Living on Less

By Stan Hinden | June 2009

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Stan Hinden

Every turbulent era has its battle-cry. In the Great Recession of 2008-2009, the slogan heard most often is: "Learn to Live on Less!"

For most of us, that is not very happy advice. After all, who really wants to live on less? Not me, for sure. And probably not you, either.

But thanks to the depth and breadth of the current recession — and the market meltdown that accompanied it — millions of Americans are, indeed, learning to live on less.

In May, according to the U.S. Labor Department, the nation lost another 345,000 jobs, bringing the total number of jobs lost during the recession to 6 million. The unemployment rate rose to 9.4 percent.

Job losses are, of course, only part of the reason that many people are living on less. Millions of Americans have either lost their homes or seen the value of their homes drop by substantial amounts. Meanwhile, millions of us have watched the value of our retirement and 401(k) accounts decline by 30 or 40 percent.

For those of us who are advocates of investing in solid companies, it was shocking to see the shares of respected firms like Fannie Mae and Freddie Mac suddenly selling for pennies. For me and my wife, Sara, it was excruciating to watch the shares of General Electric, one of the nation's leading industrial companies, fall from about $40 in October 2007 to a recent price of $11 — a loss of 72 percent.

Because Sara worked at GE for more than 20 years, she accumulated a sizeable amount of GE stock. The GE shares became our special retirement nest egg, which we preserved in the event that either of us should ever need care in an assisted living or nursing home facility.

Admittedly, our loss thus far has been only a paper loss because we have not sold our stock. But if we needed to sell the GE shares in an emergency, we would suffer a very real loss.

So, with our GE financial cushion virtually gone, Sara and I, like millions of Americans, are tightening our belts. We are eating out less often, buying less new clothing, trying harder to stretch our food market dollars, turning off unused lights in our home and driving less.

We are not alone. Millions of people, who are worried about their finances, have put off buying new cars, new television sets and new kitchen appliances. Suddenly, we've gone from an economy based on our wants to an economy based on our needs. Today, when we contemplate a major purchase, we are likely to stop and ask: "Do I really need it?"

The retreat of the consumer has been truly dramatic. Indeed, after many years in negative territory, the American savings rate now has been rising. While that is good news, the bad news is that consumer spending makes up 70 per cent of Gross Domestic Product (GDP). So, the recession is not likely to end until consumers begin to spend once again.

Because so many people were caught in the financial tsunami of 2008-2009 and need help, both the news media and public service organizations are turning out reams of advice on how people can economize and save money.

On its web site, AARP has published "AARP's Quick Tips for Saving Hundreds of Dollars Per Month." The page includes a "Checklist for Cutting Monthly Expenses." This useful list can be found at http://www.aarp.org/money/consumer/articles/tips_for_saving_money.html

Even with this help, many people still face the question: "How can we get control of our finances?"

The basic strategy for getting a grip on one's financial life begins with taking a close look at your monthly income and your monthly expenses. That will tell you whether your income is sufficient to cover your expenses.

If your income is not sufficient, then you have three basic choices — increase your income, lower your expenses or withdraw money from your savings.

I am painfully aware of how hard it is to do any of those things — especially if you are retired and living on a fixed income.

Under normal circumstances, financial planners advise retirees not to take out more than 4 or 5 percent of their savings each year. At this point, my wife and I are trying hard not to take out any more money than is absolutely necessary.

Some retirees are able to generate extra income by finding part-time work. If you need the income and your health is good, it may be worth a try to find a paying job. In most communities, there are local organizations and agencies that help seniors find work. Check with your county and state governments for agencies that offer that help.

If, however, you can't increase your income, you will have to try to cut your expenses. Most people spend much of their monthly income on food, shelter and clothing. The problem, of course, is that our expenses don't stop there.

We are continually confronted with bills for our telephones, electricity, gas, water, auto insurance, home insurance, life insurance, health insurance and medications.

While it's not easy to cut back on many of those expenses, it sometimes pays to shop around for things like telephone service and insurance.

If the idea of trying to live on less sounds pretty tiresome, well it can be. But it's not fatal. Although we may not have thought much about it, the idea of living a frugal life is not a new concept. Indeed, many people in this country live a frugal life because they have no other choice.

But I recently discovered that many people who are comfortable financially choose to follow a frugal life style. They have decided that life is better, more comfortable and more meaningful when they spend as little money as possible — and save as much as possible.

I learned a lot about frugality from Jeff Yeager, a Maryland author who has written a book called, "The Ultimate Cheapskate's Road Map to True Riches." The subtitle is, "A Practical and Fun Guide to Enjoying Life More by Spending Less."

Jeff says that his book — unlike most personal finance books — is not about how to make more money. "The book," Jeff says, "is about how to make money less a part of your life by spending less, so you can enjoy life more."

Jeff Yeager is not the only writer interested in frugality. I recently went on the Amazon.com web site and typed in the words: "frugal living." In a matter of moments, Amazon gave me a list of 1,857 books on the subject of frugal living. Obviously, this is an idea that's been around for a long time.

If you are looking for ideas on how to live on less, a trip to your local library will probably provide you with a selection of books on how to begin your journey to the frugal life.

People who are new to the frugal life may find it hard to kick the habit of spending freely. But most habits can be changed; think of the vast numbers of people who have given up smoking.

"Kicking the spending habit" won't be fun. But when it comes to money, many experts are convinced that learning to be frugal can lead to a new and better life style-one that has less financial pressure and more personal satisfaction.

In fact, the experts also are convinced that living a frugal life, along with eating carefully, exercising more and taking part in community activities can extend your life by many years.

"Sweet are the uses of adversity," Shakespeare wrote of another time and place. But those of us who are forced into the arms of frugality may yet find that this painful experience will have its "sweet" rewards.

The author was compensated for writing this article by AARP Financial.

While AARP endorses the services provided by AARP Financial Inc., AARP does not offer financial products or services itself and cannot recommend that you or any specific individual should purchase any particular product or service. AARP Financial Inc. is an investment adviser and a subsidiary of AARP.