Sushi Money

After last week many investors are wondering if their retirement funds are heading down the drain.  In the space of a few days the Dow lost over 500 points alone, and the index is down almost 20 % from the October highs of over 14,000.  While the volatility continues it looks as if the Bear is on the prowl.

Regardless of your risk tolerance over the past few years, if you’ve sat tight and continued investing it’s not pleasant to watch the markets slowly shrink the size of your portfolio.  What does it all mean?  Most investors see a bear market as something indicating a severe recession, or longer term economic challenges.  That’s not hard to understand with the backdrop of oil exceeding $143 per barrel this morning and well over $4 per gallon of gas at the pump.

So the economy continues as the #1 issue for voters this election cycle.  If the politicians haven’t got that by now they’re probably way behind in the polls.  The one’s that do get it are harping on it continuously, just like the media. 

This morning I watched every major news network talk in depth about the struggling economy and how consumers and investors are on the verge of panic.   I had to turn off the television, in part because it was so negative, and in part because I found myself giving in to the negative mantra that pervades the media these days.   And you know what?  I’m tired of listening to all of it.

Perception shapes the way we feel about many things, including the economy and the nation as a whole.  And the media shapes perception continuously.  Is that any surprise and is it really accurate?  Do we feel the same way about our own lives?  Greg Easterbrook in a Wall Street Journal opinion piece has written of our penchant to focus on the negative:

“The relentlessly negative impressions of American life presented by the media, including the entertainment media, explain something otherwise puzzling that shows up in psychological data. When asked about the country’s economy, schools, health care or community spirit, Americans tell pollsters the situation is dreadful. But when asked about their own jobs, schools, doctors and communities, people tell pollsters the situation is good. Our impressions of ourselves and our neighbors come from personal experience. Our impressions of the nation as a whole come from the media and from political blather, which both exaggerate the negative.”

“The latter has never been thicker. Democrats insist Republicans are ruining domestic policy, Republicans insist Democrats are ruining foreign policy. Neither claim is true, but both reflect what we’ve been conditioned to believe: that America is in much worse circumstances than it actually is.”

That’s why I turned off the television.  If perception is going to influence my life, then I’m going to shape it myself.  Certainly there’s no question that consumer spending behavior is changing all across America, both out of need and concern for the future.  And many people are indeed struggling.  We’re paying more for gas and food, job losses are mounting, real estate is down and our investments haven’t done very well this year. 

Depending upon where you live, the economic conditions may be terrible or they may be pretty good.  Rather than give in to the rampant media circus however, I think it’s time we looked more closely at what I call the Family Economy.  It’s within the family economy that most of us experience the effects of the world around us.  Unfortunately for some families, that means life is very challenging and just putting food on the table may take incredible effort. 

But it’s really not that bad for most people even though that’s what it sounds like in the media.  A lot of folks are doing pretty well regardless of the economic challenges.   We’re healthy, have a roof over our heads, adequate income and a quality of life that is pretty darn good.  How many of us stop and think of the abundance in our lives, and to appreciate what we have each day?

Within our family economy, we can do a lot of things to shape the quality (and perception) of our lives.  Among all else I believe our attitudes and behavior is most important.  The outlook and mindset we carry with us influences those around us (for good or bad) especially in terms of our younger family members.  Children understand little of what influences their world beyond the neighborhood, and the home is often the singular center of social and economic interaction. 

Who leads the family economy?  We do.  The adult family member’s actions, attitudes and behaviors concerning money and economic decisions influences the short and long term outcomes of our lives.  If we are going to succeed and grow as humans within the larger national or global economy, then we better start with our behavior at home.

So rather than worry about the global economy and wringing our hands each day over things we can’t control, I think it’s essential to take a long term view and a more practical approach toward what do have control over.  There are many things we can do to improve our family economy and our future:

