Budgeting & Financial Health: When ends don't meet, you really learn to budget

     I have a number of Substack newsletter subscriptions. Fewer than many but more than some. I try to at least skip-read each of the newsletters. The week before last, I read something that startled me by its simplicity and directness. Poor people MUST budget. There isn’t any “learning to budget” type of situation. However, poor people have a somewhat different type of budgeting.

     When a person, or family, doesn’t have enough money for all needs, the first step is to determine the minimum things needed to survive. There are items that most of us think are mandatory that may not make the list. For example — housing. What is NEEDED is sufficient warmth (in colder climates — one reason why certain areas of the country attract more of the homeless) and shelter from the “elements” (primarily rain/snow, direct sun, and wind) — plus sufficient clothes to meet societal requirement and add to survival in the weather. It isn’t “ideal”, but a minimum warmth/shelter does not require a permanent structure. Health care is not mandatory — until it is. The son of a friend of mine lived a homeless life until a leg started to develop gangrene from an infection and, left untreated, led to a very early (in his early 30s) death. In summary, a list of truly minimum will be calories, shelter/warmth, and safety from attacks. None are assured without income but approaches can be made to live on very little.

     Beyond these very basic foundational survival needs, it is necessary to triage remaining items. People are sometimes shocked to see a homeless person talking into a cellphone (though it is also possible they are talking into a non-working cellphone). If you have no permanent residence, have no owned means of transportation, and find yourself and your family/friends in need of being spread out through a wide area to make minimal needs then a cellphone becomes a necessity rather than a luxury. It may be high on the options beyond the minimum. Other things may be possible, depending on the level of income that exists — health care, better food, better clothing, potential permanent housing, It becomes similar to checking the temperature before going outside and determining the need for layers of clothing. If you have $X more than minimum, you get A. If $2X more than minimum, you get A, B, and C. And so forth. This is not what is usually considered to be budgeting — it is more of a skeletal envelope that gets filled when more money is available.

     Although I pray that I never again enter into that scenario of being poor (I was a part of it within my family for a short period while growing up), it can be a blessing later to know what is really needed, what is optional, and how to decide which is which. My parents grew up during the Great Depression and many, among those who survived, came out of that period with a feeling of monetary insecurity that eliminated “excess” spending and mandated a tight control of the budget. It may be a significant factor about the amount of savings of the “boomer” generation — the financial survival of their parents followed by excess budget-tightening within their growing up period. When you spend less than you make, then you save. That rule is still true.

     For those not in an extremely poor situation, budgeting is a matter of taking that sufficient amount of income, allocating what is needed, and then deciding how to split up what is in excess of the “nut” for the period of time. For most of my adult life, I have had the luxury of not having to watch my spending very closely. (There was one period when our company was not doing well when I had to keep a “running total” of items as I put them into the grocery cart in order to not be surprised at check-out. I hated it.)

     When you know you have enough, you can create a budget by examining all of your purchases for the previous month. Write down all of the items that you “had” to purchase. Be aware of the other “luxury” items that you didn’t really need. The items on your list make the core of your budget and the total is your monthly “nut”. Minimally, you also need to add a “disaster fund” — aim at 10% of your wages as you receive them. You will find that you have missed some items that are paid quarterly or just missed the edges of the month you reviewed. Add them onto your nut as you find them. In particular, watch out for “subscriptions”.

     With your nut and disaster fund taken care of, the remainder is “discretionary”. I recommend investing 1/3 to 1/2 of this “extra”. Then enjoy the final amount— but keep track so you do not exceed your budget.

     What if you have no spending history (just moved into your own place for the first time) or aren’t sure if you will have enough. You have to put together a tentative budget. Try to think of all of the things you need to pay for — rent, food, transportation, utilities, etc. Try to limit the items you consider necessary. There are example budgets as well as budget templates available free on the Internet.

     If you find that you are running out of money before your next budget period, re-examine your expenses. Something is increasing your nut — or invading it by not being on either the nut budget or any discretionary budget. You shouldn’t have any surprises if you make your budget and stick to it. If you cannot mentally keep track of any credit card/delayed payment items — write them down!

     A budget is a luxurious thing because it says that you have money available for more than the bare minimum. It is a luxury that not everyone hase. Congratulations!

Ideas & Interpretations is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber.

Wealth: When the needs of the many are more important that the desires of the few

     There is a peculiar mindset for many people about the distribution of wealth. There is a feeling that those that have it must deserve it — or have earned it. Those without it don’t deserve it, haven’t earned it, won’t work to get it. But, in reality, that is not how wealth works.

