In stunning reports the U.S. Bureau of Economic Analysis reported consumer spending dropped 6.9% in March and a staggering 13.6% in April. Both of these drops are the largest on record.
Closer to home, an analysis of the Kesler family spending showed record drops of 13% and 25% in the past two months, respectively. I can only imagine how much belt tightening has occurred in those less fortunate who suffered loss of income.
What a nightmare. All of life is in disruption right now.
My wife and I are expecting a new grandson this summer and our kids are coming up with some timely but funny suggestions for names including, Quarantino and Covid. Nothing, it appears, is unaffected by the pandemic and the growing social unrest.
Silver Linings to the Crisis
But such radical disruption also comes with some silver linings.
Many commuters, for example, have discovered it is possible to work from home. One friend of mine who works for a large mutual fund company said the transformation took one week. First, management said there was no way to allow front line client service reps to work from home because of the security required. Within one week, however, there were new processes in place that allowed these same employees to work efficiently at home. Amazing how a crisis can open up new possibilities.
But what about in the area of personal finance? What are the silver linings for each of us who want to manage our money in a way that supports our purpose in life? Let’s look at three areas.
Evaluate what you didn’t miss
Evaluate where the drop in spending has come from and what the impact on your happiness has been in those areas. There is a lot of research that suggests money does bring happiness when you go from poverty to being able to buy necessities. However, because we adapt to new levels of lifestyle quickly, the research seems to suggest that there is a level of income where our happiness maxes out. I’ve seen this number estimated to be in the $75,000 to $100,000 range. Beyond that level, incremental dollars and the spending that comes with it don’t seem to add to our happiness.
As I’ve thought about my spending, I know that we quit going to movies and restaurants. There was definitely an adjustment. But over the two to three months of doing without, I came to realize that these two areas do not impact on my family’s happiness like I would have guessed. Our dine at home with a special dinner and a Netflix movie became something we looked forward to.
Or, take our clothing budget. It went to $2.00 last month as I had to have some shoelaces. But did that lack of a new outfit hurt our happiness as a couple? Not in the slightest.
Evaluate what you do want to invest in when things normalize
Travel. Being semi-retired I have the freedom to travel. In fact, travel has become our biggest budget item of late. And it’s not that our happiness is impacted dramatically by the lost trip to paradise, although that’s something we do enjoy. Rather, the big hit to our happiness, and even purpose in life, in this season is the inability to see our kids and grandchildren in other states.
Zoom and FaceTime are great for chatting and keeping up, but they are ultimately poor substitutes for the in-person visits. I’ve never regretted those travel dollars being spent on the chance to have more family time and the lockdown has only reinforced the value of this expense.
Think about your purchases as expending your life energy
My favorite personal finance book is “Your Money or Your Life.” One of the wonderful exercises the authors take readers through is to evaluate how much their life energy is worth. In other words, figure out how much you are being paid per hour in your job. Take that number with you when you go shopping. As you evaluate that $200 watch for sale, divide that $200 by the value of your life energy. Let’s say $20 an hour. That means the question for you is not whether the watch is worth $200, but is it worth 10 hours of your life energy. Training our minds to think like this greatly reduces our frivolous purchases and actually leads to a more meaningful and intentional life.
These are challenging times, but also exciting times to reevaluate our lives and be open to making the changes necessary to thrive in the new world we find ourselves in. I hope you’ll take some time to reflect on what the lessons have been for you! If you have some, I’d love to hear from you!
The cutback in the ease of travel is perhaps the thing that has hit middle class America the hardest. Many families have become very spread out as people pursue their career goals in a variety of locations. Now, we find our ability to bridge those geographic gaps by jumping on a plane has gone away. This doesn’t just affect parents wanting to visit their children and grandchildren, it hits us all, including siblings and extended family who want to reconnect. Anyone with significant others in a different city is suffering.
Evaluating purchases in terms of ‘life energy’ is a great tool. I’ve found myself expanding the concept to other areas besides purchases. Should I spend 10 hours doing some task that I can pay someone to do? If I enjoy the task, the math can be a bit more complicated, but it’s still a useful concept. Or what about buying something that I can make myself?
Hi Steve in Tucson. Yes, I agree that the calculation gets a bit more complicated if you’re a DIY guy. Mr. Money Mustache is an interesting blogger that has had a lot of impact on the FIRE (Financial Independence, Retire Early) crowd. He promotes the joy in DIY projects. He makes great sense if you enjoy putting in a new brick patio and the satisfaction that will come with it from years of use. Some things just don’t come down to a monetary calculation I guess, but I still like to always look at spending money thru the life energy model before deciding.
Thanks for the comment!
I really related to the comment about eating out. I have discovered the joy of cooking great meals at home. When Life does resume, we plan on dining out only when the experience of highly quality food and/or ambience is worth it. Saving that money for travel to see and spend time with our family!
What a great way to learn from the pandemic what is important to you and adjust spending accordingly. Great comment. Thanks for the post!