The Expert Podcast

How bad is inflation and how is it affecting the economy? Well here's an article from CNBC where 58% of Americans are living paycheck to paycheck and 30 percent of people earning a quarter million dollars or more are living paycheck to paycheck. What does that mean? There's there's a lot more to this besides just what's on the surface. None of these people are homeless they're not starving in the streets they're not going bankrupt but they're living paycheck to paycheck they're paying their bills and they're getting by but they're not doing anything more than that.

Even though on the surface it may seem like the life of a person living paycheck to paycheck is exactly the same as it was four or five years ago when they had a little money left over but there's a big difference in life and in the future economy when there's no reserves and no excess capital. Here's how that's going to affect the future first any discretionary spending is going to go away things like getting your nails done maybe adding accessories to your car maybe purchasing new clothes going out to eat going to concerts these things are the first ones to go away.

So if you're in a business where you're the last dollar spent you need to pay attention to that if your nail salon if you're a non-essential life need for a family you might want to pay attention to where's your money coming from because if somebody has X amount of dollars to spend every month and they have to cut back where are they going to cut back first obviously they need to buy food gas for the car those kind of things but what are they going to cut first if you're the last dollar out you're going to be the first dollar that they keep right the first dollar that they eliminate from their budget.

So whatever business you're in whether you're business owner or you're an employee you need to look to see if you're the last dollar out for consumers because people are living paycheck to paycheck and every time inflation goes up a little bit whether it's gas prices groceries other things will start to have an effect like insurance you know if inflation goes up for materials homeowners insurance car insurance rates will go up because they have to pay higher amounts in claims as those go up that's going to be more dollars taking from family budgets.

So if the fuel price for putting gas in your car used to be $200 a month and now it's $240 a month that $40 dollars is gonna come from somewhere it might be well I'm not gonna get my nails done I'm not gonna get my hair done I won't go to the barber shop I'll cut my own hair maybe you know I won't go out to eat those are the things that get cut first because you have to put gas in your car you still have to buy food but even with food you may not buy the same things at the grocery store you may cut back.

So if you're in a business that provides those extra luxury items even if you don't own the business you need to pay attention because you may have cutbacks at your job in fact we're already starting to see layoffs in fact some companies in high leveraged and high discretionary businesses are even rescinding job offers for people that they already offered a job to because they don't need the people anymore.

Let's look a little deeper at the numbers first consumers are struggling to afford day-to-day lifestyle and relying more on credit cards and carry higher balances this is a problem because if you're living paycheck to paycheck but at least you're not going into debt if and when the economy does improve incomes go up maybe inflation slows down you have now that extra money that you can put back into discretionary items immediately if you have debt that's accumulated you can't go back to those extra expenses right away you have to pay that debt down first.

So let's say for example you have a monthly budget of $700 a month for extra stuff eating out hair nails buying a couple extra things for your car whatever and now all of a sudden inflation goes up and takes away $500 of that your fuel prices went up your groceries went up insurance went up maybe your rent went up and now you only have $200 a month well if you spend that $200 a month and now you have an expense your transmission blows on your car you have some type of medical emergency well now you have to go into debt and then a year from now you're gonna have a thousand or fifteen hundred dollars on your credit card that's gonna be an extra seventy eighty dollars a month for minimum payment so it's kind of a deep spiral of debt.

This is a big deal 58% living paycheck to paycheck even high income earners 30 percent of people making high incomes are also not having any extra money left over how is this affecting you can you relate to this do you see this happening in your life and if you are working in an industry that deals with a lot of discretionary income maybe you're wait staff in a restaurant maybe in the travel industry are you seeing pullbacks already that's affecting your company or your employment?