Transcript 0:00 The Federal Reserve raised interest rates this week for the first time since twenty twenty-three. Gas is about four dollars and forty-eight cents as a across-the-country average. A year ago, it was about three eighteen. 0:10 Diesel just hit an all-time record. The average 30-year mortgage is back at six point nine five percent. 0:16 Americans are carrying about one point two six trillion dollars on credit cards, and the cards that are actually charging interest are averaging more than twenty-two. 0:24 The University of Michigan's measure of how people feel about the economy just dropped to its weakest reading since a record low this past May. And somehow through all of that, consumer spending is still going up. 0:35 So what is it? Are Americans doing okay? Are we just really good at continuing to spend money because life keeps requiring us to spend money? Somewhere in between, I think. That's not necessarily the same thing, right? 0:46 But this is the story that nobody tells in the headlines. Now, welcome to The Observation Room. I am your host, Michelle Vaughn, and hopefully today I give you a little change in perspective. 0:57 So telling you up front what this episode is going to be so you know exactly what you're getting. The first part is headlines, because I think it's worth knowing what's actually happening in the world. 1:05 I'm going to go through it as plainly and as quickly as possible, but the headlines are a part... 1:10 You can get them anywhere, and you can get them from a hundred other podcasts, from all over your social feeds, in the newspaper, everywhere. 1:18 The part I actually care about is what comes after that, which is what it looks like to live in the middle of all this news without letting it ruin your day. 1:25 I want to say right now that I'm not going to tell you what to do with your life. I don't like it when people do that. I'm, I'm not qualified because I don't know your life. 1:32 But what I can do is tell you what I see, what I do, and how I've learned to hold all of this, and you can take whatever's useful and leave the rest. 1:40 Now, I want to be honest 'cause when I, when I-- where I'm standing before I get into any of this, I think it's important to tell you, I don't feel the economy is crushing me right now. I'm not saying that to brag. 1:50 I'm definitely not saying it because I think everyone, everything is fine. I'm saying it because when I started putting the episode together, I noticed that my own life really doesn't match the mood of the headlines. 1:59 I had to sit with that for a little bit before I decided to report on this. I work from home. My son works less than a half a mile from our house. So between us, we use about a tank of gas a month. 2:09 And I actually haven't filled up in weeks, almost a month. 2:12 We shop mostly at Aldi, and we don't eat out very much, and we've gotten our grocery bill down to about five hundred dollars a month, and we still eat really well. 2:20 We have no credit card debt, and I'm putting a lot of effort into saving money at the moment. 2:25 So when somebody tells me that Americans feel financially squeezed, part of me nods and part of me thinks, "I don't really feel that." 2:30 For a little while, I thought that meant maybe I'm not the right person to talk about this. I realized it might make me... 2:37 Wait, this might make me the right person to ask a question, which is, when everyone says that the American consumer is resilient, who exactly are they talking about? 2:45 'Cause I think that word resilient is doing a lot of work in the headlines, and I'm not sure it means what we all assume it means. 2:52 So let's start with the Fed, what they actually said, because I think the statement itself is more interesting than most of the coverage of it. 2:59 The Federal Open Market Committee raised its target range of the federal funds rate by a quarter of a percentage point, so three point, three and three quarters to four percent, and the vote was twelve to zero, so it wasn't close. 3:12 This is the first hike since twenty twenty-three, and it happened under a new chair, Kevin Warsh, who was sworn in back in May, replacing Jerome Powell. 3:21 Now, in the statement, the Fed said economic activity is expanding at, at a solid pace and that domestic spending has been resilient, that productivity growth is strong, and that job gains have kept pace with the workforce. 3:33 Then it said i-inflation remains elevated. Now read those two ideas next to each other and you can see the tension. That's basically what this whole episode is built on. 3:42 The central bank is looking at the same economy that most people or a lot of people feel really squeezed by, and what it sees is an economy that is running strong enough and hot enough on prices that it needs to make borrowing more expensive. 3:55 So here's where I land on the decision itself. I understand why they did it. Inflation is at three point four percent. The Fed's own statement says it's still elevated. 4:04 And if they ignore that, higher prices can start to feel permanent and get harder to fix later. So I get it. But understanding a decision and feeling it are two different things. 4:13 Now, I think it's worth saying out loud that this one is painful. I don't think there was a painless option here. If they raise rates, borrowing gets more expensive for the households that are already stretched. 4:23 If they don't, prices keep climbing on the same exact households. Either way, most of the cost or a lot of the cost lands on regular people like you and me. 4:33 So I understand it, and I also think nobody gets to pretend it doesn't hurt us, right? 