For me the last day of the year is a day to take stock of my financial universe. If I wasn’t feeling the pain of most middle income Americans before, after I got through looking at the details of my family’s personal situation I do now. Our upper middle class family is being squeezed too. I feel fortunate that so far, while we have coped rather well. Yet we are being squeezed nonetheless. So are you. Now I have all the proof I need: my income vs. expenses reports churned out by my Quicken financial software.
2005 is the first year since the 1980s that my family has had less income than the previous year. This is due entirely to my wife losing her IT Help Desk job a year ago. She did not find another job in her field until a couple months ago. Where she used to work full time, she is now working part time. She now makes a fraction of her former wages and at least one third less per hour than her old job. In her last job, she had a 401-K and access to health insurance. In her new job, being a part timer, she has neither.
The good news is that she is really enjoying the job. The bad news is that with substantially less income than we had in 2004, we are not living quite as we used to. Granted, we are not eating dog food, but the fact that this is happening at all to my family when we have known nearly twenty years of steady income growth is disquieting.
In 2004 when we were flush, we spent over $6K so my wife could get elective surgery. In 2005, this is totally out of the question. In addition to elective surgery, we have cut back on other medical expenses. We are not getting the level of mental health care we got in 2004. Our insurance is reasonably generous with mental health benefits, and allows up to 26 sessions per year with co-pay. In 2005, these benefits were exhausted by July. We could have paid $150 a visit out of pocket for the rest of the year, but that is $3900. Ouch. In 2006, we will hope that our mental health benefits stay the same. Unless my wife makes a lot more money, although members may need weekly visits it will mean biweekly visits.
I bet that most of you are going through similar experiences. The Bush Administration talks about how wonderful the economy is. Consumer confidence, having tanked earlier in the year, is now rising again. I do not give too much credence to those numbers. I know that in the real America of 2005 things are different. If your family’s fortunes increased during 2005, consider yourself lucky: you are bucking a general trend. I hope your luck continues. My experience and the experience of many others of us suggest you are likely living on borrowed time. Most of the rest of us downsizing our lives. In my case, the downsizing is so far relatively modest, but it is still a bit scary. If my family’s downsizing continues for a few more years, our choices will get increasingly troubling.
Here is the reality for this upper middle class household. Things cost much more than are stated in the inflation numbers. Even though I am fortunate enough to have an existing locked in mortgage, my property taxes are rising. Ours are up about $500 from last year. This means that my monthly mortgage payments are also going up. Other big-ticket items going up: health insurance is up $400 compared to 2004. Copays for medicines: up $300. These three items alone add up to $1200 more money I had to pay in 2005, and with markedly less income. I do not track gasoline as a separate expense, but if I did, I am sure it would amount to at least a couple hundred dollars more a year.
Then there are the nickel and dime things that when totaled amount to real money: cable TV, auto insurance, homeowner’s insurance, association fees and electricity. Except for the cable TV, none of these are services that we can really do without. To compensate we have cut cash expenditures, charitable giving, dining out, entertainment, food (we are eating plainer), and gifts (nearly in half).
When we can, we are also deferring big expenses. We are less likely to engage in project like replacing the roof. Fortunately, before my wife lost her job we had finished all the costly home repair projects. My priorities are to keep a roof over our heads, put as much money as I possibly can into retirement accounts and keep contributing to my daughter’s college education fund. On the latter by May with virtually no income coming in from my wife, we cut our contributions to our daughter’s college fund from $400 to $200 a month. You can only pinch a nickel so far when you are living on one income.
Speaking of investments, I am really disappointed by how mine are doing. I bet you are too. Mine are nothing fancy: mutual funds that tend to track indexes. My USAA Income fund, which I purchased for low risk and started buying in 2002, has had essentially flat performance. Now it is worth about $120 less than what I paid for it. I am losing money on it, although the amount is small compared to the total investment. My USAA S&P 500 fund, which went gangbusters when Clinton was in office and the tech boom was hot, followed the very flat stock market since Bush took office. My total gain is 9.2% or about 1% a year, much of it realized before Bush took office!
These funds are set aside for our daughter’s education. I followed what I thought was sound financial advice at the time. Over seven years I expected some return on my investment that exceeded inflation. However, our non-indexed fund did much worse. Our USAA Growth Fund has lost 26% of its value since we began purchasing shares in 1996.
What a fool I was. I was taking mainstream actions, just like you I bet, and we still got screwed. I feel that we have been taken to the cleaners by the Bush Administration. No wonder Bush’s attempts to privatize Social Security fell flat with the public. Americans simply had to look at their portfolios and realize, “We sure don’t need more of this!” Bush may be good for his big business cronies, but he is not good for the average investor who will need the money they are so diligently and painfully saving. Business taxes and capital gains may have been cut, but it has not resulting in any more wealth for me because I am not realizing any gains! The only good thing about selling a fund is that since I am losing money on it, I can take it as a deduction on my tax returns.
So just how is Bush really good for business? The reality is that stock prices have been flat. If a company has profits, they are more likely to use it to buy back their own stock instead of passing the profits on to shareholders. As The Washington Post reported this week, it is not translating into increased share prices, as it has in the past. It does however give the company more clout over its own future, and shareholders less.
I am no longer fooled. Don’t you be fooled any longer either. The Bush Administration and our Republican Congress have proven over five years that they are bad for your bottom line. Just run your family’s financial numbers as I did. I bet you see a similar trend. Bush and his Republican cohorts in Congress are systematically and very deliberately stealing wealth from all but the richest of us. If they continue with their reckless foolishness, we will be back to a society of rich and poor, with no one in the middle. As long as this crew remains in charge, you can expect the trend to exacerbate.
With the New Year comes mid term elections in November. If you are planning to vote your economic interests, you would do well to send as many of Republicans as possible in Congress packing.