Thursday, February 21, 2013

Taking the Long View

Something interesting that happens when you stop spending every dollar you make and you instead save for the future is that you start taking a "long view" approach to money.  I was thinking about that last night as I heard the Democratic response to Governor Walker's new budget proposal.  Almost to a person, the Left was saying that the proposed income tax cuts included in the budget will "only mean a couple hundred bucks to middle class families" and how that will "hardly make a difference".

Well let's take a look at how much of a "difference" $200 less in taxes to my middle class family.  Because my wife and I already budget for pretty much every expense already, that $200 will go into our retirement investments.  The mutual funds in which we invest have an average annual return of 10.2% over their "lives".  That means a one time investment stands a pretty good chance of growing to $2,167 by the time we reach the age of 65 (25 years).  Barring runaway inflation and devaluation of the dollar due to our profligate Federal spending of today, that should cover five to six months of groceries for a retired couple.

But keep in mind that the above example is based on paying $200 less in taxes for just one year.  If we are allowed to pay $200 less every year until our retirement--again putting that money into our mutual funds--that investment would grow to $24,606 by the time we are 65.  That would be almost an entire extra year of work (net income) for my wife.  And I'm sure she would like to be "rocking the retirement community" one year earlier.

And taking the long view works in the other direction as well, if you will.  When you hear politicians talk about paying "just a little bit more" for this program or that for that project that means the same amount that we were adding to our future security is coming out of that potential nest egg.

This approach doesn't apply just to income or property taxes.  Is "unlimited minutes, data, and messaging" right now worth having to put in an extra year on the job?  Or is a Tall Venti Mocha Half Caf Chai Latte every morning now worth being only able to afford Sanka after you can't work anymore?

Yes, taking the long view requires a great deal of patience and discipline.  And in today's "I want it all and I want it now" society, it's much easier to just vote for politicians who promise to provide you all the "security" you need--at the greater expense of everyone behind you.

1 comment:

  1. You won't save anything. You might be able to tweak your budget in ways that makes it LOOK like you're saving more, but you'll have to do without something to accomplish that. it will be an illusion. Grocery prices have been climbing consistently, and if you haven't noticed an outright price hike on a particular item- then have your wife check the Net Weight of the package. Notice that bagels and english muffins are smaller than they used to be 3 years ago. And on and on. Everyone including you have been and will continue to pay more for food. A lot more, for a lot less. I shop at Wal-mart and only at Wal-mart. It's been happening there too, though less so. I have the prices of most items I buy memorized because my budget is that tight and it matters. I don't need news stories to tell me that prices have been edging upwards for years now.
    That problem doesn't take into account higher prices for other goods/services. Just on groceries alone, I guarantee your expenses over the next year will inflate beyond that 200 bucks.
    BTW I never eat out (I mean never) nor go to movies. Well, I saw "Lincoln" on my birthday - first movie in a couple years. I buy clothes at Goodwill. I don't vacation, buy decorative home items, or shop for "fun". I don't wear make-up and I cut my own hair. I clean stuff with vinegar or baking soda. I cook from scratch, not mixes etc. I've never even heard of a Tall Venti Mocha Half Caf Chai Latte, and I'm not kidding. I may not sound like a real trophy wife, but my point is, you can save me the "don't know how to pinch a penny" lecture. I'm better at livin' cheap than you will ever dream of. I've been doing this since Reagan was in office. Or maybe Carter. Taking the "Long View" isn't worth a darn if you're not also looking at the "Big Picture". The big picture includes honesty about the increasing flow of money OUT of household budgets overall, not just the few extra dollars Walker claims will be coming in. The sun may be shining up above, but the boat is leaking below. Only fools whistle a happy tune in a situation like that.
    People who are already comfortably off will be able to allow themselves to be seduced by the fairy tale and continue to believe in the ideology. However, those with less and less to live on will not be fooled. Walker's "more" won't feel like more because many people's budgets are too tight already too allow for self-deception and ideological delusion. The Republicans may have a plan to counter-act that problem. I wouldn't know. But they're gonna need one. At some point here, a large swath of people in WI are going to get real sick of getting poorer and poorer every year, even if they'd like to believe in the Republican message, and even if they find Democrats really really annoying. Reality bites, and it leaves marks.
    It will be interesting to see what kind of pretty band-aid your Ideology Boys can come up with.