4:37 So let me translate what a rate hike feels like when it reaches an actual household, because that's the part that doesn't show up in these statements. 4:45 The federal funds rate is the rate banks charge each other, but it ripples outwards. Credit cards are typically priced off a short-term benchmark that moves with it. 4:55 So when the Fed raises rates, the interest on a card balance usually goes up. Now, not long after, other variable rate borrowing works in the same way. Now, mortgages are different unless it's a HELOC. 5:07 But so a thirty-year fixed rate follows longer term bond yields from and also what investors expect for the future. 5:16 So it's not really based on the Fed's quarter point move directly, but it's all connected, and you can see it in the mortgage numbers themselves, which jumped this week from about six point seven percent to six point nine five, the highest since January of twenty twenty-five. 5:29 Now, on the other side of the ledger, if you're a saver, the higher rate can mean your savings account pays you more, the investments pay you more. So a rate hike is just not one experience for all Americans. 5:38 It's a very different experience on which, on whether you're holding cash or mostly carrying debt, and I think that's going to become a theme as we go here. 5:46 Now, the- there's one more detail from that meeting that I think that matters for anybody planning in the next few months. The Fed also released updated projections showing where each official thinks rates are headed. 5:55 Now, sixteen of the eighteen participants expected at least one more hike before the end of the year, with four of them seeing room for two Those are projections, not promises, and they change as the data comes. 6:06 So I wouldn't treat them as a schedule, but they tell you that this isn't being framed as a one-time adjustment. 6:12 So if you're thinking about a big purchase or a loan or whether to carry a balance for a few more months, it's reasonable to assume that the cost of borrowing is not going to be getting cheaper anytime soon. 6:21 And I say that, I don't say it to scare anyone. I say it because I'd rather you plan around the direction that people are setting the rate that they're pointing around rather than what we hope would happen. 6:31 Now let's talk about the debt for a second because the numbers are big. I want to be careful. Americans owe about one point two six trillion dollars on credit cards as of the second quarter. 6:40 Now, according to the New York Fed, that's a little up from the first quarter. But something I've been seeing floating around is that it's a record, and it's not. The fourth quarter of last year was higher, actually. 6:51 So what is true is that it's sitting very close to that peak, of course. 6:56 But while, and, and while carrying, while the cost of carrying a balance is really high, the Federal Reserve's own data shows that card charging interest rate are averaging about twenty-two. So let's be careful. 7:07 A big total doesn't mean that every household is drowning in credit card debt. Plenty of people pay their balance in full every single month, and for them, interest rate is almost irrelevant. 7:16 Now, the number tells us something about the system and how expensive it is to a person who has to carry a balance right now. It doesn't tell us that everyone in America is in trouble. 7:25 Housing is the other place where the tension shows up. It's worth a minute because for a lot of people, it's the biggest line in our budget. 7:31 The National Association of Realtors reported that existing home sales fell two percent in August to an annual pace of about three point nine eight million. 7:40 At the same time, the median price of an existing home was four hundred and twenty-nine thousand one hundred dollars, which is about up one point six percent from a year ago. 7:49 And it's the thirty-eighth month in a row that prices have risen compared with the year before. Inventory is improving with about one point six two million homes for sale, and that's roughly a five-month supply. 8:01 So on paper, you could say the market is loosening. But a year ago, the average thirty-year mortgage rate was about six point two. And this week it's six point nine five. 8:10 Same house, same price, and the monthly payment is meaningfully higher just because of the rate. I think that's a perfect example of how an economy can look stable in summary and, and feel out of reach in the budget. 8:22 Now, prices aren't crashing, so nobody's calling it a disaster yet. And rates are up. So for the payment, the same house is higher. 8:29 If you're a renter waiting for a chance to buy or a homeowner who would like to move but doesn't want to give up that low rate, the headline number doesn't describe what you're stuck in. 8:38 Now, there's inflation, which is where a lot of the pressure is coming from. 8:41 The Consumer Price Index was up three point four percent in August compared to a year ago, and prices rose four-tenths of a percent from July to August alone. 8:50 Now, gasoline rose almost four percent in that one month and accounted for more than a third of the monthly increase. 8:56 And after adjusting for prices, average hourly earnings were down about three-tenths of a percent from a year ago, which means that even if your paycheck is bigger on paper, it's buying slightly less. 9:07 Now, that is a really important thing to sit with because it's the reason a lot of people can be working and even getting raises and still feel like they're losing ground. 9:15 And then there's gas, which is the thing you can literally see on the corner. The national average for a gallon of regular gas is about four forty-eight right now. A year ago, it was three eighteen. 