Financial Honesty

 Posted by on October 9, 2008  Add comments  Tagged with: , ,
Oct 092008

In light of the current economic crisis, we’ve decided that some belt tightening is in order.

So far, we’ve lost 18% of our retirement savings. Sadly, this is considered a small loss, compared to the 30% and 40% losses being suffered by others. We are fortunate that my husband is still 15 years from retirement age, so we have time to (hopefully) recover our losses. I’m very sad for those people who don’t have this luxury.

Yesterday, I read this quote from Suze Orman,

“A lot of you have built your personal financial foundation on deceit and lies. You bought a home that you couldn’t afford. You spent money like it was going out of style and it wasn’t your money to spend, because why? You were borrowing it. When you borrow money, you leverage yourself. The United States of America leveraged itself so high that when it started to come down, the whole thing now has fallen down.”

If this quote describes your personal financial situation, it’s time to stop living a lie. It’s time to get honest with yourself, take a good hard look at your finances, and make a plan. You need to STOP buying things you can’t afford, and start looking for ways to cut your expenses. Financial experts are predicting that our country will soon enter a deep and long-lasting recession (possibly 5 years). If we want to survive these difficult financial times, we all must take control of our money!

Sticking our heads in the sand and pretending that none of this is happening isn’t going to solve anything. Neither is worrying or panicking (I remind myself of this daily!) We can’t control the stock market, so we should focus on the things that we can control.

In our household, the top 3 expense categories are:
Insurance (health, auto, life, homeowners)
Utilities (gas, electric, telephone)

Grocery expenses are something that we do have some control over, so they are my focus for today. Several years ago, I discovered that the USDA publishes a Cost of Food at Home chart, broken down by age and gender. This chart allows you to compare your own food expenditures with the average cost of a nutritious diet at different budget levels–Thrifty, Low Cost, Moderate and Liberal. The Thrifty Food Plan is the basis for food stamp allotments.

This chart is a real eye-opener, because it’s based on what people actually spend on food, not what out-of-touch bureaucrats believe to be reasonable. To accurately assess our budget, I enter all of our expenses in QuickBooks at the end of each year. I break all credit card receipts down into detailed categories, such as groceries, dining out, clothing, cleaning supplies, etc. I also keep all cash receipts in a small accordion file, broken down by month. This detailed record-keeping helps me in planning our monthly household budget, and gives me a very accurate picture of how much we spend each month on food.

It should be noted that the USDA chart shows the cost of food only, and presumes no restaurant meals. If the cost of dining out was included, the average figures would be much higher. It’s very easy to spend $100 or more each month eating in restaurants, which can effect your cost average significantly. When figuring our monthly food costs, I do include the amount we spend on restaurant meals, because we do eat out a couple of times a month. I reason that I can hardly call myself thrifty if my grocery expenditures are within the Thrifty plan, but my monthly dining out expenses aren’t considered.

Based on the August 2008 figures (the most recent available), the average monthly “food-at-home” costs for a family like ours are:

Low Cost-$661.70

Our 2007 monthly average, including all restaurant meals, was $463.55, which put us below the December 2007 Thrifty average. Today, I plan to enter all of our expenditures, so that I can see how we compare with the August 2008 average. It will give me a jump on tax prep, and help me make an honest assessment of how much we spend, and on what, so that I can make cuts where necessary. I will update this post with my average once it’s calculated.

I encourage all of you to do the same. If you feel comfortable posting your averages in the comments, it would be interesting to compare. I would also be interested in hearing your ideas for saving at the grocery store.

If we pull together, we can weather this financial storm.