Opinion: Return of The Leaky Bathtub |  opinion

Opinion: Return of The Leaky Bathtub | opinion

In the 1970s, Scott Burns was a newspaper columnist and financial editor at the Boston Herald. He released a book in 1971, “Squeeze It Till The Eagle Grins: How to Spend, Save, and Enjoy Your Money.” The tome was a self-help investment guide for middle-class readers with annual incomes over $9,000, the median income at the time.

The decade that dawned in 1971 was noted for an inflationary surge. Financial historians may remember with some amusement President Gerald Ford’s WIN buttons. “Whip Inflation Now” attempted to corral the public into combating American inflation by encouraging personal savings and disciplined spending habits along with support for federal measures. In “Squeeze It Till The Eagle Grins,” Scott Burns focuses on what he called a family’s “leaky bathtub.” As he diagramed the concept, families were burdened with “unfavorable liquidity flow.” For most people, the main source of money flowing into a family’s “financial bathtub” was wages. But the tub had two major leaks at the bottom: federal, state and local taxes plus rising inflation rates, both of which eroded net buying power.

When Gerald Ford left office in January, 1977, the annualized inflation rate was 6.50%. When Ford’s one-term successor, Jimmy Carter, departed the White House in 1981, trailing one-year inflation was running at 10.32%. Flash forward to the present as surging inflation rates again make news. On Feb. 10, 2022, MarketWatch reported, “US inflation rate climbs to 7.5% after another sharp increase in consumer prices.” Today’s leaks in your family’s “buying power bathtub” grow ever larger.

When Burns targeted middle class families in 1971, the median annual income was $9,000. Adjusted for inflation, $9,000 in income in 1971 today equals $62,477 in 2022. According to zippia.com, the median US household income is $61,937. This signals that the idea of ​​the leaky bathtub still survives and about half the country’s households are not keeping up. Advice Burns proffered then is worthy of consideration now.

Tax strategies are always of interest to those seeking to bolster net worth over time. The current migration of achievers from high tax states to those with no state income taxes, or lower rates of taxation, is a form of tax planning. Working with a savvy financial advisor and CPA looms as ever more financially prudent as talks of federal tax increases play into the battles for political leadership in Congress. Advice Burns proffered in 1971 about taxes and investment strategies involving stocks, real estate, and other assets likely to appreciate over time net of taxes and inflation, is timely today as inflation rates accelerate.

“Heads up” Class of 2o22. Zippia.com positions itself as “the career expert.” Your personal “human capital” is as important as financial capital strategies, in that your earning power is the engine that drives capital accumulation, along with savvy investment and tax strategies. This idea is highly relevant given the drag of college loans on your net after tax and inflation adjusted spending power. Explore jobs by college major and cities. Understand the cost of living in your targeted city. Be realistic. Around the country the costs for apartment rentals are soaring (good for investors, tough on recent graduates and other renters). After taxes, debt payments, and costs of living, how much will you have left to invest for the future in stocks, other inflation hedges, perhaps, your own business?

For those heading for college or graduate school, along with “bill paying parents,” understand the earning power of graduates with certain degrees vis-à-vis costs of living and other obligations. The earning power inherent in some degrees is not matching up with reality and inflationary trends, thus making the quest for financial independence a tougher slog.

Costs for gasoline, diesel fuel, aviation fuel, and bunker fuel for ships, are soaring. Oil has been weaponized, underscoring the need for America to once again become energy independent, with oil and gas being produced at home by American workers and American companies. Rising energy costs will seep into costs for virtually all goods and services. “How much and for how long?” is subject to debate.

The solution for soaring inflation at the end of Jimmy Carter’s term was a nasty credit crunch recession precipitated by sky high interest rates on borrowed money, something the Federal Reserve bank would like to avoid. Nevertheless, interest rates are set to rise. “How fast, how soon?” is another guessing game plaguing market strategists.

Take advantage of a booming job market if you desire to advance career prospects. But maintain adequate liquidity to handle any market downturn or job interruption. “Déjà vu all over again” clearly worries stock and bond investors. Be prepared for more market volatility.

Lewis Walker, CFP®, is a life centered financial planning strategist with Capital Insight Group; 770-441-3553; lewis@lewwalker.com. Securities & advisory services offered through The Strategic Financial Alliance, Inc. (SFA). Lewis is a registered representative and investment advisor representative of SFA, otherwise unaffiliated with Capital Insight Group. He’s a Gallup Certified Clifton Strengths Coach and Certified Exit Planning Advisor.

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