economicmultipliers_142

Economic Multipliers (142)

Do you know what these are?

They help CREATE wealth in systems.

Budgets are an economic multiplier.

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Reruns of Andy Griffith shows have been broadcast locally recently and I’ve seen several episodes. Andy Griffith was the folksy everyone-loved-him sheriff of a fictional small rural town called Mayberry in the 1940’s to 1950’s.

Unmarried adults who didn’t live at home many times lived in boarding houses, had one room and used a shared bathroom. Relatives shared housing with other relatives. Those things were ‘common’ in the United States in those years.

Individuals who applied for home mortgages back then were encouraged and/or required to put down a 20 percent down payment on a home. A buyer may have needed about $3000-4000+ for the down payment.

The lending institution (usually a bank) would not expect an individual or couple to have any other debt except for perhaps a vehicle loan and most individuals didn’t own vehicles.

The downpayment on a home may have come from savings or gifts from relatives and friends (wedding gifts).

Many individuals in the United States still teach their children that solid down payments and a budget are the best way to get financially grounded and the educational system is catching on.

A budget (after state and federal taxes) for an individual today might look something like this:

• • 25-35% housing (including insurance, utilities, taxes and repairs and/or saving for future housing and repairs)

  • 5-15% transportation (including all payments, licensing, fees, gas and maintenance)

  • 5-15% food

  • 5-10% healthcare (insurance and bills)

  • 10-25% personal expenses (or saving for clothes, things, phone, daycare, education, etc.)

  • 5-10% entertainment / leisure

  • 5-20% long-term savings (insurance, investments, retirement accounts, future education funds)

  • 5-10% debt repayment

  • 5-10% community contributions (churches still encourage tithing)

Of course the (after tax) percentages have to add up to 100 if you’re planning a budget.

In a well grounded family, a young adult might not need to pay for automobile expenses, housing, education, tools or many other things initially. Income streams provide added opportunities to save. In an ungrounded family, it can be much harder initially to save (because prior generations didn’t save). Budgets (and a balanced desire to acquire high quality things over time versus all at once) pave the way.

In a well grounded family, an older adult may already own a home and/or car and if income streams are still stable and healthcare expenses haven’t spiked, they many times also have added opportunities to save (and many pay for their grandchildren’s education so their children can stay and/or get financially grounded).

• • -($)- Financial planners usually tell you to take a couple months before preparing a budget to find out where all of your money is going.

  • -($)- Then they will usually tell you to pay down short-term high interest debt (if you have any) with savings from things you could have lived without (and to stop acquiring short-term high interest debt).

  • -($)- Next they will probably tell you to pay yourself first: Set aside money for long-term investments and savings.

  • -($)- Then spend money.

If you’ve never budgeted, get some books from the library and/or explore all the information online (good keywords: family budgets, recommended percentages, budgeting tools).

You might be surprised by the economic multipliers you’re able to create for yourself.

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P.S. If excess money ever flows into your life and budget (a raise or bonus, a tax refund, lower expenses, etc.), think long-term first. You may still spend all the ‘windfall’ on something frivolous. More likely though, you’ll save a bit for the future.