• Do your best:  Whatever your job, do the best you can each day, stay focused and be consistent.  There’s nothing an employer likes more than someone who is dedicated, competent and reliable.  If downsizing comes to your career field or employer, you just may be someone who is retained because of your dedication. 
• Increase your skills: If you’re looking for a new job, make yourself as competitive as possible based on education, training and skills.  Maybe it’s time to change careers anyway. If you need more education and training, find a way to get it.  Seek counseling at schools and local career or community centers that can direct you to new programs.  There are many jobs out there, but you may need to move or modify your life situation to tap into that job stream. 
• Change your family’s economy:  That’s right, we must take charge of our family economy!  Not only with our attitude but our daily behaviors: By the way we spend, save and consume. Take a good look at your spending and saving habits, and how efficient your life at home is.  Can you cut back in certain areas such as travel or using electricity?  Is it time to re-think the budget for how often you eat out?  Are there better ways to save money while shopping?  Are there things you can do at home that you were paying someone else to do before?  I think many of us are going through that exercise right now, but it can make a huge difference in our family’s lives.
• Manage debt responsibly:  Most of us have debt of some kind- mortgages, auto loans, credit cards.  Some of this debt may be necessary and can be used responsibly.  But staying out of debt is always a good thing.  Pay off the credit cards, and consider not using them.
• Increase Savings:  If you can’t sleep at night because you’re too worried about the stock market or your investments, then it’s time to re-think your investment approach.  Maybe you need more cash on the sidelines, or a bigger emergency fund.  If so, then do it!  Start saving a little each week, or re-direct your current allocation to a more conservative approach. Look at how much money you’re investing, and direct some money towards a savings account or money market fund.   But remember! Putting money in a low-rate account is a short-term fix.  That money won’t grow over time to beat inflation.  But it will provide peace of mind until you’re comfortable enough with a cash cushion that you can think about investing again.
• Stay Invested:  For those who think the markets will be higher in the years ahead (and count me as one of them), now is a great time to keep investing.  With indexes at multiple-year lows, this is the time dollar-cost averaging really pays off.  It’s also a time for strategic investments if you have the money to invest, and if you are investing beyond 3-5 years.  Adapting to changing market conditions is important, and it may also be time to consider different investment alternatives.
• Appreciate what you have: Within and around our lives we have family, friends and circumstances that we rely on.  It’s easy to take success and abundance for granted.  Even when we are struggling, there is much to be thankful for.  If you feel like your life is so challenging that you don’t know what to do- then seek help!  Talk to a clergyman, a counselor or a medical professional.  If you just ask, there is someone who will help point you in the right direction- but you must also be willing to do something different, which brings me to my final point: 
• Be receptive to change:  Sometimes we’re so focused on our own challenges or pessimism that we’re not open to change or willing to consider new ideas. When change seems very difficult or I’m stuck in a rut, I try to remember a favorite quote by Texas Bix Bender:

When you find yourself in a hole, the first thing to do is stop diggin’.

If something isn’t working for you, take a break, talk to others and see if there might be a different way around the problem.

While the bear market rears its head this election year, you’ve got to do what you must to stay sane.  But remember one thing:  The markets and the economy will be very different 10-20 years from now.  I’m a believer in the U.S. economy over the long term.  And I see our past challenges as paving the way for our future economic well being.  When markets move up again (and they will), it’s going to be a rapid change from the lows.  You want to be in the market when that happens.   

Ben Stein describes it very well: 

“If you know the economic past pretty well, you will also have a pretty good idea of the economic future.”

“Generally, and with few exceptions, “the past is prologue.” Knowledge that the economy and various sectors go through cycles tells you that the time to buy is when securities are beaten down and hated. It tells you that money is made slowly, by patiently investing in widely diversified low-cost indices. It also tells you that there have been so far no endless downtrends and that journalists are not the people to trust for investment wisdom.”

That goes for bloggers too of course.  From an investing standpoint it’s hard to stay bullish over the long term while watching losses mount in the short term.  But don’t give in to short term pessimissm so that it prevents you from long term success!  Can you think of any greater gift to a child or family member than teaching them how to navigate economic challenges, and even grow and succeed over the long term?  That’s the opportunity we have, and within our family economy we can make a difference.  Hang in there, and remember to appreciate what we do have each day.

A great deal of news happening in the financial world and not easy to keep up with it all. With so many opinions and viewpoints out there it’s easy to get lost in themes of change and concern about the economy. But make no bones about it, the economy is struggling. On top of energy and gas price concerns we’ve seen fires, floods and tornadoes change lives. And in many states folks are just trying to keep or find a job. The rest of us just focus on what we know, and continue working to manage and improve our lives each day.

But the policies, laws and regulations that our elected and appointed leaders make have great impact over time as well. Lately energy and food price inflation has a lot of folks spooked, including the Fed. We should hear more about Fed policy today, and the Fed is bound to look very hard at the threat of long term inflation while still being concerned about the country tipping into recession. Which is it? It’s both because that’s where we are today.

But nowhere are economic issues more challenging right now than in places like Michigan where people are lined up for jobs like pictures from the Great Depression.

“Michigan’s agony will be front and center in the runup to this fall’s Presidential election. It figures to be a more fiercely contested battleground for Barack Obama and John McCain than even Ohio or Florida. The job picture, says DCC’s Perry, is worse this time around than in 1980, the last time unemployment was so high. “Then, workers were being laid off, but these jobs are being eliminated,” Perry points out. “And they are going at a much faster rate than we can replace them.” According to Michigan Governor Jennifer Granholm, the state has lost more than 400,000 jobs in the past seven years. May’s numbers alone show a loss of 50,000 jobs.”

The national economy is struggling for a lot of reasons, but I think there are things we must consider across the nation that either contribute to economic strength, or take away from potential economic growth. From my perspective, few things are as important to consider as tax policies and the tax climate within the nation and respective states.