9:26 In Michigan, we're at about four ninety-one. And a week ago, it was four thirty. So that's roughly sixty cents in a week. Diesel is more dramatic. It's about six dollars and fifty-one cents, and actually all-time record. 9:38 In Michigan, it's six eighty-one, which is also a record. Now, let's spend a second on diesel because most of us overlook this. We don't put diesel in our vehicles, a lot of us. 9:50 And, but diesel's what moves the trucks and the trains and the farm equipment and the deliveries. When diesel goes up, the cost of getting everything on the shelf goes up with it. 9:58 And eventually, that shows up in the price of things that have nothing to do with fuel. 10:02 So even if you personally barely use gas, I barely use gas, and you're still, you're still going to pay for it in the grocery store and everywhere else. 10:10 Now, a lot of this traces back to the war with Iran, which started on February twenty-eighth of this year and is now in its seventh month. It didn't start showing up at the pump this week, right? 10:19 The New York Fed noted that energy prices surged to a four-year high back in March after Iran closed the Strait of Hormuz, which is a narrow passage that a large share of the world's oil has to move through. 10:31 When something like that happens, the effect isn't limited to the price of gasoline. 10:35 Oil is an input into shipping and plastics and fertilizer and airfare and heating, and energy shock travels through the economy in stages. And some of those stages takes months to show up on a receipt. 10:46 That's part of why I think people can feel prices coming at them even when the news cycle has moved on to something else. 10:52 Now, the cause and the effect are separated by time, and the effect keeps arriving after the headline is gone. 10:58 Oil is trading around a hundred and two dollars a barrel after sitting at near a hundred and five earlier this week. 11:03 And JP Morgan's oil analyst said for the first time since the war started, they don't have a clear baseline view of where oil is going because they don't know how to model the endgame. 11:13 I found that remarkable because the-- they are people whose entire job is to have a point of view. 11:18 They're basically saying that the, early in the conflict that they assumed that there were lines the government wouldn't cross, that many of those lines have been crossed, and that they can't tell you how it ends. 11:28 I'll tell you where I stand because I'd rather say it plainly than hide behind numbers. I don't think the war is winnable. I'm not saying that lightly. I-- and it isn't criticism of the people serving it, obviously. 11:38 It is that when I look at a con- at the- at a conflict in its seventh month that has disrupted one of the most important shipping routes in the world where the analyst whose job it is to predict the outcome say they can't model an endgame, I honestly can't picture what winning would even look like. 11:53 And when nobody can define winning, there's no natural pace for it to stop. There's no-- The cost just keeps showing up. 12:00 Now, right now, a piece of that cost is showing up at the pump and the grocery store and the budgets of households that never had a vote on this particular issue. 12:07 Now, I think the honest conversation is about how this ends, not how it's won. 12:11 If the professionals whose job it is to forecast this d-don't know, then anyone who tells you with total confidence what gas will cost six months from now is guessing and probably not good at it. 12:22 But here's something I found really interesting, and it connects to the question I started with. 12:26 Researchers at the New York Fed looked at what happened to gasoline spending after the price spoke-- spiked earlier this year, and they found something I didn't expect. 12:37 In March, higher income households increased their spending on gas by about nineteen percent, but they actually cut the amount of gas they-- that actually, uh, they bought only by one percent. 12:48 Now, lower income households, meaning the under forty thousand dollars a year, increased their spending about twelve percent, but they cut the amount of gas they actually consumed by about seven percent. 12:58 So lower income houses paid more and got noticeably less gas, while higher income houses paid more and got about the same amount. The same price shock produced two completely different experiences. 13:10 One group absorbed it, the other group adjusted their entire routine around it. So if you only looked at total dollars spent on gas, both groups would look like they were just spending more. 13:19 Now, I don't want to skip the work side of this because the labor market is a big part of why the Fed describes the economy as solid. 13:25 The Fed's statement says that the job gains have kept pace with the workforce and that unemployment rate has changed very little. 13:32 That matters because when people have a paycheck, they keep paying their bills, and that supports spending even when they're anxious. But a paycheck is one half of the equation. The other half is what the paycheck buys. 13:43 And over the past year, prices have grown a little faster than average hourly pay. 13:47 So you can be fully employed, working the same hours, maybe have a bit higher pay than last year, and still be slightly off worse in terms of where your money will go and what it will do. 13:57 Now, that's a strange thing to try to explain to somebody who's doing everything right and still feels like the ground is moving underneath them. Nothing went wrong in their life. The measuring stick just keeps changing. 14:06 So that brings me to the question I actually care about the most, which is why is spending... why spending can keep going up when so many people feel squeezed. 