Savings, Inflation, and Debt Serfdom

I always cringe when I hear my friends say that they will start saving for retirement when they make more money. I don’t know about you, but my expenses seem to continually increase in proportion to my income. There will always be car repairs, wedding gifts, expensive medical tests, flooded toilets, and nifty gadgets. We need to establish good money habits as early as possible to protect ourselves from these inevitable pitfalls.

My parents always told me to “pay yourself first,” but it wasn’t until my mid-twenties that I truly understood what that meant. Rather than spending money on momentary pleasures like coffee, clothing, and entertainment, I’ve learned to contribute that money my my “future self fund.” With the power of compound interest, the soy chai latte I skipped at 22 may provide me with a plane ticket to visit family when I retire.

At age 29, I have $40,000 in my retirement accounts, split between a Roth IRA and a 401k. From ages 22 to 25, I was contributing a paltry $50 per month because that’s all my near-minimum-wage income would allow. $1,200 over the course of three years isn’t much, but I established the habit of saving early and built momentum. I viewed retirement funding as a non-negotiable bill and feared the consequences of missing a payment.

When a new job boosted my income income four years ago, I maxed out my Roth IRA ($5,500 per year). When I was promoted a few months later, I began contributing heavily to a non-matching 401k account. Because I automatically redistributed all raises and performance bonuses towards retirement, I never missed the funds.

I’m currently contributing just under 20% of my pre-tax income to retirement funds. My financial adviser has assured me that I’m on track; yet, the rising costs of nearly everything, paired with the lack of foresight exhibited by my peers has me worried for the future.

My boyfriend and I don’t go out to eat much, we don’t travel the world, we don’t lease a new car every two years, we don’t buy trendy clothing, and we try not to purchase impulsively. We spend our money on personal priorities: retirement, reliable transportation, organic vegetables, hiking gear, education, and weekend road trips. A family member recently told us, quite fiercely, “You don’t need to live like paupers!”

Though the sentiment is clearly overstated, I think “living like a pauper” is one of the personal choices I’m most proud of, though I prefer to call it “living within my means.” I have no debt and my monthly income exceeds my monthly expenditures by over $1,000, an amount which is stored away for new tires, that $200 prescription, a dream home down payment, or the option to quit my job if things get bad enough.

I just read a shocking article that states that Americans have spent more than they make for the 28th consecutive month, and another that shows 70% of older millennials (25-34) have less that $1,000 in emergency savings. Our household median income falls below the 50th percentile and we’ve still managed to put $15,000 into savings. I don’t think it’s as much a matter of not having the money, as it is not allocating it as wisely as possible.

I see my friends’ excitement as they trade in their two-year-old car for a brand new model, go broke buying clearance handbags, and rave about all the trendy new restaurants they’ve tried. Yet, for some odd reason, they can’t afford to put money into savings. It reminds me of the Stanford marshmallow experiment, in which researchers studied delayed gratification and life outcomes.

Spending every cent in your account on stuff to make you feel better about yourself is a losing game. I believe that the pervasiveness of advertising has brainwashed a large majority of Americans into thinking that their happiness hinges on living the ideal lifestyle, as portrayed on social media, TV, and in magazines. This has, in turn, led to an abundance of broke, stressed, and unhappy people.

I’m not perfect and sometimes fall into the consumer trap, eyeing that SUV that would be better for off-road camping trips or a suit that would look sharp if my job were to ever enforce a professional dress code. I tend to instead splurge on small things–artisan chocolate, comfy t-shirts, and small gifts for loved ones. Though these small expenses do add up over time, what I’m most concerned about currently is the rising cost of living.

I’ve been entertaining a job opportunity in Seattle, where the cost of living is 77% higher than the national average. In searching for other opportunities nationally, I am seeing the same trend on a slightly smaller scale. In regions with hot job markets, rents have doubled since 2001; the 2-bedroom condo my boyfriend rented for $1,000 in Bellevue, WA ten years ago is now listed for $2,500.

Everything is becoming less and less affordable. Consumer prices soared 200% between 2001 and 2018, per the Burrito Index which has tracked the cost of the taco truck staple across time. According to the federal government, inflation has risen 40% since 2001: what $1 bought in 2001 now costs $1.43.

If you’ve looked at the cost of public university lately, you’ve surely have noticed the same trend. When I began attending my local university in 2007, the in-state tuition was $4,500; when my sister began in 2014, the in-state tuition at the same school was just under $11,000. At the University of California at Davis, the 2014 in-state tuition was $5,684 whereas the 2018 in-state tuition was $14,463. So, tuition at state universities has risen by 250%, while official inflation rose by a mere 35% since 2004; if UCD tuition matched inflation, tuition would be $7,673, not $14,463. What’s most unfortunate is that the bottom 95% of American households have no option but to pay for tuition with borrowed money.

The same trend is evident in health care, where both premiums and deductibles are rising on an annual basis, eating into everyone’s take-home pay. Similar to tuition costs, these costs have doubled over the last decade, while inflation has risen at just 35%.

Charles Hugh Smith suggests that “debt-serfdom is the only possible output of the soaring cost of living for the unprotected who are ruled by a hubris-socked, Protected Elite.” That’s what frightens me the most in this day and age. It’s the job of the bottom 95% to shoulder the higher prices by taking on more debt–debt which is immensely profitable for the Protected Elite. I can make sacrifices now in order to save for the future, and I fully intend to continue those efforts, but I have no guarantee that my money will gain value in accordance with rising real-life costs; I have no guarantee that my anticipated retirement fund will be adequate to support my modest retirement plans.

For years, I’ve been aggravated and perplexed by the drastic increase in education costs. I’ve listened to my parents’ discussions about increasing their medical deductible to reduce the monthly premium. And I’ve seen the annual increase in housing costs amongst my friends. The article by Smith was eye-opening because he makes a point that I had not previously considered: big-ticket expenses such as rent, healthcare, and higher education cost tens of thousands of dollars more, but TVs cost a few bucks less, and as a result, official inflation is 2.1% annually.

I still believe that saving for the future is far more valuable than buying fast-depreciating stuff on credit and praying for government assistance at age 63. Yet, in observing the cost-of-living trends over the last decade, it makes me wonder whether my fervent efforts to prepare will be even close to adequate, especially if I don’t drastically increase my income. And it makes me truly worry about those friends and family members who have not even begun to think about the future–those who have no emergency savings account, no money accruing interest towards a future retirement. I know that I’m ahead of the curve when compared to many of my peers, but I feel that we’re all so far behind where we need to be, as the ever-rising costs-of-living unfold before us.

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