Money is moving – Follow it

I was very busy this week and didn’t have time for lunch so I pulled into a fast food restaurant known for a certain famous burger that gives a lot of value for the price. After ordering one the cashier dutifully asked if I wanted to make it a meal, but I declined. “Just the burger please,” I responded. A few moments later as I pulled up to the window the young man leaned out and said, “That will be $7.50.” “Oh no,” I replied, “I only wanted the burger.” “Correct,” was his response. “That will be $7.50. Just the burger.”

That was one of those moments in life when theory meets reality. I have written and talked about runaway inflation all year long. But perhaps for the first time this year, it sunk in. Not that I haven’t noticed how things have gotten more expensive, but rather for maybe the first time I realized how difficult this must be for the majority of Americans. Fast food restaurants service middle America, and generally sell quick meals at reasonable prices. I am pretty sure I bought that same burger a year or so ago for $1.99. As I ate my $7.50 burger, I wondered how families with children could afford this new world.

When shopping for necessities I generally don’t pay a lot of attention to price. Our children have moved out so providing for two people is just not that big of a deal. I mean we certainly don’t fill that Costco cart like we used to. But after my quick lunch I decided to pay more attention. A day later Launa and I went to the store for food. I paid particular attention to the price of everything I saw. I weighed apples and oranges to calculate the cost per unit. I looked at the milk, eggs, cheeses and other items we buy on a regular basis. And I was amazed. The same thought kept going through my mind. “How are families affording this?”

As consumers, we have no control over inflation. With limited resources the only real solution is to cut back spending on non-essential items to be able to afford the higher prices on those things we must have. In investing we classify these two types of products as “Consumer Staples” and “Consumer Discretionary.” The prior being things we can’t live without like food, energy and healthcare. The latter are things we can do without, at least for a while, like a new car, toys, and eating out. Until this inflation thing gets under control I believe most Americans will be forced to start eliminating discretionary items from their monthly budgets so they can continue to afford the higher priced staples.

With 70% of the economy driven by consumer spending, as consumers shift much of that money from discretionary spending to staples, investors should seriously consider doing the same. If you want to succeed as an investor, learn to follow the money.

Dan Wyson, CFP® is author of “The Gold Egg," and “21 Financial Myths” and owner of Wyson Financial/Wealth Management 375 E. Riverside Dr. St. George, UT 84790 - 435-986-9525 – Securities and Advisory services offered through Commonwealth Financial Network, member FINRA/SIPC, a registered investment advisor