tim_dilleyBy Timothy M. Dilley, CPA, Wenatchee Certified Public Accountant

Where does your money go? If you find yourself asking that question from time to time, it may relate to cash flow within your household. Having a cash flow management system may be instrumental in restoring some financial control.

If you find yourself too often living on margin (i.e., charging everything) and too infrequently with adequate cash in hand, you aren’t the only household feeling that way. Some major economic trends really have made it more challenging for households with mid-five-figure incomes.

By many economic standards, today’s middle class has it harder than the middle class of generations past. Some telling statistics point to this…

  • In 81% of U.S. counties, the median income is lower today than it was in 1999. Even though we are in a recovery, much of the job growth in the past few years has occurred within the service and retail sectors. (The average full-time U.S. retail worker earns less than $25,000 annually.)
  • Between 1989 and 2014, the American economy grew by 83% (adjusting for inflation) with no real wage growth for middle-class households.
  • In the early 1960s, General Motors was America’s largest employer. Its average full-time worker at that time earned the (inflation-adjusted) equivalent of $50 an hour, plus benefits. Wal-Mart now has America’s largest workforce; it pays its average sales associate less than $10 per hour, sometimes without benefits.1,2  

Essentially, the middle class must manage to do more with less – less inflation-adjusted income, that is.  

Much has been written about the growing “wealth gap” in the U.S., and that gap is very real. Less covered, but just as real, is an Achilles-heel financial habit injuring middle-class stability: a growing reliance on expensive money. As Money-Zine.com noted not long ago, U.S. consumer debt amounted to 7.3% of average household income in 1980 but 13.4% of average household income in 2013.3

So how can you make life more affordable? Budgeting is an important step. It promotes reliance on cash instead of plastic. It defines expenses, underlining where your money goes (and where it shouldn’t be going). It clears up what is hazy about your finances. It demonstrates that you can be in command of your money, rather than letting your money command you.

Budget for that vacation. Save up for it by spending much less on the “optionals”: coffee, cable, eating out.

Buy the right kind of car & do your cash flow a favor. Many middle-class families yearn to buy a new car (a depreciating asset) or lease a new car. The better option is to buy a lightly used car and drive it for several years, maybe even a decade. Unglamorous? Maybe, but it should leave you less indebted

Plan to set some cash aside for an emergency fund. According to a recent Bankrate survey, about a quarter of U.S. households lack one. Imagine how much better you would feel knowing you have the equivalent of a few months of expenses in reserve in case of a crisis. The key is to recognize that a crisis will come someday; none of us are fully shielded from the whims of fate.3  

Budgeting for the future is also important. A recent Gallup poll found that about 20% of Americans have no retirement savings. You have to wonder: how many of these people might have accumulated a nest egg over the years by steadily directing just $50 or $100 a month into a retirement plan? Budgeting just a little at a time toward that very important priority could promote profound growth of retirement savings thanks to investment yields and tax deferral. 3

Turning to the financial professional you know and trust for input may help you to develop a better budgeting process – and beyond the present, the saving and investing you do today and tomorrow may help you to one day become the (multi-)millionaire next door.

Tim Dilley is a Certified Public Accountant with Cordell, Neher & Company, PLLC, a Wenatchee public accounting firm.  

Securities offered through 1st Global Capital Corp., Member FINRA/SIPC. Investment advisory services offered through 1st Global Advisors, Inc.

Citations.

1 – washingtonpost.com/sf/business/2014/12/12/why-americas-middle-class-is-lost/ [12/12/14]

2 – tinyurl.com/knr3e78 [11/27/12]

3 – wallstcheatsheet.com/personal-finance/7-things-the-middle-class-cant-afford-anymore.html/?a=viewall [12/15/14]

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