You often hear about the shrinking middle class in this country. The Democrats will tell you it is because the rich are hogging all the money and the Republicans will tell you that it is because of the Democrats tax policies. I think there is truth in both sides, but I will not go into that right now because I do not believe either to be the biggest cause of a shrinking middle class.
I believe the middle class is shrinking because of the artificially low interest rates perpetuated by the Federal Reserve. Easy credit has completely changed our culture. We no longer have much motivation to delay our gratification. Why wait. Buy now, pay later. Karen De Coster thinks the later may have just snuck up on us. She thinks the bubble is going to burst and I agree.
I often wonder if people know how to use a calculator. If you look at the median income of homeowners (around $70,000) and the median home price (at its peak around $250,000, now about $190,000), the numbers just do not add up. Once you add in all the other average expenditures for an American family, the picture really starts to look bleak.
The average car payment is over $400. Many families have two new cars with large payments. The average credit card debt is $9000.00, which would make the payment about $250.00 dollars a month. Then you have insurance (home, auto, health), heat, electric, fuel, cable, phone, internet, cell phones, trash, water and food still left to pay for. Just using modest estimates I calculate that you would have only a couple hundred dollars left over at the end of the month. And, that is without putting anything away for retirement.
A couple hundred dollars is not much when you own a house or have a child. Even with my frugal ways there is always something unexpected come up that I must pay for each month. The basement needs a dehumidifier while the baby’s room needs a humidifier, the dog needs a hernia repair, the car needs new tires, etc. If you throw any type of wrench into the situation, such as loosing a job, families have little to fall back on.
Now, of course many people think the government should do something to help out the middle class, but why not help ourselves? Stop consuming what you cannot afford. If you do not have at least $500 left over at the end of the month (after putting money away for retirement) than you need to make some cuts in your budget.
I would start with the car. You do not need a new car every three years. You don’t really need a new car ever. Buy used with what you can afford to buy in cash. I remember when I was a kid very few people had a brand new car all the time. Everyone got around just fine.
Next, get rid of your cell phone. If you really need one for emergencies, than get a prepaid phone. I like the GoPhone. It only cost about $8.00 a month. I mean do you really need the cell phone for everyday use. Surely you can decide which spaghetti sauce to buy without calling your spouse for their opinion. And, don’t give me the whole, “but I don’t have a land line so I need the cell phone”. Well, get a land line. You can get a cable phone with free long distance or VoIP cheaper than most cell phone packages.
Hopefully, one positive result of this financial crisis could be that many people will have a wake up call and see that we are consuming ourselves into oblivion.