14:14 The Commerce Department reported that consumer spending rose again in July by two-tenths of a percent after it rising in June. 14:21 And at the same time, the personal saving rate in July was three percent, which means that after taxes, the average household saved about three cents of every dollar. 14:29 Put those two together and you get something that I think is easy to miss. Spending going up doesn't tell you that people are doing well. It can mean that people are spending more because the same things cost more. 14:39 Now, many spending figures are measured in dollars, so when prices rise, the number can rise even if people are buying the same amount or less. 14:45 It can mean that people are spending because they have to, because rent is due, because groceries are due, and the car needs gas. 14:51 And whether they feel good about the economy or not, spending is something people have to do. Financial security is a condition people are in. 14:59 Now, those two are, uh, two different measurements, and the headline only reports one of them. So then there's another question of who is doing the spending. 15:06 The New York Fed has a series of pieces on what they call the K-shaped economy. Now, the idea is pretty simple. 15:12 Since twenty twenty-three, growth in retail spending has come almost entirely from households earning more than a hundred and twenty-five thousand dollars a year, which is roughly around a third of all households in America. 15:25 Now, the reasoning is that over that period, wealth has grown the most for higher income households through stocks, home values, while inflation has hit lower income households the hardest because more of their budget goes to the things that got expensive, like housing and food and energy. 15:39 So the average can look healthy while the two very different things are happening underneath it. 15:45 And let's be fair here, because some of the economists push back on how big that split really is, and the exact numbers people quote, like the idea that the top ten percent of the economy account for nearly half of the spending. 15:56 And they're all debating those numbers. But even the economists who push back don't argue that everyone is experiencing this economy the same way. It's very different. 16:04 So when a headline says the consumer is resilient, I think the honest follow-up question would be, which consumer? Now, the mood tells its own story. 16:12 The University of Michigan's Consumer Sentiment Index, which has been tracked for decades, came in at forty-seven, down for the second month in a row, and it's the weakest reading since the record low in May when it hit forty-four point eight, the lowest since the survey began in nineteen fifty-two. 16:28 Now, people also expect prices to keep rising with the year ahead inflation expectations at four point six percent and people keep... yet people keep spending. E-economists have a name for that gap. 16:38 They call it vibe session, which is a silly word for a serious question, is the economy worse than the numbers say, or is the numbers missing something about how people actually experience the economy? 16:49 I think the answer is both things are partly true, and I don't think we can settle it by picking a side. 16:55 There's even a peer-reviewed study out this year that shifts in sentiment on their own can have lasting effects on output, jobs, and spending. 17:02 Now, if that's the right mood, it isn't only a reaction to the economy, it can be part of the machine. 17:07 Now, there's another piece that I think explains a lot of the mood, and it has to do with the difference between the level of prices and the rate of inflation. 17:14 When the inflation comes down, the economists call that progress, and it is. But a lower inflation rate doesn't bring prices back down. 17:21 It just means they're rising more slowly on top of a level that's already a lot higher than it was a few years ago. 17:27 So you can hear that inflation is cooling and then walk into a store and see that the total is still far above what you remember paying, and it feels like nobody's telling you the truth. 17:36 And I don't think that's an irrational feeling. People live in the price level, not in the rate of change. You remember what a tank of gas cost. 17:44 Last time I felt filled up was August twenty-sixth, and it was three seventy-nine a gallon. And today, if I go, it's four eighty-nine. 17:50 And every headline about inflation being three or four percent sounds abstract to the next other thing that you actually experience at the register or the gas pump. 17:58 Now, right now, the rate is going again in the wrong way, and expectations are moving with it, which is why people are bracing instead of re-relaxing. Now, the Fed Reserve also tracks households directly. 18:09 In an annual survey, the newest results are a good reality check. About 73% of adults said they were doing okay financially or living comfortably, and that number has held steady. 18:19 But that means roughly one in four were just getting by or finding it difficult, and only about sixty-three percent said they could cover a four hundred dollar emergency expense ca- using cash, savings, or a credit card they'd pay off at the next statement. 18:32 So four hundred dollars. More than a third of adults were not sure if they could handle that without borrowing, selling something, or going without something. 