Tax laws and regulations make an enormous difference in this country. Personal taxes, property taxes, business taxes and more. Michigan for example has been wrestling to find a sound business tax policy for years now, and it hasn’t helped to foster growth or provide help to consumers.

While the economy is struggling and we are teetering on a recession, it’s wise to remember that businesses and employed workers provide the foundation and backbone for all the prosperity and growth we see in this great nation. Hence business tax climate is a critical issue to consider.

While job losses are mounting in various sectors, especially finance, the auto industry and the airlines, the Fed will have to consider the contractionary implications of raising interest rates over the next year. If using money to lend, build and borrow becomes more expensive for business over time, then tax climate also is an increasingly sensitive factor in conjunction with related economic costs.

The Tax Foundation, a non-partisan tax research group based in Washington D.C., conducts a lot of research into tax issues in the U.S., and has done so since the Great Depression. The Tax Foundation’s Business Tax Climate Index provides some excellent considerations for policymakers and political leaders in a late 2007 background paper:

“How much states collect in taxes is critical, but how they take it is also important. In other words, quite apart from whether a state’s total tax burden is higher than in other states, it can enact (and many states do) a set of tax laws that cause great damage to the economy.”

“The modern market is characterized by mobile capital and labor. Therefore, companies will locate where they have the greatest compet­itive advantage. States with the best tax systems will be most competitive in attracting new busi­nesses and be the most effective at generating economic and employment growth.”

“Although the market is now global, the Department of Labor reports that most mass job relocations are from one U.S. state to another rather than to an overseas location. This means that state lawmakers must be aware of how their states’ business climates stack up to others in their region and nationwide.”

Does that partly explain the mass exodus of business from some western states such as California to other states such as Arizona over the past decades? What about Michigan? Or the U.S. as a whole? If we reduce the competitive advantage for business here in America, jobs are going to go where businesses can make the most money. In many ways today it’s inevitable and challenging to compete with workers paid so much less overseas. Some say globalization is wonderful and some see it as destructive. Either way it’s here to stay and the world is getting smaller.

But the business and service economy in the U.S. is being reinvented every day. And our goal and mandate should be on how we capitalize upon our strengths and improve them over time. We are much more geared to a service economy than an industrial economy these days, and manufacturing jobs are not nearly as common as they used to be. The shortage of high quality jobs and workers will continue to be a problem in the U.S. And the worker shortage may only increase in technology sectors.

Jobs are out there for qualified IT workers, but much of the nation is still in that transition from a manufacturing base to a knowledge-worker core. Education and training will be vital in the years ahead, and partnership between government and public and private industry will be essential to help train, re-train and educate our future workers. And I strongly believe we need to work hand-in-hand with business to help them find and train quality workers.

The Tax Foundation has framed it pretty well, and what we consider over the long term is vital for continued economic growth:

Lawmakers create these deals under the banner of job creation and economic develop­ment, but the truth is that if a state needs to offer such packages, it is most likely covering for a woeful business climate plagued by bad tax policy. A far more effective approach is to systematically improve the business tax cli­mate for the long term. When assessing which changes to make, lawmakers need to remem­ber these two rules:

1. Taxes matter to business. Taxes affect busi­ness decisions, job creation and retention, plant location, competitiveness, and the long-term health of a state’s economy. Most importantly, taxes diminish profits. If taxes take a larger portion of profits, that cost is passed along to either consumers (through higher prices), workers (through lower wages or fewer jobs), or shareholders (through lower dividends or share value). Thus a state with lower tax costs will be more attractive to business investment, and more likely to experience economic growth.
2. States do not enact tax changes (increases or cuts) in a vacuum. Every tax law will in some way change a state’s competitive position relative to its immediate neighbors, its geographic region, and even globally. Ultimately it will affect the state’s national standing as a place to live and to do business. Entrepreneurial states can take advan­tage of the tax increases of their neighbors to lure businesses out of high-tax states.

On top of all the economic challenges we face, tax policy is a very large factor. And although the Tax Foundation is a non-partison research group, there are stark differences between the political parties regarding the tax policy debate.

Quite simply, we hear the Democrats talking more about raising taxes while the Republicans talk more about reducing taxes and making this decade’s tax cuts permanent. It’s both a philosophical and a practical debate about economics that neither political party can really adhere to uniformly over the long term. But although taxes are a fact of life in the U.S. lower taxes are usually a good thing for all of us, especially families and businesses.

History has shown that those nations, states and cities who provide a more tax-friendly business climate promote much stronger growth and employment over time. And I would submit that a new focus on human capital development is paramount- hence greater education and training initiatives are critical. Over the long term we also need stronger advocates for balanced business tax policies and greater understanding for the burden that taxes place on businesses and consumers. Talking tough on increasing taxes will serve no one well in this economy, or this election year.

