way around.

Six Short Stories Worth Talking About

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It turns out that all that economic happy-talk is mostly that – talk. The U.S. Federal Reserve just released the minutes from their last meeting, and don’t really see much light – just more tunnel. They now expect the economy to shrink by over 2% this year and don’t see much improvement in consumer spending. That’s something I said for two months. About 95% of people get a tax refund this time of the year. Of course consumer spending looks good in March and April. But that’s not a trend.

Newsweek actually ran a story a few weeks ago with the headline: Stop Saving Now! Here we go again, politicians and now the media telling us to spend money to help the economy. Sorry, you gotta look after yourself first, and spending money we don’t have is exactly why we’re here in the first place.

We talked a few weeks ago that for us, just like businesses, debt is a house of cards that won’t last forever. By now, we’ve all heard the stories of the Phoenix Coyotes bankruptcy. The NHL team had over $80 million in debt, and was losing $30 million a year. That’s on top of the City of Glendale, where the Coyotes play, who borrowed $180 million to help build the arena! It’s another example of a business model based on debt that doesn’t work.

If you thought you’d heard of everything in the world of internet dating, think again. There is now a website, creditscoredating.com, where you’ll find dates based on your credit rating. Yes, this site does believe that romance and a good credit score equal success. I’m not sure how or why, but NOW maybe you’ve heard it all – for a while at least. I’m single but someone’s credit rating isn’t going to attract me to someone – sorry.

In this recession, our definition of what we think of as necessities versus luxury items is rapidly changing from three years ago. A Pew Research poll from April shows that our finances definitely influence what’s a must have, instead of a want-to-have:
We think of necessities as a home computer, high speed internet and our cell phone.
But what’s now considered luxury items include microwaves, televisions, dishwashers, and air conditioning.

No More Lineups?
IBM, and the grocery chain, Giant Foods, in the Mid Atlantic area, have rolled out a new way to get in and out of the grocery store in one-third of their stores.
What do we do now? We load items into a basket. Line up at the cash register and unload everything so it can be scanned. Then everything gets re-loaded into bags.
Well, a few years from now that will be about as antiquated as a typewriter. Instead, you’ll get a small portable scanner as you enter the store. Just pick what you’re buying off the shelf and scan it. The scanner will show the price of the item and keep a running total of what you’re purchasing. Put everything you’re buying into a bag, and walk out of the store. That’s it! The total will be debited right out of your bank account, or off your credit card – whatever you have already set up with the store.

Just imagine – no more lineups, no more cashiers, no more unloading and re-packing everything. It’s literally as simple as pulling your purchases off the shelf, scanning them and getting out of there.

Producer Michael Moore, who has done documentaries on President Bush, the U.S. healthcare system and GM, is now making one about Wall Street and the meltdown. It is still unnamed, but scheduled for release in October, and you have to know it’ll be controversial.