18:40 Now, that number has barely moved in three years, and it was higher, sixty-eight percent, back in twenty twenty-one. 18:46 So when I say I don't feel squeezed, that's true for me and it's probably true for a lot of people listening, but it's not true for everybody, and the data's pretty clear about that. 18:55 So it also helps to remember that the same numbers land differently depending on what kind of household you are. Some are on a fixed income, like a retiree whose check only adjusts once a year. 19:05 That, that feeling, a, a price increase immediately doesn't-- they don't get a raise to match it. They don't get, you know, they-- typically, they don't get to work and make more money. 19:15 Now, someone paid hourly whose schedule changes from week to week, they can't predict what next month will look like, which makes it hard to plan around any of these prices. 19:22 A renter feels a rent increase at renewal, has no say so in it. 19:27 While a homeowner with a fixed-rate mortgage has a payment that hasn't changed, but they're watching the increase in taxes and insurance and the repairs come in. 19:34 Now, a saver with a healthy cushion might actually be earning a little bit more this year because higher rates can mean higher interest on cash. 19:41 Now, every one of those people is a part of the same economy, and every one of them would describe it differently. 19:47 Now, that's the reason I get a little uncomfortable when a headline, a podcast host, or anyone tries to say how the economy feels. There isn't one way that it feels. 19:57 Now, let's be careful here 'cause I think there are two ways to get this wrong. I've seen people do both. One is the version where everything is terrible, everybody is drowning, and the economy is secretly collapsing. 20:08 The data doesn't support that. Most households are working, they're paying their bills, and they're getting by. 20:13 The other version is where everything is fine because spending is up, unemployment is low, so anyone who feels bad is just being negative. The data doesn't support that either. 20:21 It's a little insulting to the people who are genuinely stretched. 20:24 What I think the numbers actually show is an economy where a lot of people are getting through the month and have almost no room left for things to go wrong. 20:33 They aren't necessarily in a crisis, they just don't have any margin. And I think that's a very different feeling from being broke, and it's the feeling I think a lot of the mood is really about. 20:43 Now let's spend a minute on what margin actually is, because we use the word a lot and loosely. Margin is the difference between what comes in and what has to go out, and also how much of what goes out is fixed. 20:57 So if most of your money is already spoken for by rent or a mortgage or insurance premiums or a car payment or minimum payments on debt, utilities, then even a comfortable income leaves very r- little room to move because nearly all of it is committed before the month starts. 21:14 Now, someone with the same income and lower fixed cost has far more flexibility and can absorb a bad month without changing anything. 21:21 And that's why two households with identical paychecks can feel completely different about the same economy. 21:26 It also explains why an increase in prices feel so heavy, because a lot of the things that got more expensive are the things that you can't easily cut. You can skip a restaurant. You can't skip an electric bill. 21:38 You can't skip the medication or the commute or the insurance renewal. 21:42 So when the parts of the budget you can control are already small, a price increase in the part you can't control lands differ- directly on whatever cushion was left. 21:53 And that's also why I keep coming back to the four hundred dollar question. It's a small number on purpose. It isn't asking whether or not you're wealthy or even whether you're comfortable. 22:00 It's asking on one, one ordinary bad thing, a flat tire, a copay, a dead phone, problem becomes an annoyance, or if then-- if it's an annoyance, then you have the margin. 22:10 If it's a problem, you're one bad week, uh, from borrowing, and then that's when the credit card statistics start to matter, 'cause borrowing at twenty-two percent is how a small surprise turns into a big, long one. 22:22 So that's the picture, and this is where most podcasts would stop with a warning and a shrug, and I don't wanna do that because I don't think another set of numbers helps you very much. 22:31 What I wanna talk about now is what you do with all of that information or really what I do, because I think the way you take in this information matters at least as much as the information. 22:44 And I don't think it's smart to just ignore the news or bury your head in the sand. I think it's important to know this information. I think it's important to know it, and, and that's about it. 22:54 [chuckles] Now, I wanna talk about what I actually think since that's supposed to be the point of this whole show. I look at almost every news story, and my first reaction is usually that it isn't the real story. 23:05 I don't mean that in a conspiracy way, but well, not always. I entertain those sometimes. 23:10 I, I mean that the headline is one compr- compressed sentence about something enormous, and that sentence is built to get your attention, much like what I try to do for you, but not to help you understand it. 23:19 The real story is usually underneath it, in the details, in those who affect, who, who is affected and how and, and what is actually being left out. 23:28 Most of what I read in general, my first honest reaction is a version of, "What is wrong with people?" I read the news and I think, "WTF?" 23:36 I stop myself though because I realize that it's not my job to understand other people. I can empathize with them or I can sympathize with them. I can listen to them. 23:44 I can let them be heard, but I truly don't have to understand. That's not my goal. My goal is to understand myself, and my goal is to live in my purpose. 