There’s a Yahoo Finance article you don’t see everyday: 9 Ways to Save on Movie Tickets at the theater. Great idea to run down ways to save because going to the movies is a huge expense these days. Not sure about the advice to find a Drive-in Theater… I haven’t seen one of those in years. Would love to try one again, but most of them are gone. Of course you could go to DriveInTheater.com and check out a handy list of drive-in theater’s by state.

Reading the article about saving money at the theater was also coincidental because we just went to a family movie yesterday for a bit of Saturday afternoon fun. But even in the movie theaters I found that inflation has taken its toll.

The article was right on about going to the theater at off times to save on pricing. However it’s not so easy anymore.

We arrived at the theater and were told that it now cost “evening prices” for our traditional afternoon matinee! I stood there in front of the ticket window, the hot sun at my back and not even 4:00 pm yet… and we’re paying evening prices for an afternoon movie? What will they think of next. The least they could do would be to call it “full pricing” or something other than “evening” pricing. Time to look for a different theater chain, but I suspect they’re all pricing movies about the same.

Maybe it’s time to try something different. Netflix anyone?!. Of course we don’t rent movies often, but it sure would cost a lot less. I suspect we’ll still head to the theater now and then. Sometimes the experience is worth the cost. But I don’t think we’ll be paying full price for a kid’s matinee again any time soon!

Mortgage fraud arrests? The news says hundreds swept up in mortgage fraud. Hundreds? Wow.. amazing but a little late, huh? Well in a difficult economy it looks like the lawyers will have plenty of business.

While it looks like the Feds are finally announcing results of their investigations, it’s not just the mortgage brokers who are being looked at. Hedge funds are also now prime targets for investigation as to their role in the subprime mess. And two former Bear Stearns executives were arrested this morning. Seems at least one of these gentlemen may have been secretly withdrawing his own money from a failing hedge fund while smiling to other investors about how well they were doing.

After touring southern California last week it was amazing to see how prices have come down. Builders are still building, but are also scrambling to close deals on various houses and subdivisions. I even saw one sign: “Any Offer Accepted.” They probably left out the word reasonable.

I talked with several people who were seeing 40% reductions in the valuations of their homes. They sighed acknowledging that in addition to supply and demand, it was primarily an income qualification issue for how much of a home people can really afford. Reality was coming home to roost.

But during the hey day of the real estate boom, it wasn’t just the mortgage brokers leaning towards fraud. Many speculators and home buyers fudged their applications with exotic loans just to buy a property. Of course the speculation and application fraud is mostly history as more stringent mortgage qualification standards are now in place. But amazingly enough, mortgage fraud is still a problem across the nation.

I wonder if there’s any fraud in the oil or refining industry? Well maybe fraud is a bit strong of a word, but how about rampant oil industry speculation?

“As business and consumers consider the implications for them of crude oil selling at US$130-plus per barrel, they should bear in mind that, at a conservative calculation, at least 60% of that price comes from unregulated futures speculation by hedge funds, banks and financial groups using the London ICE Futures and New York Nymex futures exchanges and uncontrolled inter-bank or over-the-counter trading to avoid scrutiny.”

We’ve been through the dot.com boom and the real estate boom. If this is the oil and gas boom, does that mean prices will come down later too? More importantly, what’s the next boom? I’d like to get in on that one…

While traveling to California this week I’ve actually had the opportunity to put gas in the car at $4.69 per gallon. The sum of money it takes to drive a vehicle around now is incredible to me, and it looks like people are cutting way back. Several times this week I’ve seen folks putting just a few gallons in the car at a time because they didn’t have enough money to fill it up, or to top off what they had already. Even with cutting back however, there’s a lot of cars on the road.

I really don’t believe the nation can sustain these fuel prices economically. Costs are going to continue to soar and consumer spending is simply going to shut down. Think America had a low savings rate before? Now we’re putting that little extra in the fuel tank.

I’ve called for an Energy Summit before, and I still believe we need to gather the experts and political leadership to develop a way forward. Certainly when the nation faces a threat to its people the government responds. Yet from an economic perspective the government has been slow to respond to the mounting pressures we see in the food and energy sector. And another round of rebate checks is going to help? Well tax rebates have helped soften the blow of reduced consumer spending so far, but it’s not a sustainble way to strengthen the economy.

As The Black Gold Rush continues, many people and companies are looking for ways to increase petroleum production. This is almost like the dot com internet bubble in many ways, but there’s little reason to think demand for oil will decrease over the short term. Over the long term, these prices are not sustainable especially as automakers finally produce viable hybrid vehicles en masse. Alternative everthing is all the craze and I think a lot of folks are going to change their spending and driving behaviors over the next decade. Which may prove essential to our future. OPEC is not going to help us if we don’t take charge of our own energy destiny.

