Listening to lies, making plans.

As I’ve mentioned before we no longer have a television. We also don’t have internet access at home (a cost save), so our only source of reasonably up to date news is the radio. The station in our area that has the most regular news programming (all news) is National Public Radio. Or as we call it, NPO, because it generally P’s me O. This morning, for example, we listened to a report about food prices. The “correspondent”, or what I consider “propaganda drone”, said that families really should be barely affected by the commodity price ramp because:

1. Food is only about 10% of a family’s monthly budget.

2. Agricultural commodities only account for about 17% of the cost of the food that people actually buy.

3. The commodity increases are “only” about 50%.

The actual facts point by point now:

1. For the bottom 40% of the families out there, food is a much larger portion of their monthly budget. And many just can’t afford it, why else would there be over 40 million families on food stamps?

2. When you’re trying to save money, you don’t buy processed foods any more than absolutely necessary. On top of that, many producers were locked into contracts at pre-ramp prices. When those contracts expire, look out. Last week I called a farmer looking for feeder hogs. I’ve previously been able to purchase them for between $30 and $50. His price this year is $125. When I asked why he gave me two reasons: 1 - feed prices have doubled and 2 – most small producers have gotten out of the hog business, he wishes he had. To raise a hog to market weight, I would need to buy 1250 lbs of feed at a cost of about $250 unless I can grow my own or get some for free. Including bargain rate butchering that puts the actual pork cost at about $3.50 per lb. That includes no labor cost, no housing cost, no fencing cost, just the pig and its feed. The point is: you aren’t seeing the price ramp yet, but you will.

3. I live in a rural community and talk with farmers. Just the other week one farmer told me that he was glad that he has some on farm storage so he can sell his corn at today’s price. Last summer he pre-sold quite a bit of his crop under contract at about $3 per bushel. He’s now getting over $6 per bushel. Folks, that’s a 100% price increase.

In another story from NPO news, part of Obamacare requires that insurers cover anyone who applies regardless of pre-existing conditions. So in Michigan there’s now a “pre-existing condition” pool for health insurance where individuals with pre-existing conditions can buy health insurance for a mere monthly cost of $125 to $650. The clowns at NPR and the administrator of the pool can’t figure out why so few people have signed up. They said this morning that “people must just be put off by the price”. How blind can you be? The answer is as plain as the nose on your face: people just can’t afford it. They don’t have the money, plain a simple. If they did have that kind of spare cash lying around every month, do you think we’d be in the debt crisis that we’re in?

The lies in the news are calculated to make you feel as if you’re alone. If nobody else has these issues, then maybe it’s just you. Guess what? You’re not alone. On the order of half the population has these very same issues. You are being lied to while you’re being screwed over. Again. You need to make some plans.

OK, let’s say that you’re unemployed. As I’ve said before, you’ve got plenty of good company. Be comfortable in that fact and be realistic about your outlook. Be confident that you will find a way to survive. The first thing you’ll need to do is some planning. Make a budget right now listing all of your expenses and all of your income. Don’t include your savings in this budget because you’ll need them. For income include any jobs you and your spouse might have. Don’t include unemployment benefits because they won’t be available long term. Don’t include jobs that you might get or hope to get. If you have a job offer outstanding, great, but don’t base your budget on that because it might not work out.

Once you have all your expenses and income listed, total them and calculate the percentage of your total income for each expense. If your total expenses are less than your total income, celebrate, then work on your budget some more. All of your sources of income might not last in the long term. Next you need to re-arrange your list with the highest expense first and lowest expense last. Sometimes you can see the relationships better with a bar chart. Then you should have a pretty easy time prioritizing your cost reductions by attacking the highest expense until it’s not the highest anymore, then working on the new highest expense. Keep going on the cost reductions, you’ll benefit in the long run. This is known as a Pareto analysis.

For example, let’s look at a fictitious family, the main breadwinner is out of work but they do have a little steady income. As I’ve discussed in the last couple of posts, the breadwinner’s job is most likely lost and gone forever, dreadful sorry, Clementine.



Now this family is clearly in a very bad way, they’re going to have to do something drastic and soon. Remember, the main breadwinner may be getting unemployment benefits, but we’re not counting that because such benefits are strictly a bridge until the breadwinner can start a new life. Expressing the same information as a bar chart:





Right away we can see that there are several huge issues with this family’s budget. Income is going to have to go up somehow, so they’d both better be looking. The mortgage payment and credit card payments have to go away and basic living expenses have to come down to something much cheaper. They might want to talk with a bankruptcy attorney really soon. Of course children eat a tremendous amount of food, so they’ll need to find a more cost effective way of feeding them than buying so many groceries. But you do need food, clean water, shelter, and companionship to survive. Some kind of income has to be found and soon. Let’s say they find a way to eliminate the mortgage and credit card payments then find a place to rent for the cost of the property taxes. Probably someplace owned by the family, because they’ll need to grow their own food to cut the costs of survival, and $300 per month is incredibly cheap for rent. Let’s say $200 per month for food at the most.

Now here’s the new budget and bar chart:






At least there’s no single expense category that exceeds their income, but they’re still in trouble because the total expenses are just under three times their total income. By the way, they got rid of the house insurance when they unloaded the house. Like most families, they have two cars. Parking one cuts the fuel and auto insurance in half. What was that about every child is entitled to a free education? And that electric bill needs to go down, down, down. They need to figure out how to cut it by 75% right away. And $74 per month for a phone? Get rid of the land line and use a prepaid cell phone, but limit yourself to a $20 card per month.

Let’s see how it looks:





Now the budget picture is a lot better, they’re still in trouble but they only have to find about $300 per month disposable income to make ends meet. Maybe more, gasoline is up around $3.40 per gallon now and $42 per month for car insurance is a joke, even if you’re an old guy like me. Still, a part time job or two should do the trick and if they can manage to save a little they might someday be able to afford a small plot of land someplace. Let’s hope nobody gets sick, but that’s another story.

Just for fun, let’s look at the budget in terms of expenses as a percentage of total expense:



Golly, food is just short of 30% of their monthly expenses. As you can see, not only are you not alone but there are probably others in worse shape. In order to manage you need a good plan and you need help anywhere you can get it. I would not expect you to be able to manage alone, we sure haven’t. Of course achieving these goals will be an incredible amount of work and sacrifice, but I have to ask what the alternatives might be.

Here are some afterthoughts. This family shouldn’t be satisfied with this budget. The more they are able to trim from their expenses, the better placed they will be financially in the long run. For instance, if they could eliminate their remaining vehicle they would be able to save even more. Notice that maintenance isn’t in this budget. A really cheap new set of tires will cost nearly $400 and they’ll need them eventually. If they do manage to increase their income to near their old fully employed level they should continue the strict cost management. Again, they’ll be far better off in the future than if they revert to their old free-spending ways.