     Let’s use the name “capital” as a parallel to “wealth” to fit in better with the dominant economic system in the “West” — capitalism. When we work, we get paid according to the amount that our society has determined. If we have more than we spend, we can save it as “working capital” or “savings”.

     The following discussion primarily applies to the United States but there are aspects that apply to other countries and systems. Only you know how much and where.

     Within a capitalist (not officially feudal) system, people can be separated into three groups.

The poor (group 1). This group is always struggling to achieve the “standard of living” for where they are. Note that the precise income boundary will vary from location to location, country to country, area to area. In the US, those in this category must forego something(s) that many consider “normal, everyday” items — such as permanent housing (ie., they are homeless), clothes that fit, healthy food (junk food is cheaper), a car (public transit in the US, where available, is useable but not convenient, or easy, as it is in many other countries in the world), and so forth.

     For the poor, any savings needs to be set aside for emergencies (flat tire, car accident, faulty tooth, …). There are many working for minimum wage (in the US — even assuming a higher state minimum wage rather than the sub-livable federal wage) who have NO extra. Each week is a matter of what they must forego. This percentage of “surviving working poor” has increased each year since 2009 when the U.S. federal minimum wage was last raised (for most people) to $7.25/hour. Living expenses have gone up 53% since 2009 and this means that “rags to riches” story has become more and more of an urban legend. In the US, about 11% of the population are at the official poverty level but there are many more “working poor” doing without and living payday(s) to payday.

     So, the reality is that people who earn less than a certain amount (greater than official minimum wage) often have no savings above expected living needs. Is this what they deserve? They worked, they earned, they just don’t have any “extra”.

Middle income (group 2). This group can meet the “standard of living” for their area and have some extra. The extra, however, is often reserved for making retirement more enjoyable.

     Working the way up the wage ladder, we get to the vanishing segment called “middle income”. In this case, there are truly choices. Any “extra” income above needs is called “discretionary” income. People can CHOOSE how to spend it. They COULD save it as “working capital” but there is always the temptation to enjoy life at present rather than save for the future and the attractions of a consumeristic society makes it easy to find something to do with the “extra” income. There are also desires to help the members of the family — paying for schools, degrees, vacations, cosmetic work, … .This group may not work any harder (perhaps even less hard) than the poor but, because of the higher wages allocated for their job positions, they have extra capital.

     It is very difficult to move from group 1 to group 2 but much easier to move from group 2 to group 3 as long as they have good financial and investment skills and reduce their discretionary spending as much as possible. No second home, no boat or rv, no special catered vacations,

The rich (group 3). They have so much that they don’t even know how much basic living expenses cost. Considering oneself rich, or not, is subjective. People threw themselves out of windows during the Great Depression because they lost 80% of their wealth — putting them back into the rank of middle income. And, after having had all of the excesses of being rich, they were scared to death (literally) to have their income reduced so far and to lose their cook, maids, butler and so forth.

     In this group, income is primarily via unearned salaries and bonuses or dividends/capital gains from investments. Earned income is not a substantial part of their income. (Bringing in $500,000+/year ($250+/hour) can, in no manner, be justified as having been earned in my opinion.) And their requirements for living are such a small percentage of money available that costs aren’t even considered when making purchasing decisions.

     Thus, wealth is concentrated in group 3. Group 1 is being made larger and larger via mandated lower wages in comparison to living costs. Group 2 is getting smaller each year. And group 3 stays about the same size.

     How is the ability to gather wealth determined? The first factor is salaries. It is fantasized that salaries are market determined. In other words, they are paid what they are “worth”. This isn’t really the case. There is a lot of “lip service” about this but teachers still start off with very low pay (because of unions, they may leave their careers, upon retirement, with a decent income level). The low end is determined by legislation and not the market. The higher income levels for “blue collar” workers is dependent on education, certifications, and experience — often with a union interceding with management. The gradation of what experience and what education is “worth” is a crystal ball type of situation.

     In some instances, “appropriate” wages and benefits are determined by comparisons to how much money in sales per employee is achieved For example, if the company figures that an employee, in a specific job position or category, brings $300,000 into the company, then allocating $200,000 for salary and benefits is “reasonable” for the company. But this works only as long as the need exceeds the number of qualified employees (“market driven” — paid what they are “worth”).

     In the US, about 21% of all millionaires had inherited money as part of their foundational wealth. About 60% of all billionaires started with inherited money. The other 79% of millionaires built up their worth by saving, and investing (sometimes starting successful companies), for many years.