Yet the oil boom has been good for some investors, and not so good for others. But prices have simply gone too far too fast. It’s hard to escape from the effects of oil no matter where you look. Most of the mutual funds in our IRA’s, 401(k)’s and pension plans are chock full of oil stocks or related companies. At some point their valuations will come down, but realistically that should be better for the stock market as a whole. If we can get past the inflationary pressures of higher food and energy prices, then the economy just may hang in there.

In other alternative news, we’re going to see a lot of change in the food industry as people demand better food products. When we read about Sumo Chickens and Tainted Greens on financial sites, you know it’s rapidly becoming a mainstream issue. This week I’ve been surprised by several relatives’ interest in consuming raw milk as a more healthful alternative to pastuerized store-bought milk. The food issue will be a biggie over the next decade, and there’s probably some key investing opportunities there as well.

With the struggling economy as the larger theme of this election year, people are looking for answers.  Housing is still a hot topic for many, especially in the high-flying real estate boomtowns across the nation.  CNN/Money writes that some of the hardest hit cities may see real estate drops of 50% of more!

That’s amazing to consider, but even more amazing to me are the statistics they put out on unemployment in some of the California cities.  18%? 10%?  Wow.   Numbers don’t lie, but I can tell you that I’m sitting in one of those cities as I write this, and if unemployment is that bad, you can’t tell it from all the people out shopping and running around town.  The restaurants are pretty full, the roads are crowded, the stores are open and summer is getting underway for all the kids.

Certainly appearances can be deceiving.  After talking with some of the locals, the small business owners indicate that sales have definitely slowed down compared to a year ago.   With food and energy prices skyrocketing that’s no surprise these days.  But even with the slowdown in spending there are jobs to be had in service industries.  Just not the kind of jobs that replace good paying industry jobs to support larger families.  But if you’re looking for temporary or minimum wage service jobs, you can find them.

Even with real estate, there’s a few folks looking for the bottom.  Where I’m sitting, foreclosures are still up but bidders are jockeying for position to get the best deals on houses, often bidding the price up more than listed.  Will we head up from here or just wallow around for a while?  Most likely the latter.  But those tax rebates we’ve put to work have both good and bad news to go along with them.  Consumers are spending more money with free handouts, but the deficit isn’t getting any better either.

We’re traveling around the country this week visiting family and I’ve enjoyed the time off. I was curious to see, at least from the road, how the economic challenges are affecting people. But it’s hard to see that there are any real economic changes simply from the number of cars on the road, or people eating out at restaurants or shopping. If the nation is verging on a recession, you can’t tell it from where we’ve traveled in the western U.S. But it’s amazing to see how high gas prices are in some states! I saw diesel fuel over $5 per gallon for the first time this week. It must be taking a huge toll on the independent truck drives which is a shame.

So most Americans seem to be going about business as usual. Of course some of us have cut back driving, and reduced spending. Even for this trip we have modified our travel plans based on fuel prices. It’s obvious that some of our weekly spending that would have gone towards discretionary expenses such as entertainment or household goods are now being diverted towards expenses for fuel and food.

Yet even with a struggling economy from a national perspective, there’s growth and building still taking place, especially in the commercial arena. While home builders are sitting idle and struggling for sales, the foreclosure markets are heating up. And the commercial builders are still making new plazas and storefronts for mini-restaurants and niche stores.

Is the nation getting ready for the next leg up in the business cycle? In some places it appears that way. But so much depends on where we go from here. It’s kind of like waiting for the other shoe to drop. Will we start back on the road towards growth or do we continue a long slide towards recession?

It’s good to see the dollar strengthening on comments from Bernanke, but not so good to see that Sen. Obama wants to tax the oil companies . All for the national good right? But someone tell me how those costs are not going to be passed on to consumers? Ultimately that will be a tax on you and me.

For most of us in the U.S. prices at the gas pump are ridiculously high.  It would almost be funny if it wasn’t such a crucial issue for the national economy and consumers.  When I filled the tank the other day it was staggering to see the difference in cost from just months ago.  We don’t know if gas prices will remain high or continue higher in the years ahead, but global demand is still growing which makes it likely. These prices are almost inconceivable in some ways, and when you’ve got to make a long commute each day it’s hard to reconcile paying a larger chunk of the monthly budget to get the same amount of miles out of a vehicle.  Those chunks of the monthly budget add up to real dollars over time- dollars that we are giving up in saving for our future retirement security.

Many people in Europe or other nations have little empathy for U.S. drivers, but our country is so large that many of us routinely drive for an hour or more one-way to work each morning. It’s not uncommon for many of us to put over 75 or 100 miles on the car each day.  It’s a fact of life based on our geography that many of our own citizens often forget.  Those of you living in the city or suburbs of a large metropolitan area may not commuite or drive quite as far.  But many other people live in rural areas far from any metropolitan city and must not only drive long distances to work, but also to see a doctor, receive medical care or simply shop for groceries.

