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Old 06-29-2016, 01:19 PM   #1
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Personal economics vs. national economics

{edit to clarify - I personally consider economic/financial to be a valid "prep" category. Money is much like muscle or ammunition; simply having some puts you in a better position survival-wise than NOT having some. Even in normal times, trying to survive in our society without it, will demonstrate that fact harshly.}


Been a lot of discussion on economic things lately, and imo it's important to keep the differences between macro- vs. micro-economics straight in our heads. Macro economics is out of our hands individually. It's influenced on state and national levels by industry and govt influences. Micro economics is simply our individual financial situation; and other than taxes & regulation, we control it absolutely.


On a macro level:
The point has been recently & repeatedly made about gold costing more than it used to, and fact is it does. Simply put, it isn't that gold has gone UP in value, it's that the paper fiche we use as a medium of exchange (ie, dollar bills) has gone DOWN in value. A month's labor, paid in ounces of gold, was roughly the same 150 years ago as it is today. It's just that the pieces of paper we use to buy that gold (or suits of clothes, or guns, or roast beef) have been diluted over that time frame. And earnings & prices (using those fiat papers) have kept pace; yes really.



The blue line shows the growth in the number of dollars involved, and the red line shows what those dollars will buy. Notice that it's almost exactly the same in 2012 as it was all the way back to the mid-60's. Other than one hump in the early 70's, it's almost unchanged for the past half-century.

Example - My parents bought our family farm in the 60's; smallish farm with 80 acres but included the cattle, pigs, tractors, barns, etc. Paid $43,000 for it. That amount today will buy a middle-of-the-road pickup truck; not an entire farm. Looking a the inflation-adjusted income explains it graphically better than I can verbally. Other than one hump in the early-mid 70's, real income has remained stunningly even. The problem is simply that with govt cranking out more fiat notes (and other govt machinations), that pretty-much unchanging level of buying power simply represents an ever-increasing quantity of dollar bills; which people have indeed been making. (Notice that while the purchasing power (inflation-adjusted income) remains almost unchanged, the number of dollars represented (from the late 60's when the farm was bought) has jumped from roughly $160 to over $900; a ~560% increase.

That's the effect of inflation and other things out of our control. Other than bitch & whine, there's not a lot we can do about it except try to understand it and not get blindsided by it.


On a micro level:
Most americans are broke. Most americans are actually worse than broke; they have a negative net worth. This is not only stupid and sad, it's totally unnecessary. The average american couple makes over $54,000; more than a thousand dollars a week (at less than $13 per hour). Putting away just $40 per week (ie, fifty cents per hour of their pay for both of them), would make them millionaires at retirement.

Correction - it would make them multimillionaires at retirement. Yes, really.

Know what ends up killing that couple's net worth? Debt. It really is that simple in almost every case. Example that I was reading in the book "Retire Inspired" recently, the author talks about buying a Ford Expedition when he was fresh out of school. I forget the minutia, but after his down payment, he had payments of around $600 for 5 years. Sounds not too bad, thats pretty common in our society.

That Expedition cost him right at a million dollars. Yep. Vary the scenario a little, and instead of financing the vehicle, simply buy a used vehicle for whatever his down payment was. Instead of putting $5k down on the new expedition, just buy a used $5k car. Then, instead of sending $600 per month for 60 months to the car dealer, put it in even a mediocre index fund. The stock market even with the massive swings and horror stories constantly on the news has AVERAGED 12.3% a year for the last 25 years, so a 12% return that many people think is impossible, is as easy as putting your money in a plain-jane S&P Index fund. Bam, more than 12% average return, maintained for more than a quarter-century.
Short version, if hed put $600 a month for 60 months into a simple index fund, and then never contributed another dime after those 60 months and just forgot about it and let it set there for 30 years (when hed be roughly 55 years old), any idea what it would be..?
$939,210.43

What if he left it there until he was 60 years old; again, NEVER adding anything else to it beyond that one set of new-car payments. It would be $1,677,496.76

What if we went full-bore nuts and just left it alone until social-security age of 65? $2,996,128.75.

Yes, really. Something as simple as financing one less car in our lifetime makes literally millions of dollars of difference in our net worth.

Going back to the example I started with, of the couple making $54,000 per year and saving just $40 a week... Putting that in the same index fund over the course of their working life from age 25 to 65; it's over two million dollars. Multi-millionaires, by virtue of saving $40 a week.


Yes, Im harping on this. Largely because I didnt have this info until my 40s, and I wish Id had it in my 20s or better yet, my teens.

Last edited by John in AR; 06-29-2016 at 01:42 PM.
 
