There is a war for your wallet and despite our best efforts, many are losing the fight. According to the Bureau of Labor Statistics, inflation has soared to a 40-year high, as CPI reached 8.6% in May. Personal savings rates, or income left over after people spend money and pay taxes, have been cut in half from 10.4% to 5.4% from last year (See Chart Here). Side Note: personal savings rates as a percentage haven’t been this low since October 2009. With pandemic stimulus spent and economic data weakening, individuals should start asking themselves, “What steps can I take to keep my personal finances strong?”
Here are three practical suggestions to ponder:
1. I am reading the 1996 New York Times Best Seller, “The Millionaire Next Door.” by Tom Stanley. This self-help personal finance book was the by-product of research on millionaires compiled over multiple decades. More than 25 years after it was published, I can tell you the research holds true. Many LeConte Wealth Management clients walked the same path and used the books principles throughout their life to achieve financial success. This brings me to an observation from the book, Be Frugal. This is one of the main characteristics of self-made millionaires and I’d argue, is the most important. Too often, high incomes are correlated with lavish spending. Matter of fact, our society is very much built on this thought. Marketing and advertising industries develop media to condition us from an early age by celebrating a certain status or brand. The implication is that, expensive items give you status, which brings gratification.Know that being frugal in our society is not normal. This suggestion will take practice and hard work to instill, but if implemented, it will position you to take advantage of opportunities that times like this present. Be Frugal.
2. A luxury once tasted becomes a necessity.” Nobody likes to decrease their spending, but most people have a regular expenses that are not necessities. Even if these habitual costs are small, if they aren’t necessary, they are by definition a luxury. If your savings rate decreases because each dollar buys less goods, begin evaluating your monthly expenses. Then, identify one recurring expense that you can cut out completely. This doesn’t require a wholesale lifestyle change, but the luxury expense you choose to cut could be the one that gives you the ability to maintain your savings instead.
3. Dig deeper, stay gritty and stay the course. Markets have had the worst 6-month start since 1970 and that can make it easy to get out of the game. Benjamin Graham sums up the attitude our team has, “The market is a pendulum that forever swings between unsustainable optimism and unjustified pessimism. The intelligent investor is a realist who sells to optimists and buys from pessimists.” If you have a plan, stick to it, dig deeper, create excess cash-flow, and take advantage of what the pessimists give you. We are all heading towards a financial destination of our choosing. Is the journey that you are on towards the destination you where you want to end up at? Your future choices will steer you to your preferred destination. Before you make a choice, ask yourself, “Is this choice I’m about to act upon helping me make progress toward my goal?” Take your thoughts captive and stay the course!