The President keeps talking about making the hard budget decisions that families make around their kitchen tables. Let’s turn that table.
Once upon a time — ok, long about 2001 — there was a family that was finally coming up for air. Once they paid off their bills each month, there was actually money left over. Of course, they were still making the minimum payment on all their credit cards, and they still had mortgages and car payments and all the little expenses of suburbia. And like most Americans, they didn’t have nearly enough money saved for retirement. Nevertheless, this little budget surplus was a big deal!
They thought for several months about what to do with this extra money: Pay down the credit cards? Put it in the retirement account? Buy a boat? In the end, they decided to cut back on their hours at work so they could use the extra time to pursue a dream: an online business selling homemade wicker baskets. (A real basket case!)
The economy went sour. It turned out that not only did they really not have enough patience to spend all their free time making wicker baskets, but few people wanted one for the price. After all, cheap, Asian made wicker baskets are available lots of places. They had a couple babies. A raise they were expecting didn’t pan out. They ended up underwater on their house — thankfully not New Orleans style. One of the cars needed a new transmission, and it wasn’t under warranty. The water heater at the house had to be replaced.
And not surprisingly, their debts went up. Finally, those debts got to the point where they got alarmed and decided something had to be done.
So they got a free consultation with a financial adviser down at the bank. “Free” was a price they could afford!
The adviser confirmed that their situation was completely unsustainable, because at some point they would reach the limit on their credit cards. Visa and Master Card were unlikely to extend them more credit at this point, and there was no equity in the house for a loan. However, bankruptcy was simply not an option. So, the adviser asked, what have you thought about doing to get back on track again?
“Well,” answered the woman of the house, “We’re thinking of getting out of the house and renting a cheap apartment. And we might get rid of the cars. Cable TV has gotta go, and even though the kids love Sesame Street, we’re going to have to stop giving to PBS.”
“Let them get commercial sponsors like everyone else!” the man of the house interrupted.
“Actually we’re going to have to stop all donations, even giving clothing to Goodwill. After all you never know when something’s going to be handy. No more discretionary shopping, of course” the woman of the house continued.
“Oh, and one more thing,” the man of the house announced, ” she’s gonna stop taking birth control pills. That’s another $20 copay every month!”
“Um, ok,” said the adviser, and he looked down at the notes he had been scribbling while they talked. “Let’s think this through. I don’t know if you’ve priced apartments lately, but I think you’ll find you won’t save very much. Particularly once you figure in the mortgage interest tax deduction. Plus a foreclosure will show up on your credit report and could make trouble for you at work.”
“Nobody said foreclosure! Just send the bank the **** keys!” the man shouted.
“That’s called deed in lieu of foreclosure. It’s pretty close to the same thing. Now, about the cars. Why do you want to get rid of them?”
“Well, there’s the payments of course. And gas is so expensive. And then there’s repairs and oil changes and things like that,” the woman answered.
“I see,” said the adviser. “If you sell them, how will you get to work every day?”
There was a silence. The man and the woman looked at one another for a moment, and stammered something about walking and the bus.
“Let’s move on,” the adviser suggested. “I think you’re on to something cutting cable, but that’s still not much money. So, uh, what other shows do the kids like?”
“Oh, our oldest loves Pokemon!”
“Bugs you to buy cards for him all the time, doesn’t he?”
“Do you really want Sesame Street to have commercials?”
“Well, when you put it that way, I guess not.”
“Ok then. No donations doesn’t hurt anything, but it’s not helping you either. And remember, you can take a tax deduction on stuff you give away, so you might reconsider that one too.” The advisor took one more look at his notes before going on, “Have you discussed the birth control together, before today?”
“She’s my wife and I can make decisions for us!” The man announced.
“Well, that’s between the two of you, but have you considered how expensive it would be for her to get pregnant again? You could have thousands of dollars in expenses! It seems to me that $20 a month is a bargain.”
“That’s right, dear,” the woman said, glaring at her husband.
The adviser sighed, then said “Look, these are all very interesting ideas, but even if you add them all up that’s just a teeny bit of your budget. And we haven’t even talked about the fact that you don’t have nearly enough in your retirement accounts, and you have absolutely nothing put aside for your kids’ education.”
“What are we going to do?” the woman asked. Now she was starting to panic.
“You’re going to have to get some more income. Is there any chance of getting more hours at work?”
Sheepishly, the man admitted “My supervisor offered me more hours just a couple months ago. But I turned him down. After all, if I take those hours I won’t have time for our wicker basket business. I’m investing in the future! Someday those wicker baskets will mean I don’t need that job anymore.”
“That’s interesting. How long have you been in the wicker basket business?”
“Really? How much money did it bring in last year?”
The man started to stammer about the recession, but the woman cut in, saying “Net profit of $99.12.”
“Seriously? Oh come on, you’ve got to be kidding me. Nine years building a business and all you’ve got to show for it is a profit of $99.12? You know that at your hourly wage, you can earn that in a day?”
The man looked at his hands in his lap. The woman glared at him.
Finally the adviser spoke: “If you are serious about digging yourself out of this financial hole, you need more work. I’ll help you out, but not until you get those hours back. If you’ll excuse me, I have other clients waiting.”
In Closing: one more time, if your job requires you to do something that goes against your conscience, quit!; WI and more WI; middle class incomes going down; talk about the wrong guy to hassle; and about time somebody did the right thing.