23:54 And I've realized how extremely important it is to stay focused on that because people are always going to be going through different things at different times in their life. 24:02 It's important to be there for others, but at the same time, we can't be consumed by it I'm not gonna pretend that I'm above any of this. When I read Trump stuff, I catch myself because my, my blood boils. 24:13 Then I have to remind myself that I don't have all the knowledge. I don't have a true understanding of everything that goes on at that level. 24:20 Now, here's the piece I've been thinking about the most, and it's the part that comes from my own life. I've noticed that what I let into my head shapes what I can actually see. 24:28 If I'd spent all day inside the mentality the world is terrible, that everything is getting harder, that nobody wants you and nobody likes you, and everyone is suffering, I don't think I would have noticed the opportunities that showed up in my own life recently, and I don't think I would have believed they were real. 24:44 I probably wouldn't have gone looking for them either. I'm not saying that the hard things aren't real, 'cause they are. 24:49 I'm saying the story you're steeped in influences what you're able to notice about your own situation. 24:55 So I wanna be careful how much I c-- I can claim here, 'cause I said I'd back this with research, and honest state of the research is that it's still early. 25:03 Researchers have started studying what they call doom scrolling, which they prescribed as repetitive, prolonged, hard to stop consumption of negative news, usually driven by uncertainty and a need for information, and a kind of emotional discomfort that makes you keep looking for the next update. 25:20 Now, a recent review of empirical studies found real evidence that it's connected to stress, anxiety, but most of that evidence shows correlation, not... 25:29 In other words, people who feel worse consume more bad news, and people who consume more bad news feel worse, and it's hard to separate which one is driving which. 25:37 So I'm not gonna tell you that turning off the news will fix your finances, 'cause there's no study that says that. But what I can say is that being informed and being flooded are two different things. 25:46 Reading about the Fed once a week to understand what's happening is one thing. Refreshing a feed all day about it in a state of dread and treating every headline as a verdict on your own life is a whole another. 25:56 The second one may be shaping how you read your own situation from far more than you realize. For me, the other side of that looks like this. 26:04 Some mornings I walk out the front door and the sun is on my face, and there are birds in the trees, and the rabbit hops by, and I'm about to go to the gym, and I spend a little time with my son, and I feel like I'm a, in a movie, honestly. 26:17 I have a beautiful life, and things have happened to me that I wouldn't wish on anyone. And I also know there are so many opportunities in front of me, and I don't think I would feel that way. 26:26 If, if I had spent this year marinating in headlines, I, I wouldn't, I wouldn't be able to see all these opportunities. So how do I not let it get to me? The honest answer is that I'm sure... 26:35 [lips smack] I can't give you a formula, and I can't give you a list of to-dos. [sighs] I don't think it would be true to say that it doesn't affect me, because I'm human, and life affects us, right? 26:44 It affects all of us. But what I can do tell you is that my mornings and how my days look like, and how I talk to myself, and what I read and what I consume, and you can decide whether any of it's useful for you. 26:56 The first thing I do when I wake up is meditate every single morning, and before I've looked at a single headline, I try to listen to myself or tell myself something beautiful, something that's extremely positive. 27:06 Mostly, it's just the reminder that I get to control the day, and that I get to control how I act, and I get to control what I think and how I feel. And then during the day, I take walks and I journal. 27:18 When I say I get to control the story, [sighs] I don't get to control the Fed or the war or the price at the pump. But I mean, I get to control the story I tell about it and what I do next and how I want to live. 27:29 I get to control my actions, and I get to control the outcome of my own life. I think it's very easy to let the world do that for you, and I see so many people doing that every day. 27:37 I understand why, 'cause the world is very loud. 27:40 I would like to say that I probably live in my own reality, because I don't accept the narrative that everything is terrible, and I don't accept the narrative that everyone is hurting. 27:49 I'm not trying to be this toxic positivity either. I know things are hard. I know hard-- that they're-- life is hard and things get real, but you know what? 27:58 My legs work, and I can smell, even if sometimes that's cat poo, and my brain has the ability to think, and I look at everything I'm able to do, and I'm surrounded by this amazing, beautiful nature. 28:09 And for me, it comes down to the way I look at things, which is that I get to. I get to work on projects. I get to hang out with my son and watch him grow into a man. I get to cook us dinner. 28:20 I get to clean my own house and wash my own sheets and snuggle with my cat. 28:24 I get to write and record podcasts and do, do newsletters, and I get to have friendships, and we do escape rooms and go shopping and have game nights and do lots of things that most people basically take for granted. 