     How could we spread more fairly and equally? First, the starting point needs to be set at a living salary (meets some predetermined minimum “standard of living”), with automatic increases based on cost-of-living. Next, salaries need to be more transparent so that, eventually, comparative salaries will seem more in keeping with our official beliefs in freedom and equality. Last, the non-material (cash, stocks, bonds, and so forth) transfer of inherited wealth (transfer of properties, intellectual properties, or unrealized collections need to have special acknowledgement and allowances in order to preserve family farmers, children of artists, and so forth) must have much higher taxes. “Progressive” taxes need to come back into fashion — with a severe closing of loopholes. (Social Security and Medicare taxes should have no “cap” on wages — everyone should contribute and, later, get their investments back.)

     Changing the status quo is dependent on the wills of those who presently benefit from the existing status quo. Women being able to vote depended on the males who already had such rights. Blacks got the ability to vote via the ballots of approved voting people. The voting age changes arose out of protests during draft registration and a reflection of rights associated with responsibilities.

     It is very difficult to change any system from the status quo. But it needs to happen to have a society that cares for, and honors, each of us for the spirit which resides within.

Ideas & Interpretations is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber.

Unions: the leverage of the group versus the individual

 

     "I'm a good employer. I already give among the best benefits in the business. Retention is high and voluntary attendance at the company functions is good. Why would my employees want to be part of a union?"

     In a private company, there are owners, employees (including managers), and customers. In a publicly traded company, board members and stockholders are added to the mix (plus market analysts). In an ideal world, everyone is well taken care of and all are happy. In a booming economy and a booming company, it may get close to that point (though the word "more" seems to be an unrelenting fixture within the market economy -- especially in the US).

     But the economy is NOT always booming. And companies, either through mistakes or changes in the market, can lose the gleaming shine that makes everyone pleased with them. In these periods of decline, even when no mistakes have been made, choices must be made as it is no longer possible to even attempt to please everyone. 

     What are the priorities of a company? I am in agreement that well-cared-for employees will voluntarily want to do the best they can for the company and the customers. Thus, a high priority exists to take care of the employees. But, for publicly-traded companies, the happiness of the stockholders translates into higher stock prices and, thus, greater value to all who have invested in the company. Depending on company benefits and ownership, this may be directly of financial benefit to many, or most, of the employees. This argues that perception of stock/company value should be of the highest priority.

     Line managers are rarely considered to be among the most important parts of a company. However, for publicly-traded companies in the US, the advisory boards seem to want to push C-level salaries, bonuses, benefits, and parachutes as high as conceivable based on the idea that if their C-level execs are paid so much they (and the company of which they are part) will be perceived as also being "winners" within the game of acquiring the "best" executive level people. This competitive formula is difficult for C-level people to resist yet it does factor into how the income of the company is distributed.

     Moving back to the original question then, why would people want to be part of a union?

     Treatment of employees depends on company policies. With changes in high-level corporate management, company policies can change. They may change due to changes in corporate profitability or they may change due to changes in company advisory culture. Without a union, employees are left in the same way that most people perceive Blanche DuBois in the play/movie "A Streetcar named desire". As her character is quoted, "I have always depended on the kindness of strangers".

     Within a smaller company, most people should know each other and, certainly, all of the employees should know their managers and the managers know their employees. But, what about within a company with thousands (maybe tens of thousands) of people? The higher-level managers will not know all of the employees. The general employee is indeed in the same situation as Blanche DuBois.

     And that is a very insecure place to be. 

     Supply/demand can give the general employee leverage. If people of desired skills and experience are difficult to attract and retain, they inherently warrant more support. But if it is perceived that the employee may easily be replaced with someone else, they have very little perceived inherent value and have almost no leverage individually.

     That word "individually" is the key to unions. While a single employee has limited leverage, the majority (or universal) set of employees of a company has great leverage.

     Does being part of a union have disadvantages? As is true of many things, the advantages have a shadow side. Being part of a group, rather than an individual, means that there is less flexibility for the company to give unscheduled perks -- such as extra "free" days, or swag packages, or anything that may not be applicable under the terms of the agreements with the workers' union.

     For smaller companies (and some well-structured larger companies), unions can lessen the feeling of being part of a company "family". Also, a union that continues to grow may encounter the same problems as happened in the 1970s and 80s where leadership is now in a hierarchical position of power over the "rank and file" and the power of the group is used more for personal power and control than for the benefit of the employees.

     Companies have many sub-groups to consider, and take care of. Changing conditions carry with them a change in the ability to take care of each sub-group. Unions can help give individuals leverage -- especially within large companies -- but that same grouping carries certain limitations.