are you poor | Kiplinger

VaselineAugust 24, 2024

0 5 minutes read

Are you actually poor, or do you just keep hearing that you are poor and choose to believe it?

The Harris Poll did a poll for The Guardian showing that 56% of Americans think we’re in a recession (although in fact gross domestic product (GDP), a measure of the economy, has been growing), 49% think the S&P 500 is down for the year (up over 16%), 49% think unemployment is at a 50-year high (it’s at a 50-year low), and 72% think inflation is on the rise (the inflation rate has fallen for four months in a row to 2.9% in July 2024 from a post-COVID peak of 9% in June 2022).

What can be done about these misconceptions? Well, for starters, people should stay away from TikTok. No, we are no worse off than we were during the pandemic. Yes, we have inflation, because if an economy opens after being closed, thereby suppressing demand, which happened during the pandemic, when it starts to rise, so do prices. This is the simple theory of supply and demand.

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Supply and demand 101

This theory, in microeconomics, describes how the number of things available for sale (supply) is juxtaposed with the number of things people want to buy (demand). In the perfect world, providers would only do the things people want, but we don’t have a perfect world.

During the pandemic, people did not eat in restaurants and stopped buying certain things, so the demand for these goods decreased. A lot of stores were stuck with merchandise they couldn’t sell. Manufacturers cut back on making these goods at that time. After the pandemic was over, the floodgates opened and people rushed to buy the things that were no longer widely available.

If demand increases and supply cannot keep up with increasing demand, there will be a shortage and people are willing to pay more for things and houses, so prices will increase. This rise in prices is known as inflation. Conversely, if demand falls and supply remains the same, there will be a surplus and prices will fall, known as deflation.

Why the economics lesson? Because what really happened in the last few years is that we avoided a recession as the economy opened up at a time when goods were so scarce that prices could have gone through the roof – but they didn’t – a.

That said, I don’t agree with the Federal Reserve’s 2% inflation target, but I’m sure Chairman Jerome Powell has lost my card and can’t ask for my opinion. I feel like unrealistic expectations have been set for a growing economy and here we are. People’s expectations were not met.

Pew Research reported that about a quarter of Americans think the country’s economic conditions are excellent or good, while 36 percent say they are poor. Among Democrats who were polled, 58% think economic conditions are good. Only 19% of Republicans give the thumbs up for a positive economy. This division along party lines, given that the current president is a Democrat, is not surprising. However, nearly 40% of the country inaccurately considers economic conditions to be poor.

I feel your pain—sort of

There is no doubt that prices have risen, and not just because of supply and demand. OPEC, Russia and other oil producers are keeping oil supplies low so they can prop up prices. We also pay more for certain foods, cars and houses – all true. To slow economic growth, the Fed raised interest rates with the hope that things like the cost of home mortgages would discourage buyers from purchasing homes at inflated prices and thus begin to reduce inflation.

The pent-up demand has thwarted a slowdown, however, and people rightly complain about house prices and mortgage rates, even if the extremely low pre-pandemic mortgage rates were unrealistic.

You own your “poverty”.

It’s time to take responsibility for your wealth or lack thereof. I’m not talking to those of you who have suffered through a financial catastrophe. I’m talking to those of you who choose to be financially strapped. Yes… choose to cry poverty.

Why is this a choice? Because most Americans have chosen to live beyond their means. A 2023 survey by Payroll.com found that 78 percent of Americans were living paycheck to paycheck, and many had only a pittance of cash saved for a rainy day. This means that most people struggle to pay their monthly expenses. The biggest offenders are baby boomers (49%). They didn’t save enough and lived beyond their means, and if disaster strikes, they can’t cope financially.

How to avoid an emergency bringing you to your knees

A recent Bankrate survey found that nearly 6 in 10 adults are not comfortable with their level of emergency savings. Most of those surveyed said they would be comfortable with about three months of expenses saved, but only 44 percent actually have that. The shocker is that 27% of US adults have no emergency savings at all. This means that they should borrow money to cover an emergency.

Will emergencies happen to you? Over the past five years, the U.S. has faced an average of $120 billion in climate disasters alone, according to NOAA’s National Centers for Environmental Information. Illness, job loss, car is hit, roof leaks – how can you protect yourself?

You can:

Create an actual set of goals or Life Wish List. These should include: Where do you want to live (how much will it cost)? Do you need a car (how much will it cost)? Do you want to go to college? Each of your goals will have a price. When you collect them, you now have to compare them to the money you earn. Here you can see if you can afford all your goals. If you don’t have the income to cover it, then you have two options: earn more or spend less. Living beyond your means makes you feel poor.
Create a budget that fits your new goals and meets your budget.
Build an emergency fund with a minimum of three months’ salary. It’s not easy to do, but emergencies will happen, and this will help you avoid panic when they do.

I also found a new insurance company called Recoop Disaster Insurance, which describes itself as the first and only multi-peril disaster coverage that will quickly pay you a lump sum benefit of up to $25,000 after a disaster. I found this interesting because most homes are underinsured by over $50,000.

Steve Gaer, president of Recoop, told me, “Most people think that homeowners insurance will cover everything if disaster strikes…wrong. People miss the fine print and the loopholes, and on average, they might not get their claims, minus deductibles, for 15 to 30 days.”

We asked Gaer why he thinks a company like Recoop is important. “When I was mayor of West Des Moines, Iowa,” he said, “I saw people panicking and looking for support just to find safe shelter and food when disaster struck. They didn’t have enough emergency funds to cover their immediate needs.”

Gaer went on to explain, “Recoop works to close the gaps in home and renters insurance policies by providing people with funds quickly in the wake of a disaster.”

Happiness is an inside job

My general point is that many of us are only as poor as we feel. It’s time to take control of your financial life. Emergencies and disasters will happen and they cost money. If you’re living beyond your means, you’re not a victim of it – you have choices. So change your choices and reduce your lifestyle and spending and you’ll sleep better at night because if you don’t control your money life, will it controls you.

This article was written by and represents the views of our contributing advisor, not the Kiplinger editorial staff. You can check advisor records with help dry or with FINRA.

VaselineAugust 24, 2024

0 5 minutes read

Vaseline

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