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Old 06-29-2016, 01:52 PM   #2
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your economics don't affect the nation, but the nations economics can easily ruin yours.
 
Old 06-29-2016, 02:02 PM   #3
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That's what I meant about paying attention and not being blindsided by it. Regardless of whether the nation is booming or in a depression, we're individually better off if we've made constructive monetary choices than if we've made destructive ones.

On cars; the really relevant part starts at around minute-mark 4:30 or so:
 
 
Old 07-13-2016, 02:05 PM   #4
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Had a conversation with a guy recently that made me think of this thread. He was going on about cant get any return on investments with any level of security and such. Complete balderdash imo.

In a 30-second search of Vanguard and Fidelity, I was able to show him something that I thought Id pass on here as well. Nothing earth-shattering, just an example of why its better to actually look into things than to listen to network talking heads and politicians.

About the third mutual fund I looked at showed an 11.66% average return over the last ten years. Worth pointing out that this ten-year period includes the oh my god 2008-2009 meltdowns that (according to the media) were going to end the world as we know it. And it's not some "rich-guy-only" fund set up for only the extremely wealthy; it has a $2500 required investment is all.

Guy had pulled money out during the "great crash" as so many did, took a loss of about $40k (out of $90k) in doing so, and has been fearful and angry ever since. Right now, he's got that $50k sitting in a cd at about 1%, because in his mind "it's safe".

So at this point, due to his reflexive, fearful pullout based on the doomsday hype, hes sitting on about $55k, earning around $550 a year on it. If hed left it alone to just chug along and ignored the doomsayers and emotion-pimps in the media, today hed be sitting on $271k, earning almost $30,000 per year in interest.

The real tear-jerker (beyond even that), is looking at ten years from now. The track hes on, ten years from now hell have right at $61k, and still earning only $600 a year in interest; if hed left it in a plain everyday index fund hed have $816k, and would be making more than $85k ever year in interest. So that fearful, emotional decision is the difference between $61k and $816k (more than three-quarters of a million dollars in net worth), and almost $85,000 interest income for his family, every year, forever.

Point being simply this as with so many things in life, emotion is the enemy. The sky is not falling, and listening to pop media is as unhealthy as watching reality TV shows. Other than using it as a gauge to measure the level of social stupidity, no real good can come of it.
 
Old 07-13-2016, 05:47 PM   #5
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Personal economics comes down to accepting personal responsibility. If you make the effort even on a modest salary you will have something set aside for the future. I have met people that would be happy with the 1% interest, simply because they do not want to take a chance with their financial future. You can't begrudge them their feelings.

Unfortunately there are things that can railroad your best laid plans like, divorce, re-marriage etc. If you do nothing to further your future goals than if you find yourself crying in your beer down the road, don't forget to look into a mirror as you are doing it.
 
Old 07-13-2016, 06:47 PM   #6
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Quote:
Originally Posted by Garand View Post
Personal economics comes down to accepting personal responsibility. If you make the effort even on a modest salary you will have something set aside for the future.
A-friggin-men.

Quote:
Originally Posted by Garand View Post
...I have met people that would be happy with the 1% interest, simply because they do not want to take a chance with their financial future. You can't begrudge them their feelings.
Agree. If someone wants to stay in whatever approach, more power to them. I just got a little annoyed to be honest, listening to the non-stop "no stable chance for a good return" sob story from a grown man. If he wants to stay with just CD's, that's valid; but doing it out of fear while incessantly complaining that there were no good options was what finally got to me.

Quote:
Originally Posted by Garand View Post
...Unfortunately there are things that can railroad your best laid plans like, divorce, re-marriage etc...
Agree again. Don't mean to come across like a know-it-all or televangelist or something; I learned the hard, slow, and stupid way myself. Also major +1 on some things being out of a person's control. In my 40's, I twice went thru corporate buyout/mergers and lost a lot both times. One of them was so bad that 60 Minutes did an entire episode on our CEO. He ended up in prison, but that didn't get my job or pension back. But fact is, if I'd been smarter sooner, those buyouts wouldn't have hit us nearly as hard; my lack of personal initiative when young made it worse than it really needed to be. It usually goes back to the 'personal responsibility' thing again to one degree or another, and my experience wasn't unique or any worse than a lot of other folks.

I figure I've got maybe 15 years or so left for income generation, so I'm very conscious of it now. Even a lab rat eventually learns.
 
Old 07-13-2016, 06:58 PM   #7
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I went through the divorce thing at 42 and circumstances being what they were my ex almost bankrupted both of us. It was a tough 18 years till I retired last year, trying to help out my kids, pay bills, put money aside for the future and still have enough discretionary income to shoot competitively.
 
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