Not a day goes by that we’re not hit with another depressing statistic. The median income of the average American is down. Americans save less than any other industrialized nation. Everything costs more while everyone is making less.

Is it any wonder that people are walking around in a “funk?” It’s like trying to walk up an escalator that’s going down. One step forward, two steps back. The rich and famous are lucky, or they inherited their wealth, or they got all the breaks. Everyone knows that all those corporate profits, that benefit the rich, come from those that can least afford it. Oh, I’ve heard all the excuses, and probably used them all, from time to time in my life. There is always a good excuse for why someone else is doing better.

Exactly how, in the most prosperous nation in the world, did America move from a single earner supporting a family, to both family members working multiple jobs, only to end up working paycheck to paycheck? One reason is the introduction of easy credit at the lowest income levels. In the 1960’s, credit card companies mailed out millions of free credit cards. Most people, who received these cards, saw them as, “free money.” Americans no longer had to save and budget for the things they saw in the shop window. We moved from a population of savers and budgeters to a society of “play now; pay later.”

Enter Keynesian Economics

Keynesian economics says, “Saving is bad; Spending is good.” This economic theory is named after John Maynard Keynes. Keynes believed that if people saved, it took money out of the system and that would reduce the number of purchases consumers made. The result of this reduced spending would produce fewer customers, buying fewer goods, leading to reduced inventories, reduced profits and layoff of employees. On the surface it would seem to make sense. Here’s the problem.

Wouldn’t the same exact thing happen, if customers spent every dime they made — as most of us are doing now? A consumer, living paycheck to paycheck, can’t afford more gas, groceries, clothing, etc. When you have the vast majority of people living in these circumstances, you’re poised on the cliff. All it takes is a small push, like the subprime housing crisis, to send unemployment up and move the country into recession — even with 92% of consumers employed.

The extra jobs needed, to fuel the Keynesian “buying frenzy” theory, and to keep the economy solvent, vanish, like a puff of smoke without savings. There is no “safety net” for individual consumers to access that will offset their circumstances. And that is exactly where most American’s find themselves today. And, to make matters worse, government uses this exact theory to try to “buy” its way out of our current economic woes.

A “New Theory”

Unlike governments, most people know it’s smart to live within their means. However, most people have no clue about how to even begin a workable saving program. Budget’s are like diets. We all start out with good intentions, but over time, we revert back to those old habits that caused the problem in the first place. When you are living paycheck to paycheck, it’s hard to see anywhere to cut. Every dime coming in, is going right back out.

Cost Cutters

Start writing down everything you spend. Carry a 3x4 index card with you and write down all expenses for that day. Get a handle on exactly were your money is going. Most of us waste at least 10% or more of every dollar that comes in.

Here are some of my favorite cost cutters that don’t reduce your standard of living.

  1. Food Costs: Coupons, coupons, coupons, – Every Wednesday the newspaper is full of great buys on food. Plan your menus around those things that are on sale that week. Most of us throw away about 25% of everything we prepare. Make less; eat less. Eating healthy doesn’t have to be expensive — buy smarter.
  2. Mortgage Payments: If your lender will allow you to make just one extra payment per year you can cut ten years off a 30-year mortgage. Plus you will also save a bundle of interest over the life of the loan.
  3. Credit Cards: Transfer balances from high interest cards to lower interest ones. Switching from an 18% interest card to a 9% interest card will allow you to make the same minimum payment you were making on the higher interest card and you will pay the new card off without affecting your current income or standard of living.
  4. Pay More Whenever Possible: A $9,000 credit card balance could be paid off in 5 years by paying just 1/3 more than the minimum payment. To put that in perspective, a balance of $3,500 would still be there after 5 years, if you were just making the minimum payment.
  5. Investments: If your investments are making less than 18%, and you can’t transfer your credit card balances, think about selling your investment and putting that money towards retiring debt. That will free up money that was costing you 18%, and put it back to work earning a positive return.

Some Final Thoughts

Have a plan. I set up an automatic 10% transfer from checking to savings each month. I don’t have to make that decision every time money shows up. Every dollar you can reduce in debt is like getting a raise.

Set a goal to start retiring some debt this month. Pick one and go to work on it. Credit card, past due hospital bill, anything that will put more money in your pocket.

There’s a saying in the diet industry, “Nothing tastes as good and thin feels.” Well I can tell you from firsthand experience that, “Nothing feels as good as being debt free feels.”

More From KMMS-KPRK 1450 AM