Nov 14, 2019
Well! Hi everyone, and welcome to another wise money tools
video. This is Dan Thompson. Glad you could be with me today. So
today we're gonna talk about what happens if the cost of living
goes up? Well, first off, we got to understand some of the reasons
why the cost of living might go up. A few things can happen because
of recession, it can be inflation, it can actually because of you
know, a dynamic economy for instance housing can go up due to
justice, you know, an economy that's roaring. But let's talk about
the everyday costs such as food, gas, utilities and more of your
minor purchases, if you will. So let's say you make $200,000 a year
and your grocery bill goes up 10% or maybe it costs you $25 more to
fill up your car. Well, that's probably not gonna be that big of a
deal.
You can swallow those extra costs pretty easily, you may go out to
dinner a little less. And maybe cook at home a little more, but
you're probably gonna survive. Now by the way, we talked about the
butterfly effect in the last video. It's just the effect that one
small little thing can have on a and create a devastating effect on
the other end. The analogy is always a butterfly flaps its wings in
Chicago, and a hurricane happens in Tokyo or something like that.
Anyway, let's kind of look at the butterfly effect of one segment
of the economy. Suppose we have an increased cost of goods, and the
cost of living gets a little more expensive. As we progress. And we
feel this cost of goods going up. We felt just a little bit more.
Lots of people that were eating out a few times a week, maybe cut
back a little bit.
Eventually this is gonna have an impact on the restaurants. Right.
Fewer people eating out cost of food rising for the restaurant
owner, then he's got fewer patrons, they're likely gonna have to
cut back on employment. So unemployment rises, then something has
to give on the menu, maybe smaller portions or they have to raise
the cost of each menu item. And on and on and on. You can kind of
see how everything is affected by cost of living going up. And this
is just a miniscule part of the total economy. Anyway, suppose we
have a lower middle class family of for makes $45,000 a year. Well,
currently they pay no federal income tax. They pay seven and a half
percent into a Social Security tax, another seven and a half
percent for Medicare tax. So their take home page week is probably
about 735 $740 a week, or around $3,100 a month.
Now let's just assume their rent or mortgage is in the norm, that's
right now between 30 and 50% of your income. So let's just round it
and say that it's $1,000 a month. That leaves them $2,100 for
living or about $525 a week. Out of that they have to pay
utilities, groceries, clothes, kids activities, some maintenance
and repair, most likely a car payment. I mean, 525 bucks just
doesn't stretch all that far. Now, suppose they've been paying $100
a week for groceries, and $50 a week for gas. Now, maybe another
hundred dollars for utilities, which kind of get the idea. They're
stressed every Penny's accounted for. If you watch my last video
where we talked about the butterfly effect of taxing the wealthy
and the corporations, and what a Medicare for all plan could be. If
one were to get her way and she starts taxing the rich and the
corporations.
It's just a matter of time before the butterfly effect or the
unintended consequences. Cause the cost of things like this family
needs to go up. And as I said earlier, if a family's making
$200,000 a year, and their grocery bill or their gas bill, or the
utilities go up, like 10 or 15 or 20%, it's, you know, they don't
love it, but it's not a big deal, they're gonna survive. However,
our middle class family cost, if they go up 10%, it's gonna put a
lot of pressure on their finances. I mean, they just might not be
able to make it. And to add to that the possibility of getting
their wages cut, or maybe even losing their job completely. See,
this is a real problem for them. So here's the deal. If I were
middle class right now, and I took just five minutes to think
through this butterfly effect. I might conclude that the most
important thing I can do is stay away from getting this free
stuff.
You want to give me free healthcare. But the offset is the economy
suffers, and I may be out of a job. It's just not worth it. You
know, I remember as a teenager, it was late 70s. And Jimmy Carter
was in the presidency, and we got hit with inflation. Now, I grew
up where we were in a very low. I want to say the middle class, but
we were probably in the lower to poor class. Now my parents live
paycheck to paycheck. My dad worked really hard but money was
tight. When gas skyrocketed, and the inflation hit my family. We
struggled. I remember sitting in the car when my mom went to get
gas. There was no such thing as filling up the tank. She'd put in
$3 or $4. I never saw my parents able to fill up the car. We never
got to eat name brand stuff. And this was when off brands were
terrible by the way.
Nowadays, you can go to a store and get an off brand and it's
probably just as good. It's probably even packaged by the same name
brand companies. I remember one thing I love Lucky Charms, there's
no way we could afford them. I need some kind of toasted oats and I
had to eat it with powdered milk. Now that stuff's nasty turns
your, the milk turns blue in your bowl. But I'd have to eat my
cereal half the time with my eyes closed. Anyway, So my parents
took the brunt of inflation in those car years, because they were
the last ones down the line. Bad economies affect the rich for
sure, but they devastate the poor. It's literally stupid to think
that the rich are simply gonna pay for everything. It never has and
never will work.
