When Paying Your Bills is a Battle for Survival

image: Outnumbered three to one, General Ignacio Zaragoza defeated the better-armed French forces of Napoleon III

On Cinco de Mayo, a holiday that celebrates Mexico’s military victory over an opportunistic and overzealous creditor, it seems appropriate to talk about paying bills, and the price you pay just for trying to stay afloat.

In 1862 the Mexicans owed a lot of money to the French, Spanish and English, when a civil war tapped out their treasury. But while Spain and Britain came to terms, France, under Napoleon III, decided the missed payments were as good a reason as any to add Mexico to their empire.  France attacked Mexico and, to nearly everyone’s complete surprise, lost. It’s a situation that echoes down to today.

Millions of Americans today are in the same boat as Mexico in 1862. What’s left of our middle class has been squeezed for decades between rising costs on one side and stagnant wages on the other. The research backs up that feeling many Americans get every month just trying to pay the bills: You aren’t making much more money today than you were back in the late 1970s, after accounting for inflation.

Your Wages Really Have Been Flat

The National Bureau of Economic Research, puts it this way in a recent study ”[T]he income of the middle class 2nd and 3rd quintiles increased at a rate of between 0.1% and 0.7% per annum, i.e., barely distinguishable from zero.” If you also suspected your company CEO’s pay, which is now something on the order of 300 times that of the average worker, has been going up faster than yours, you would also be correct. “In contrast, the income of the top 1% grew at an astronomical rate of between 3.4% and 3.9% per annum during the 32-year period, reaching an average annual value of $918,000, up from $281,000 in 1979 (in 2011 dollars).”

The conclusions are clear and undeniable; the rich have done fabulously well while the middle class has endured decades of sluggish growth. Keep in mind that there’s a difference between “worse off” and “should be doing better.” The middle class isn’t worse off than during the Reagan era, but the researchers’ conclusions suggest the middle class should be doing better, much better.  The study’s conclusions are supported by other economic data. Gains in worker productivity have not been evenly distributed. The gap between hourly pay and productivity is the widest it’s been since World War II. That’s a change from what we commonly see as the twentieth century’s “golden age,” between 1948 and 1973, when productivity and pay rose in tandem.

Here’s Where it Bites Now—and Down the Line

The economy gives and the economy takes away. Sometimes increased costs in one area of spending are offset by lower costs in another. But where economics really starts to translate into a bite on family finances is when prices rise faster than incomes. That happens at different times for different segments of the economy. Not long ago we were all being bitten by energy prices, specifically the cost of gasoline. When oil was $100 a barrel, gas prices were between four and five dollars a gallon, depending on where you lived. That was before the oil market crashed.

Today gas prices are lower, and it’s housing costs that are increasing faster than your earnings, a lot faster. According to one study, housing prices are going up thirteen times faster  than your wages. Since housing costs account for a larger percentage of household spending than gasoline, the pinch you’re feeling now is far worse than when housing costs were lower and gas prices were higher. That’s likely one of the reasons so many Americans are unhappy with the economy.  Understanding the why of it may not make you feel any better, but you can at least take comfort in the fact that’s it’s not your lack of commitment to earning. The numbers don’t lie; if you’re feeling increasingly strapped for money it’s not your imagination.

The reason you’re feeling pinched more acutely right now is because rent and housing costs are taking a bigger bite out of your budget. When you’re already dishing out forty percent of your income on rent or a house payment, housing prices rising thirteen times faster than your wages is going to have a serious, immediate impact on your financial well being. Even more of a concern—since housing and gas aren’t optional, what often gets shunted to the side until it’s far too late is saving for retirement; a time when you’ll not only be paying for gas and the roof over your head, but increased healthcare costs and more.

The reason I’m an advocate for gold IRAs is that they allow you to genuinely diversify your retirement portfolio.  Unlike most bank or brokerage IRAs, which offer you a choice of paper assets, virtually all market- and dollar-based investments; a gold IRA lets you have your choice of these, plus the tangible value of gold and silver coins, which retain that buying power you’re definitely going to need.