Monday, July 18, 2005

Household finance

In my observation, in spite of excellent home finance software like Quicken and MSMoney, people have no idea how much they are spending in any category of their financial lives.

It was over ten years ago that I was introduced to Quicken. I was enamored from the start. I had a job at the time watching over master control of a local TV station in south Florida between the hours of 11:00pm and 7:00am. The station was largely automated at night so I had time to play with the office computer and its programs. It was there that I learned how to categorize my financial life. Within a few months, I was tracking and categorizing everything I spent down to a cup of coffee. What happened was that, over time, I really got a handle on how I was spending my money. I could see where I was spending frivolously. I saw the how the category 'restaurants' would spike during an intense stretch of dating, prompting me to be a better cook at home. I could also see that my caffeine addiction cost me $750.00 annually, and has only worstened over the years.

Households are often run paycheck to paycheck and the definition of a “budget” is something on the order of, “Learning what we can get for our money and do our best to live within that amount.” The expression, “not enough month at the end of the money,” is an all too common situation in consumerist America.

I personally know of no one that tracks their expenses this way, though I am sure there are those that do. The shame of it is that this kind of detailed household financing would show, in nicely colored graphs, how something like the increasing price of oil affects the household bottom line. Without a monthly report showing a spike in their ‘personal transportation’ category, people will not change their habits as the prices rise. They will fill up the tank, note in passing how expensive gas is getting, toss the receipt on the floor and forget about it.

The insidious problem as I see it, is that by not having a firm grasp on how last month’s expenses differed from the month before, there is no motivation, no sense of panic to make the (possibly drastically) needed changes to the family lifestyle. As the months roll on there is only the sense that, for some reason, they are further behind than ever; or a straw - like a protracted illness or a layoff - breaks the camels back and the family is suddenly facing foreclosure.

How can this help with the Peak Oil phenomenon? Not much directly, but tracking how much we are spending on gas and noticing that the price of everything is rising more quickly than usual, might personalize Peak Oil. The more people are personally affected, the more voices we will hear telling our elected officials that the alternatives need to be developed, NOW.

And we all know that our elected officials have our best interests at heart don’t we?


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