What they do do is when the economy is going well. They invest and
grow and wages go up and people go to work and even the poor are
raised up. The standard of living goes up for everyone. The poor in
the US live richer lives than the poor in most other countries. I
hate that politicians have created this class envy in this class
warfare. I'd rather inspire young people who are maybe living in
poor lifestyles to make something of themselves. They don't have to
aspire to be these crazy rich people, but how about just self
sustaining and financially free? Okay, so who really gets hurt if
the cost of living goes up, like we've said. If gas goes to $5 a
gallon, will the rich be hurt? They might not like it the ticket
and they're not gonna go broke. If a lower middle class family has
to pay $5 for gas.
Well, this could be a real dilemma for them and could certainly
hurt them financially for sure. So last week, I traveled to
California for some meetings. Now gas is nearly a dollar 50 a
gallon more in California than it is where I live in Boise, Idaho
area. So when would I pay about 40 bucks to fill up my car here? I
was paying nearly $60 in California. And I thought, okay, that's
aggravating, not sure how many of my friends that still live there
can stand it. By the way, I grew up in California, it's changed a
lot since I was there between gas and 100 other taxes, I'd be
really ticked off. And I wonder my why my friends aren't trying to
find a way out of there. Anyway, It's sad because so much of
California is beautiful, but it's been driven into the ground in
many areas by the same policies we're talking about it don't
work.
You want to spread the California way of higher taxes,
homelessness, cost of living throughout you know, the whole state,
you want that to go through our country. Well, if we implement some
of these things that are being talked about, get ready, get your
tent ready. It won't matter where you live. We're all gonna get it
overdose of what's been going on in California for the last number
of years. Anyway, again as I was saying, Who do you think is
affected by that extra dollar 50 gas tax? You think Mark Zuckerberg
of Facebook thinks about the gas tax, or that Sundar at, you know,
the CEO of Google, with his $200 million a year salary. Do you
think he worries about the gas tax? Of course not. The ones who are
affected by the tax of the hard working poor and middle class. The
employee who struggles to make ends meet, the gas tax is supposed
to be used for roads, bridges, etc.
But these people can't afford to drive any further than work in
home. They're not even traveling around using those roads and
bridges. Where you get the idea these taxes and cost of living
increases don't bother the rich. Again, they may be frustrated and
all that but it's the poor middle class are really affected, get
the taxes imposed or often to penalize the rich. They want to make
them pay for their success and their wealth. It every time being
through a slow to economy, unemployment, the higher taxes the ones
who fill up the most of the lower middle class wage earners. Okay.
So what about a market correction or a crash? If we have a
recession and the stock market drops 50%, the rich is certainly
going to feel that pinch, no doubt. It might drive a few that were
wealthy out of business and some of them back to the middle class,
if you will.
However, the middle class workers whose 401k gets cut in half.
Well, that could change their financial future for the worse. If
businesses closed, unemployment goes up, and once again, the rich
might be able to survive. But the poor and the middle class take
the brunt of the economic slump. Suppose a business has 250
employees and it closes. Maybe few of the rich guys get hurt, but
maybe you can go broke. But worse than that there's 250 employees
who no longer have jobs. And sadly, most of those people who don't
have enough money saved, they won't even last 30 days. Now we've
got 250 more people looking for work. Okay, so what about the cost
of living going up? I remember back in the days of Obama, he was
talking about his cap and trade plan. And these are his words. He
said, with my plan of the cap and trade system, electricity rates
would necessarily skyrocket, skyrocket that doesn't mean a small
increase.
That means double, triple, quadruple or even more than what your
current rates are. Think about that. Once again. The rich will
probably be okay paying higher electric bills, but who's gonna fill
it the most? Yeah, the poor and the middle class. As you can see
nearly every policy dreamed up by government to hurt, penalize or
tax the rich will ultimately hurt and penalize the poor and the
middle class. The best way for the middle class to keep moving up
the economic scale is to keep them employed, teach them how to
manage their money stay out of debt. So they're able to save and
invest and finally build a cash account so that they can invest
when markets do make corrections. It's essentially the Buffett
style.
If we let government control the outcomes of success by taxing and
penalizing the wealthy. Trying to level the playing field or giving
away free stuff will end up increasing the cost of living for
everyone. But the unintended consequences are the butterfly effect
would be the poor and middle class would be the losers. Cost of
living is a big deal for most Americans. It won't help at all if
the government gets involved, they just tend to make it worse. So
next time you think about the cost of living or free stuff or the
poor the middle class, or like getting free education or free
health care, there's no free lunch, it's gonna trickle down. If
you're going to tax the rich, the consequences will be born at the
end of the row.
You can take a snapshot of what can possibly happen by looking at
Venezuela. Some say that's an extreme example. It might be, but the
poor are more poor than ever there. Somehow we've got to teach
these simple principles to our young people in high schools and
certainly in college, because the way we're going is gonna be a
disaster. Ah! alright, well that's it for this video. Any
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