Coping with the Onslaught of Price Increases – Part II

I assume the limits of my spending will be reached when I have spent all of our free cash flow (all of our income) and I can no longer tap our credit cards, etc. However, we can voluntarily pull back before we reach that cliff. If we don’t and we continue to spend, then we face the possibility of another financial meltdown.

Of course, as we approach that cliff, any unanticipated price increase or unexpected expense, will nudge us closer to the financial precipice or over it. I guess that is why the financial experts recommend a personal cash emergency fund. Assuming I had such a fund, I could dip into it, should unexpected things come up.

That leads me to the definition of “unexpected’ which is similar to a discussion about “accidents”. In our culture, we use very broad brush strokes with the word “accident”. I’m driving 30 in a 20mph zone and I have to swerve to avoid a child, a dog in the road or another driver. If damage is the result, we call this event an “accident” although I was driving 50% faster than the posted speed limit. Similarly, if I am living my life on the financial edge, and additional expenses rear their ugly head, be it a chipped tooth, broken automobile or whatever, we call this an “unexpected” expense. This flies in the face of the notion that human beings frequently experience illness, and automobiles, being machines, have wear parts and do on occasion break down.

The definitions appear to be subjective. An "unexpected" expense was just so, because I never expected this would happen. Is is truly "unexpected" or was it simply poor planning on my part? I need to be honest with myself and my spouse. This also applies to “discretionary expenses”. What are they? I have seen a broad definition as an expense beyond necessities. Unfortunately, one man’s necessities are another woman’s requirements (just trying to be fair to the sexes here).

For example, one could argue the merits of cable TV. If having a television is considered a necessity, then I suppose that includes “basic” cable. However, many people would probably argue that HBO or Cinemax, ESPN1 or ESPN2, Sci-Fi and similar “premium channels” are a necessity.

I disagree. I view necessities as those things that are necessary for survival. Anything after that is discretionary, and is negotiable. Looking good, or even maintaining a standard of living is not a necessity. Over the years, I’ve had this conversation with many people. My view seems to be in the minority. Once, my youngest son needed a new pair of gym shoes. What followed was such a conversation. I agreed to get him a pair of good quality shoes. He vigorously insisted on a pair of Nike Air Jordan’s. Ultimately, I agreed to the purchase but with a stipulation. I’d provide the $70 which was the equivalent price of the pair I was willing to purchase and he would provide the cash difference. In the money he received for his allowance, performing his chores, etc. I always insisted that a percentage be saved. I suggested he take the difference from his “nest egg” to fund this absolutely necessary purchase. I gave him the money we agreed upon and interestingly, he never did purchase the Air Jordan’s. He purchased a different pair, and he may actually have been able to pocket some of the cash by purchasing something for even less. Had he manipulated me or had he decided that the Jordan’s were not a necessity? I don’t know his motivation but I know the result.

So it is with many "necessities". We find we can live without some things and some things we cannot. My spouse needed a new purse. A quality, made in the USA leather purse she decided was a necessity. A Louis Vuitton was not.

And so it goes. I decide I need a new car. Why? Because the one I have has 60,000 miles, or because I am tired of it? Because the dealer offered me a good deal on a new one? Recently, I took my Subaru in to the dealer for scheduled maintenance. He pointed out that I was approaching the time when I would need new brakes and quoted me $550 to do the job. I declined but authorized only the immediately necessary work. I decided to do some comparative shopping for the brakes. Upon completion of the absolutely necessary work, I returned and picked up the car. There was a conspicuous tag on the rear view mirror offering me a deal. “This could be the last maintenance you need to do on this car” the sign said. It offered a guarantee of $15,000 for a trade-in on a new one! Looked tempting, but I did a few quick mental calculations and realized that I would be taking on about $10,000 in debt. I have learned to do some comparisons to a mental “want” list that I have. It keeps me from making rash financial decisions. In this case, I quickly calculated what I else I could buy with that $10,000. I could retire debt, or purchase a flat screen TV and eight years of $1,000 vacations. I could purchase new living room furniture and (3) or so $1,000 vacations. The list went on and on,. Then I thought about why I didn’t have that flat screen TV. It was because I had said to myself that “I couldn’t afford it”. So how on earth could I afford a new car? The obvious answer is, I can't. Or I can, but I would be compromising my integrity.

To Be Continued......