28:35 I get to have shoes on my feet. I think I genuinely just have that base, that core thing, and I don't know how to explain it been any better than that. 28:43 I'm extremely grateful for what I have, and I also never stop wanting more. So I live in this real in-between where I'm thankful and I'm still building, and I don't think those two things cancel each other out. 28:56 Let me give you an example of how I try to hold two ideas at the same time. I don't like what's happening with gas and diesel prices, and I don't like the way this economy is right now. I'll be upfront about that. 29:06 I don't like Trump. It's not a secret. I try to keep a h-- have it honest i-in myself, which is that I don't assume how a story ends just because I don't like the person in the middle of it. 29:16 Now, some of what's happening is really painful, and I'm not gonna pretend that a tank of gas at nearly $5 is a good thing. 29:21 But I also leave a little room for the possibility that a disruption that I don't like could push us somewhere or open something up that I can't see yet. 29:30 Now, when gas gets expensive, maybe you walk a little more, maybe you carpool, maybe you rethink how far you actually need to drive. 29:36 I could be wrong about all of this, but being open to that isn't the same thing as supporting it, and it isn't the same thing as telling anyone to be patient while they can't afford groceries. 29:46 I'm saying I try to keep the question open instead of deciding I already know how the story ends. I also have true faith in myself, like undeniable confidence in the fact that I will always be okay. 29:57 I have ultimate trust that I will always do what it takes. I, I was in mortgages for a long time, and now I'm doing work that I never thought I would've predicted. 30:03 Like, one of the proudest things is that I don't judge myself for changing. I'm able to consult with some of the largest AI companies and- It's an incredible thing, and they pay me, like, a lot of money to do that. 30:17 Had I been stuck in the mortgages and the housing industry so far down and everything is terrible, I probably wouldn't have seen the opportunities that these companies gave me to grow. 30:27 I'm able to pivot, and I'm able to evolve and learn new things without treating it like a failure, and, and, and not treating it like a failure that I'm not the person that I used to be. 30:37 I think that might be one of the most useful things you can give yourself when the economy is shifting un- other you-- under you, is permission to change. 30:44 The other piece, and it's not about money at all, it's about finding something that you absolutely love. But I would say I could probably do most anything and find reasons to love it. 30:54 But finding something you love and finding people who value you and your opinions and your ideas and your brain and your hard work, that's important. 31:02 'Cause I don't think it matters how much you get paid all the time if that isn't there. That's a big part of why I like doing so many different things. 31:09 Right now, I'm working on two MacBooks, an iPad, an iPhone at the same time, and I love it. I'm also someone who loves being out in the world and talking to people and really enjoys her alone time at the same time. 31:20 I've built a life that has room for both of those things. I don't have advice for someone who can't work from home. I don't really like giving advice in the sense of telling other people what to do with their life. 31:29 I don't want to pretend that my situation is everyone's, 'cause it's clearly not. I got here by making choices that felt really good to me. 31:35 Some of it was timing, but honestly, I think I was just blessed to have this viewpoint about life. I wish I could implant it into other people's brains, but I can't. 31:44 Now, I want to be honest about the limits of all that because the data I just walked you through complicates it. 31:49 When those New York Fed researchers looked at who cut back on gas, it was the lower-income households, and they did it because they had to, right? 31:56 Walking more because you want to and walking more because you can't afford the tank are not the same experience, even if they look that way from far away. So I'm not gonna pretend that's not a real thing. 32:06 Adaptation is real, and people are remarkably good at it. But when the ad- adaptation is forced, then it's a cost, even if it's a cost that people absorb with a lot of grace. 32:15 So my honest version of that is not something that people are just going to find opportunity in this. 32:20 Some people are-- will be crushed by it, and a lot of people are going to land somewhere in between, and which group you're in has less to do with your attitude than we'd like to pretend. 32:30 So what do you actually do with any of this? I can only tell you what I do, and I want to be clear this isn't really financial advice for your situation because I don't know your situation. 32:39 But what I have done is got very specific about the money that is moving 'cause I found that the vague feeling of pressure is worse than the actual numbers. I know what my fixed costs are. 32:48 We keep our fixed cost low, the ones that show up every month no matter what. 32:53 I know what my variable costs are, the ones I can change, like groceries, or which one I've gotten down to about five hundred dollars a month by shopping at Aldi and cooking at home. 33:01 I've looked at automatic charges that have piled up over the years 'cause I think that's where a lot of margin quietly disappears, the subscriptions and the memberships that you said yes to years ago, and the small reoccurring things that nobody decided on this year, but nobody ever canceled. 