Inflation – A Concept Most Don’t Understand

INFLATION – A REALITY & CONCEPT MOST DON”T GET OR UNDERSTAND

Inflation is political speak.  Its an economical term and its a business expression. No matter who talks about it, its worse than the boogeyman.  So what is it really?  Its complex, and I am no economist, but let me give you my personal scenario.

I am self employed.  I am not entitled to unemployment. I go out and photograph a wedding and hopefully am paid for it within 30 days after I have spent money on memory cards and hard drive storage (there is no more film or developing for the most part) and I also spend money on gas, dry cleaning, tolls and batteries.  I have not raised my prices nor have the studios allowed me for the past 7 years. Yes, its scary.  Gas prices have increased, tolls have been raised, the price of batteries and dry cleaning has gone up, but I am still willing to work for the same price in 2006 as I will in 2013.  Why? Well, I really have no choice, I keep my rates the same, or they hire someone else. Sure that person might be inferior in skills, equipment and experience, but in the end, the $100 they save, if there is a problem, they are willing to give back in product or service which costs them a fraction of the money the saved by not using the best person.  Here would be an example:  The videographer did not do a good job.  The answer from the studio is; we will upgrade your video to bluray at no charge and give you an extra set of prints and/or enlarged image — any of those are $150 or less, and justifies using a lower-end skilled professional.  Sad as it may seem, its business.

Back to inflation, what is it and how does it effect you or me?  Well, as stated, let’s just work in round, insignificant or relative number.  Let’s say I am charging $500 to videotape or photograph every wedding.  Let’s say I am busy and I work every weekend, so I have 4 weddings each month.  Before I show up on any job, I am already out the price of dry cleaning, tolls, gas, batteries, videotape and/or hard drive space and memory chips.  Let’s just say that is about $50.  At the end of the month, $200 in out of pocket expenses are gone, already spent before I even arrive at the wedding.  So the income of $1,000 is actually $800 now.  With that, one needs to pay rent, buy groceries, pay for electric/heating, and even maybe spend a day at the beach or the movies, and if you live in this area we know a family of 4 is not walking away from anything less than $100.  But “luxuries” like this we can put aside.

If the government raises taxes, we have less income to live on.  If we have less income to live on, but are living paycheck to paycheck (meaning that once a bill comes in, you pay for it instantly, you are broke and waiting for the next payday or check to come in to pay the next set of bills).  So, that means one of two things.  No more morning cup of coffee, no more eating out, and having to work twice as hard, and probably no night out at the movies or weekend at the beach, or the second option, it goes on a credit card at 15-25% — not much of an option really.  The more debt we incur, the more we have to work, often twice as hard just to keep up with the interest rate.  So, its no wonder how inflation is a real demon.  Gas prices go up, price of food goes up to transport that food to the supermarkets.  Food prices go up, less money for leisure activities like the beach, movies, even television, cellular or subscription services like news, movie channels, etc.

Let me give you a good example.  I paid off my car loan a year ago. I love my car, I don’t want a new one.  So here I am thinking I am saving $5,000/year by not having to pay a car loan.  I should be fine right?  Not actually, because now that steak I wanted for dinner that was $5, is now $7.  That tank of gas to get to work was $35, its not $55.  To cross that toll road was $3 or even $11 to cross a bride or tunnel, is now $5-15.  I have not raised my prices in 7 years.  Yet, simple expenses have nearly doubled.  How am I to survive without charging more?  I guess I can put gas and food on a credit card, but I will become bankrupt at some point in time if I live beyond my income.  But you know, I am saving what little credit I have for emergencies like when a camera breaks.  A new camera is $2-5k.  A repair cost at least $1,000.  Let’s add in healthcare, heating, electric and just common items like soap, paper, even vegetables.  Its easy to see how someone who was living “ok” in 2007 is today in 2012 struggling just to survive and pay bills.

That is what inflation is.  Increased cost of living, goods, commodities, and even taxes, which results in less income which means cutbacks in standard of living.  I agree, each person does not need to have 2 cellphones, 2 magazine subscriptions or some sort of delivery service, but you can keep cutting back to a point where there is nothing left to cut back.  Ok, no New York Times delivery.  Cutting out a secondary phone line.  Dining out or going to the movies once a week to once a month.  Yes, we can do that, but at what point do we stop living and enjoying in order to have just a splash of pleasure and enjoyment in our lives once a week or once a month or vacation once a year?

