As you sit down to contemplate your budget, and wonder how you will afford to pay for on-going, future educational related expenses, it might be worth your while to take a wider view of your situation from say 30,000 feet. If you where to get airborne and climb to this elevation, this is what you might see of the current American economic landscape.
Though the stock market, and subsequently most retirement funds, continue to rise–although not in a straight line–it is important to remember two things: “One, only 54 percent of all Americans participate in the stock market,” according to Economist Richard Yamarone of Bloomberg news; Secondly, retirement funds are for retirement, not necessarily for funding educational expenses (remember retirement accounts are by definition not short term, liquid sources for acquiring cash, and in many cases accessing the accounts come with fairly large IRS penalties). Again, according to Mr. Yamarone, “66 percent of Americans own a home and for most the value of their home only continues to trend lower.” Meanwhile, the cost of both education and health care continue to rise greater then the rate of inflation-a trend that shows very little sign of abating any time soon. The cost of energy and food, though volatile, has also been rising greater than most other expenses in our budget. The unemployment rate, though lower of late, is still higher then the lowest point before the latest recession. Finally, disposable income, personal income left after taxes are paid, have not kept pace with the rise in costs in the aforementioned goods and services; therefore, for those facing the specter of a substantial increase in educational spending in the form of college tuition, private high school tuition or any other K-12 educational related expense, you may face difficult financial choices in the near future.
Prudent planning–well in advance of having to make difficult financial decisions–will help mitigate possible negative fiscal effects of such decisions. Now is the time to take a serious look at both your income and expenses, as well as net worth. Performing a fiscal checkup, like a checkup at the doctor’s office, can invoke feelings of anxiety that need not necessarily be experienced. First, always plan. Then, plan to adjust your plan over a long term planning horizon. Through long term planning, one is being proactive versus reactive to everyday economic events, thus taking away a great deal of stress that usually arises. The common excuse for planning is not having the time for the exercise. First, planning is less complicated then you think, thus not requiring a great deal of time, especially if you remember that every plan is subject to change. The more difficult facet of planning that is seldom recognized, but often undermines the planning process, is honest communication amongst all interesting parties committed to the goal of consensus. (A note here about consensus: The majority carries the day, with the minority agreeing to disagree, without undermining the consensus view, is critical to successful implementation of long term fiscal planning.) Good fiscal plans balance between the major categories included in financial statements. I will attempt, over a series of blog posts, to discuss the major categories that make up the household financial statement, and how to initiate or improve your fiscal planning within each category, so as to deal with what will more than likely continue to be a challenging economic environment over the next few years.
The next post in the series will discuss the income side of the profit and loss statement, and its impact on our standard of living.
Part 2: Prudent Fiscal Planning: Incomes Importance in Fiscal Planning and Its Effect on Our Standard of Living
Part 3: Prudent Fiscal Planning: You Can’t Always Get What You Want
Part 4: Prudent Fiscal Planning: To Save or Note to Save that is the Question
Art Baird, a former high school teacher-whose academic work is in business and economics-continues to study economic and financial theory, as well as micro and macro economic/finance issues of the day, when not playing his role as one founding partner in Creative Marbles Consultancy. You can contact Art at firstname.lastname@example.org or, read his short biography.
Picture Source: Unknown from the internet