Are You Better Off Today Than Four Years Ago?

Every day we get bombarded with reminders that we are not better off than we were four years ago. Obviously, if we have been unemployed during some or all of that time then we are not better off than we were four years ago. Having someone close to me in that situation I am able to see first hand how that has played out.

But what about the rest of us? Are we better off than four years ago? As a financial planner, I have opportunities to have that type of discussion frequently with clients or potential clients when we discuss their financial history. I thought I would make this blog a discussion of how some people have responded to this type of discussion or question.

Here is what the big picture is when I ask this question of people I interact with – if it is a recent observation then they probably do not feel good about the way they look at things. If, however, we discuss the issues over the entire four year spectrum, then they start to realize that things are probably better. Let me share how these issues come about.

Things that are better than four years ago:

• Their mortgage rate is lower because they refinanced and significantly lowered their interest rate – one client went from 6.6% to 5% and the payment was lowered by $1,000 per month.

• They stayed the course with their investment portfolio during the entire period. One client had $50,000 at the start that dropped to $35,000 and has since grown to $63,000 as the markets recovered. This does not include new money they invested.

• That same couple continued to contribute to their 401k plans and they see that the per share prices for new contributions were lower in the early part of the four years so they have more total value today than they would have if the market had not recovered as it has.

• Another couple was able to pay down their credit card debt faster than they have in the past, in part because they had refinanced their mortgage and used the extra money to apply to the outstanding credit card balance.

• Several clients now had jobs versus being unemployed four years ago. During that time they used up much of their savings but now they had a new job, new career and things looked brighter.

What about the people who do not feel better off today than they were four years ago? In many cases the issues cited were based on more current observations:

• They use their car a lot and the price of gas is much higher so they are spending a lot more of their weekly paycheck for gas.

• They had credit card debt that they are struggling to pay off and the interest rates are very high so not much is going to reducing the principal amount owed with each payment.

• The ones with credit card debt are also not able to get an equity loan on their home or to refinance the first because the first mortgage is higher than the current value of the property. In a few instances, the interest rate on the first mortgage is also higher than what it could be if they refinanced.

• For some who have been scared off from investing in the stock and bond market, they see no growth in their investments because they have it all in cash. They are very afraid to get back in the market because they in some cases were burned from the earlier downturns in 2000 or thereabouts.

As you review this blog and the issues cited, how have you reacted to the issues in your specific situation? Are you thinking that things are going to be better or worse four years down the road? If you think they are going to be better, has that changed the way you look at how you save and invest for your future goals? If you think they will continue to be worse, does that make you even more conservative in how you invest for those future goals?

I would be interested in hearing from those who read this blog to get your insights.