The S&P 500 was up about 3.5% last week, and reached a new all-time high, as geopolitical tensions eased. There remain two schools of thought: one, that the rally is only beginning and we will continue to see market gains. Productivity gains from AI will bring about a current Industrial Revolution, spurring massive disruption at a record pace, and revolutionizing the economy. The opposing school holds that we are on the brink of recession at the least, and potentially, total societal collapse. I tend to lean more towards the former, and remain optimistic over the long term.
In the short term, living within your means – or better yet, below your means – can have a massive personal impact. I read several articles this week about families with high six-figure incomes that are essentially living paycheck-to-paycheck. You may wonder how it is possible that someone can earn over half a million dollars a year and still struggle.
In this area, it’s easier than you might think. A large home, or even a modest home in certain neighborhoods, brings not just a high mortgage, but higher property taxes, insurance, maintenance, and utility costs. Sending multiple children to private school adds up, along with uniforms, fundraisers, and lunches. Add in sports or other activities, then transportation. Many families are also philanthropic, and donate significant amounts to local causes.
Lifestyle creep is real. I sat with a client many years ago who was trying to figure out where his money went. I asked him to tell me about his day so far. It started with breakfast at a coffee shop near his office, then lunch out, and then he was meeting his wife and children for dinner before soccer practice. Just breakfast and lunch was $150 a week. Over the course of a year, that’s over $7,000. Just for his two meals. Eating breakfast at home and bringing lunch most days would have let him build up $5,000 in his emergency savings in a year.
Saving works the same at every income level. It’s just that the dollar amounts are different. Creating false scarcity helps control spending. That’s a fancy way of saying you need to pay yourself first. Split your paycheck, and have a small piece go to your savings account each pay period. Save in your employer’s retirement plan if you have one. If not, have a portion of each paycheck go to an investment account. The amount just scales with your income.
Job searches have been taking longer, usually six months to a year for a white collar professional to find a comparable position. This means that everyone needs to build their emergency savings, scaling back on things you may be able to afford, but don’t really need, until you have at least six months of living expenses saved.
Your action item this week is to change the air filter in your HVAC unit. As the weather heats up, clean filters improve the unit’s efficiency.
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