Obviously some of us drive vehicles that use a lot more gas, and it’s dawning on a lot more people that the money we spend for gas is simply being wasted on gas fumes.  Sure we love our big cars and trucks, but at what point are we willing to give up our future retirement security by driving a comfortable car?  Do we really need such a big car?  Maybe. But I believe that more Americans will give up the luxury of a larger car for the convenience and economic bonus of driving a smaller car. 

Most of us will never really understand the reasons for the runup of oil prices.  Demand is obviously a huge issue worldwide and speculation is being looked at more closely for the impact to high prices.    It is somewhat amazing that large investment banks can control enormous trading positions in oil and gas reserves.  Even billionaire George Soros sees much of the energy price runup due to “craze-following” behavior by financial institutions.

But regardless of the cause, the energy crisis is here and is causing a major shift in U.S. consumer behavior.  The media has begun reporting on the extinction of gas guzzlers in the U.S. as well as how American companies are reeling from energy costs.   U.S. consumers have cut back on gasoline use for the third month in a row, and the airlines are struggling as never before as corporate costs will continue to be passed to consumers. 

“Pressure from higher energy costs is already being felt, with Kimberly-Clark announcing it intends to raise prices on its consumer goods products 6 percent to 8 percent in the third quarter. The maker of Kleenex tissues and Huggies diapers said higher energy and raw materials costs were to blame for the price increases.”

We’re seeing price increases all around with food, energy and a greater number of retail goods.  The point is simply that high gas prices and the related impact on the family budget are a very real personal financial planning and retirement issue.  In what way?  Based on the cost of ownership of various vehicles, including how much it costs to put gas in the tank.  Don’t get me wrong, this is a free country and I love a big vehicle to move people and stuff around when I need it.  But when I need it is the important part of that sentence.  Most of us are realizing that we don’t really need quite as much car or truck as we thought we did. 

The New York Times describes how we’re staggering under the cost of $4 gas while examining the cost of ownership of various vehicles, and why consumers are changing their minds about what they’ll buy and drive these days:

“While the F-250 costs $100,000 and a fully loaded F-150 — the better-known, smaller Ford pickup — costs about $70,000, a Ford Focus still costs less than $40,000 over five years. A Honda Civic Hybrid does, too. A Toyota Prius costs only a little more. A Subaru Outback station wagon runs $50,000 or so.”

“To put this in perspective, the difference between a Focus and an F-250 over five years is $60,000. The annual pretax income of a typical family in this country is also about $60,000. So choosing a F-250 over a Focus is like volunteering for a 20 percent pay cut. The relative resale values might cushion the blow a little, but not much.”

“That’s why more people are deciding that towing capacity and the other benefits of pickup trucks and S.U.V.’s are not worth the costs. The F-250 may still make sense for some business owners. But, as Mr. Fisher says, on those few occasions when the rest of us need to move some horses, we can rent a truck. “The new economics of car buying is, ‘Don’t overbuy,’ ” he told me. “Buy something you’re going to need most of the time.”

That’s a great example for the impact of gas prices based on the type of vehicle we drive (it’s still somehwat incredible to me that U.S. automakers have been so ill-prepared to deal with this shift in need and demand!).  

But sky-high gas prices affect everything, including retirement security for you and me.  What are we giving up in future dollars and earnings simply to drive that big truck around town?  If I were to run the numbers it would be staggering.  Think of  the tremendous amount of money over time and it’s not hard to see how $30,000 to $40,000 over five years can become an incredible sum of money.  So what we drive each day and how much money we spend on it can make an enormous difference in our ability to save discretionary income for retirement. 

It’s not all about gas prices either.  While we continue to see price increases at the grocery store, it’s only a matter of time before wage increases won’t keep up.   The fact that wage inflation is under control right now may be more due to widespread economic challenges rather than anything else.  As the business cycle heats up again in the years ahead I have to believe we’ll see stronger inflationary pressures and rising interest rates all around. Fuel prices may be even higher.  If it costs more to live in the years ahead we need to think hard about how much money we’re willing to give up from savings right now.   Every dollar we save by driving a higher mileage vehicle means more dollars saved in the years ahead.

With that said, it’s a pretty good time to re-think the monthly budget, and and how much we’re willing to spend each year on fuel costs.  I’m not willing to sacrifice my future retirement security by spending so much money on gas.  Like many people I’m just not sure what I’ll do about it yet.  But I suspect a better mileage vehicle may be in our future.

We’ve heard a lot about frugality in recent years.  No wonder of course that people are looking for more efficient ways to live and save money in challenging economic times.  And there’s all kinds of blogs and categories devoted to the topic of being frugal.  But what is frugality exactly?  Is it a virtue?  A character trait?  A lifestyle choice?  Frugality and being frugal means many things to many people.   