SO now the good news. In New Jersey the new minimum wage is $8.50. Which means, that you can get a job at any fast food restaurant either emptying garbage, or sweeping floors or even working the fry or beverage station.  That means each month you can walk away with nearly $1,300 (consider government taxes, unemployment, etc).  Last time I checked, rent started at $900 for one room, one bedroom in a decent area.  Got a car loan?  If its a cheap car, another $200 spent.  That leaves you with $300 for food, groceries, gas and entertainment, which is roughly $75 each week.  That means that you are filling your tank for just enough to get to work, spending $40 on going out to a chain or franchise restaurant at best once a week.  And the “extra” $10 is for coffee, or groceries, and if you are Italian or Spanish, you really know how to stretch that $10 for pasta, rice, beans soups, etc.  If you are not so lucky to have a strong ethnic background and can’t cook, you are in big trouble with the price of frozen, processed and prepared meals.  Its literally cheaper to go out to eat.  This minimum wage is great for teenagers and college kids.  $1300 each month means always a full tank of gas, (if you are local and its only $100/month); money for breakfast, lunch and dinner and cup of coffee every day, but do the math.  $6 for breakfast, $7 for lunch, $12 for dinner over 30 days is $750 if you are single.  Think twice about that coca-cola or mocha cappuccino. And if you get a girlfriend, add $100 per month just to take her out to dinner or a movie once a week. Assuming you have $300/month at the end of each month and you skip spring break and work, You’ve banked $3,000 at the end of the year.  Not too bad, when you finally get out of college, you’ve saved enough for a good used car or have enough money or living expenses for a year if you have room mates while looking for a job.  But let’s face it, $8.50 minimum wage does very little for anyone who is not living at home and/or in college and subsidized by their parents.  This is only an “ok” situation for those in highschool or college who actually have 40 hours each week to spend time away from studying, classes, tests, exams, and most important, friends.  Let’s face it, All work and no play make Johnny a dull boy and all work and no play make Johnny a dull poet.  A life without living is no life at all, and even if someone like this becomes the worlds next greatest corporate CEO, its never going to be about happiness and his family, should it ever come, will suffer.  Because for someone like this, its being slave to the machine.  It does not matter if its $8.50/hour or $85/million per year, its a sad life.  I would even imagine that the kid making minimum wage is having a far better time in the summer at the beach or shore than the millionaire who only gets to go out on the yacht once a month for a day or two.

Let’s face it, not to be all gloom and doom but you have to pick your poison.  Do you want a fancy new car to impress women, or do you want a used car so you can actually not have to work as hard and have weekends off to go out with your girlfriend?  Do you want a house with a small monthly mortgage thats all yours which would attract women, or do you want a fancy apartment in the city with 3 other roommates that throw great parties?  Neither one is bad, you just have to decide.  Do you want money to go to Miami and party for a week, or do you want money to go to Paris, Rome or Rio for 2 weeks?  Again, make a decision, but most of us are all slaves in the end, and it is always to money.  Just decide which slave you want to be on your own terms.  Don’t wait for the government to improve your situation, or even the local power company.  Even if we end the wars and bring all the troops home, we still have to provide for them (as we should), and any money we do save will only go to reduce the $17 trillion dollar deficit, and at that rate, you won’t see any of it soon.  So, contain yourself, work hard, save hard, spend wisely, but enjoy what you can within reason.

Don’t complain or bitch about the president or the congress or the democrats or the republicans.  As Al Pacino once said in the character of Michael Corleone “we are all members of the same hypocrisy”- and that is true, we are, no matter which side you are on.  So, build your bank account at home on your needs and what is important to you.  And, compensate for the evils like a flat tire, car repair, medical bill or even a blessing of a wife, wedding and child.  But never think its the government who is going to look out for you or help you.  Even their price, at best, comes at a price.  A prime example would be the Student Loan.  My father came from the depression and knew better than to borrow money.  He went to night school for 12 hears until he earned his PhD and then founds himself as an engineer at an aerospace company that put a man on the moon.  He didn’t take a loan and accomplish the education in 4 years, but when he accomplished it in 12 years of night school while still working hard during the day, when his time arrived, it was all his money, and not the government’s with interest included.

Summary:
1) Increase your prices, even if its only $25/project, event or service each year.  In 4 years, the increase will serve you well, better than if you just bit the bullet and then decided after 7 years you decided to increase your package cost $100 all at once.  That is not going to work and I learned that the hard way.

2) When Invoicing list reasonable expenses separately, so your clients, customers and people you subcontract for understand the reality of out of pocket expenses.

3) Save everywhere and anywhere you can.  Rainy days are coming, and you will get far more pleasure of $1,000 in savings when you need it most than 300 cups of coffee or soda.

4) Food and gas prices will always increase.  So learn how to cook, learn how to stretch your food dollars, substitute more pasta, rice or beans and make meat a nice addition, not the main course.  Better yet, learn to grow a small garden if you can.  Its the gift that keep on giving.

5)  Its important to be charitable and give back, but don’t give more than you can afford.  My mother died of cancer around Christmas time, so when I get a call from people at Christmas asking for a donation, I tell them, I’ve given in the past, I am out of work now, so while I appreciate your effort, I can’t give you money when I don’t have a job. — its that simple (if its the truth of course).  And for me it is. With all the holiday gift buying and giving, who has money to give to a charity which may or may not use 75% of it or more toward actually helping those in need?  IN this case you are far better off volunteering your time in a soup kitchen or donating old clothes and dishes.

I could list a few more, but you get the idea (I hope).  Bottom line, at this point in time and the economy, we have to work twice as hard for less than half the money, so be frugal, don’t waste, maximize what you can, and realize, all of this is in your hands, not the government’s.  Don’t worry, they will always get their share, just make sure you get yours by not spending foolishly on extra TVs, gadgets, new cars every 3 years, etc.

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