But I’m starting to wonder if frugality is all it’s cracked up to be. In some ways it’s like approaching the building of a house with cutting back on a few bricks here and there.  You may build the house, but will it stand the test of time?  Of course some might say it’s more about finding less costly bricks or other more efficient material, and building a house for less so you can do more with what you’ve saved.  But if one’s focus is always about saving or not using up resources, or using less of something or even of finding ways to get more from less, then what does that say about seeing value or abundance in the world around us?  How can we direct our energies more towards growth and creativity instead of focusing on not wanting certain things?  What if we just knew that there was enough to go around, or that we could have what we needed?  Would that free up our creative focus or energy in new ways so we could better our lives or the lives of others around us?

In some ways frugality has evolved almost as a discipline for some, even a spiritual journey incorporated within a lifestyle of simple living.  In South Korea there are Frugality Masters who help teach others how to live a more frugal lifestyle.   Of course with the economic challenges we face today many people are being forced toward a more frugal lifestyle by sheer necessity.  How many of us have cut back our driving and spending at the grocery store?  We find ourselves looking for more efficient use of our money and how to cut corners to get an alternative benefit for the same amount.

Some bloggers have even explored what might happen if everyone chose a more frugal lifestyle.   I may differ with many of the assumptions, but it’s interesting to consider. Certainly our ancestors may have lived more frugally but I have no desire to return to the life of my ancestors!  Realistically, most of us do prefer more choice and opportunity in life.  And I think that economic diversity is, on the whole, beneficial to society.   There will always be degrees of economic advantage and those who leverage human capital versus those who do not.

I do agree that society won’t make a “frugal leap” anytime soon barring a complete economic breakdown, and then it would only be in response to crisis for a time.  Although watching energy and food price inflation get out of hand feels like enormous challenge to many of us, those living in the U.S. in fact live in the most prosperous nation on the planet with the highest quality of economic life and opportunity for the greatest number of citizens.  It’s so good in fact that most of us take it for granted.

Of course that could depend upon your view of economic quality!  But opportunity abounds, and we are creative and enterprising individuals.  Although I wouldn’t describe it as frugality, I do think most developed societies will continue to evolve towards conservation and efficiency with resource use. 

For some people however, the thought of being frugal does not represent a positive value or benefit in their lives, but rather something that means being cheap or miserly, and not having enough money to make choices in life.  I don’t agree with that viewpoint, but I understand it. Yet whether one is rich or poor, the act or choice of being frugal is still available.  In fact, some of the most frugal people I’ve known were quite wealthy. 

Frugality then can be independent of wealth or economic status.

I also think that a lifestyle choice of simple living is different than frugality, or maybe a separate but related approach to how one chooses to live.  Many of us are on a journey to live a more simple, economical life but we’re not always frugal.  So for me, being frugal has specific meaning at times, but is not an approach or central theme I see with all of my life.   

And as I mentioned above, something about being frugal bothers me.  Too often I see frugality wrapped up in a focus of lack, absence, need, wastefulness, etc.   It seems like many people are focusing on frugality from a perspective of losing something instead of appreciating what they do have, or making positive choices and finding opportunity for growth, financial or otherwise. 

And there’s something else that I’m not quite sure that I’ve reconciled personally in terms of being frugal.  That has to do with an abundance mindset. 

I view an abundance mindset as one in which we see that everything we need is available to us in life in one form or another. It also says that we can positively, intentionally, choose a path for ourselves that brings joy and abundance to our life.  People who embrace an abundance mindset do not focus on the lack of things, or the worry that money or something will run out.  An abundance mindset knows that there will be enough money or food or whatever to supply our needs if we live intentionally to create the life we desire.

Steve Pavlina has written of the abundance mindset and shows how it’s often our perceptions that limit our ability to have whatever we want in our lives.  The opposite of the abundance mindset is the scarcity mindset, in which we limit ourselves because of our thoughts, actions or beliefs.

“At an average level of income in the USA, there’s not much difference between a dime and a penny, right?  It’s a small amount either way and not particularly significant.  Would you fret over a price difference of 9 cents?  Hopefully not.  But for some people on this planet, 9 cents is a fair amount, and to pay a dime instead of a penny for something would be regarded as extravagant and wasteful.”

“Similarly, at higher levels of income (and value creation), $10K is nothing.  It’s just a penny.  It’s insignificant.  It’s pocket change.  There’s virtually no difference between a $10K hotel room and a $100 hotel room — the price difference is meaningless, so why not pay that extra “9 cents” for a nicer setup?”

“If you think any amount of money is “a lot” or “too much” or “extravagant,” you’re resonating with scarcity, not abundance, and you’re preventing yourself from becoming the kind of person who can generate that level of value.  Why do this to yourself?  Why hold back if you’re capable of contributing so much more?”

Those are great questions.  Admittedly, sometimes it’s hard to see the abundance mindset in action, especially when you see so many poor families and children living in poverty.  It’s quite amazing too how society throws money at so many problems and yet those problems endure through the ages.  On one side of the street you may see abundance, and on the other you only find need.  Some argue that it is because of poor lifestyle choices, lack of education or unplanned challenges that need or poverty exists. And yet we find that in nearly every country and society throughout the world there are those always living at the bottom rung of the economic ladder. 

I think there will always be a need for people to help other people, no matter what you call it.  And maybe there is so much disparity simply because we are human.  We are all on a growing path, and many have simply not learned to embrace the opportunities available.

And with that we find many views of financial abundance.  Steve Pavlina also examines how achieving financial abundance can even complicate our lives.  But more importantly he shows how it’s related to the value within and around our lives:

“The pursuit of financial abundance is the means to shine a light on your need for growth in these areas.  To attract more abundance, you must create more value for others, which requires that you recognize, accept, and embrace your own value.”

Instead of frugality, I think a mindset of abundance offers greater benefits to the context of our lives.  Frugality may create short-term value, and it does perhaps show what we value in certain areas of life.  But does frugality help create long-term growth and the life that we want?  Maybe it does.  Maybe we save enough money in our IRA or retirement fund because we were frugal in other areas.  But maybe we just don’t know any better.

Maybe with an abundance mindset we would create more. Personally, I strive to live intentionally and set a postive, constructive course of growth as the years go on.  I believe we can create the life we desire through small steps of growth, big leaps of faith and embracing the opportunities that challenge us. 

Certainly I find myself balancing the realities of economic choice with being frugal.  But I’m working towards not seeing things in life from the perspective of lack, or to live in fear that gas or money or whatever will run out.   No question that as we spend more money at the gas pump we are faced with the reality and choice of driving a car that uses gas.  Or not.  We are presented with the opportunity to make decisions that change the status quo: keep putting that gas in the car, don’t drive it, get a smaller car, etc.  Most of us just drive on, and gripe about gas prices while filling the car.  But we don’t have to!

Our nation is challanged by that very problem as many grapple with wasting so much money on a daily commute.  We are now looking for frugal alternatives whether that be with higher mileage vehicles, or abandoning the car altogether and riding a bicycle.  But many people are angry because of the sheer economic weight of spending so much money on something that doesn’t return any excess value for the money.  At that point it doesn’t really matter what you call it, even though some people have become so frugal that it’s affecting how they drive- they’re running out of gas!

But what does frugality mean to you?  I ask the question because there are so many perceptions of the word frugal based on the context of our life and experience.  I browsed several dictionaries and the words frugal or frugality have many meanings:

Frugality:

• Avoiding wastefulness
• Resourceful use of money or economic goods
• Careful management of anything valuable
• Practicing, or marked by economy
• Applies what is used to a profitable purpose
• Opposed to extravagance
• Careful use of material resources
• Sparing use of things
• Reduction of waste
• Seeking efficiencies
• Economy, thrift, parsimony

Does that cover most themes for being frugal ?   In some ways, I think frugality is a lifestyle choice.  But I have to wonder that if someone’s lifestyle gets to the point where frugality reigns over everything, then isn’t it taken to the extreme?  Doesn’t it then border on obsessive behavior in the same manner as compulsive shopping or spending money all the time?

Perhaps most people who value frugality seek a happy medium.  I like the idea of being frugal, saving money and using our resources wisely.  It’s quite rewarding to use the materials or goods we have at hand to satisfy needs in our lives, and not having to spend money constantly.  Growing a garden in some ways represents a wonderful balance between maximizing resources at hand in order to live more economically, and being frugal by saving money we would spend otherwise. 

More importantly however, the garden creates value in our lives!  We create something with our own hands, and it provides a healthful benefit in return.  Few things taste as good as fresh vegetables you have grown and cooked from your own garden.

But frugality can become a negative influence.  I’ve seen people call themselves frugal that to me are simply cheap and miserly with the money they do have.  It’s their choice and their money obviously, but I don’t see that it provides added value to their lives.  Instead it appears to create obsessive behavior and more stress in their lives. 

So can we find an ideal balance for managing the money and resources we have and still be frugal?   And how do we live abundantly while appreciating the life and choices that we have?  How do we let go of the scarcity mindset?  Frugality and abundance are surely not mutually exclusive, and may even complement each other.

Yet while balancing frugality and abundance, I still believe in working slowly towards living a simpler and more efficient life.  And while we make that journey I don’t want frugality to be such a focus that it involves lack or a mindset based on fear.  Rather I hope to redirect our focus at times, and find new or more creative approaches to living happily in a practical and efficient manner; to see the value that our lives represent and to leverage that value in new directions.   And I have to wonder,  isn’t life too short to make frugality a defining theme?