33:15 We, we do use coupons and points as much as we can, but I don't let that rule my life. It doesn't, it doesn't t-take over for me. 33:23 We enjoy cooking, uh, for ourselves more than eating out, but I've also noticed that the math isn't always what people assume 'cause sometimes the smaller the family, the more often eating out can actually turn out to be more cost-effective. 33:34 So it's worth doing the real math instead of just assuming. 33:37 Now, if you want a simple way to do this, do this for yourself, pull up the last two months of your bank statements and your card statements and go through them with three colors or three columns or whatever you prefer. 33:46 The first is fixed, meaning no matter what you have to do, it has-- is due. The second is what's flexible, meaning you could change... you could change it this month if you had to. 33:56 And the third would be what's automatic, meaning it leaves your account without you ever making a decision about it. That third column is the one that surprises people the most. 34:03 It's not any single charge that's a problem. It's those small yeses from years ago that add up to a number nobody chose today. 34:10 So you might find that the squeeze you feel is coming from two or three things you didn't even realize you were still running. 34:15 And you might find that what's coming from the big fixed cost, which is a harder conversation, but at, at least it's an honest one. 34:21 Now, either way, you'll know where the pressure is actually coming from, and that changes what you can actually do about it. 34:27 Then there's the question of what to do with whatever's left, and I'm not gonna tell you what to do, but I will tell you the math. 34:32 If you're carrying a balance on a card at twenty-two percent, that's expensive money, and every dollar you knock off that balance is one less dollar sitting there collecting that kind of interest. 34:40 Twenty-two percent is a hard rate to beat anywhere else. 34:43 Now, once that's gone, then a cushion matters because then a surprise, like a car repair or medical bill, doesn't land on a card that's charging twenty-two percent interest. 34:52 I know the other argument that you should build savings first, so a surprise doesn't undo your progress, and that's a real argument if your income is un- unstable to think about. 35:00 But, you know, that's gonna be individualistic. But an interest rate that is that high is loud, and it's, it's very hard to ignore. Now, that said, I don't think there's one right split. 35:10 I'm wary of anyone who claims there is. It depends on your income and how stable it is and what you owe and what the rate is and what surprises you're likely to face. 35:18 Somebody with two steady incomes and no debt is in a completely different position from someone with a very-- variable income and a balance on a card. 35:25 The question I'd ask myself is, isn't what percentage everyone should save. It's what job each dollar has and whether you've decided on that purpose or whether the month has been deciding it for you. 35:38 If there's something I hope you take with you, it's a few questions to ask the next time a headline tells you what the economy is actually doing. First is, which consumer is this describing? 35:46 An average can hide two very different groups, and it usually does. Now, the second is, is this measuring activity or security? 35:54 Spending is an activity, while savings, margin, and the ability to absorb shock are conditions, and a headline about one tells you very little about the other. Now, the third thing is, what does my own number say? 36:06 Not the national average, but your actual income, your actual cost, your actual margin. You may find that your situation is better than the mood suggests, the way mine is. 36:16 You may find it's worse than you've been letting yourself look at. 36:18 Either way, you're better off to know And I think that's one of the most things that I, I notice about Americans and most people, is that they, they don't really know. They just let the headlines decide for them. 36:30 It's better to just deal with it up front. And the one last thing I think is what's actually mine to control. I can't control the Fed or the war or the price of diesel. I can control my actions. 36:41 I can control what I let in and what s- story I tell myself about it. Now, if you wanna keep an eye on this story without living inside of it, there are only a few things I'd actually watch over the next couple months. 36:51 One, whether gas and diesel keep climbing, because that's the piece most likely to spread into everything else. 36:56 Now, another is the next inflation report to see whether the rate is cooling or heating up, and whether the Fed actually follows through on the additional hikes for this year, and that most of its members are projecting. 37:07 So, a third is the household side, meaning whether the share of people falling behind on card payments continue to grow. 37:13 Because that would be the first sign that people who have been absorbing all of this are running out of room. Nothing on that list requires you to check anything at every hour. 37:20 Most of it shows up in a monthly release, and the rest of the time, the most useful thing you can do is get clear about your own numbers. 37:27 I'm curious where you land, because I don't think my experience is typical, and I don't wanna build a whole conversation just around my experience. Does the headline match your life right now? Do you feel the squeeze? 37:38 Or does the mood on the news feel bigger than what you're actually living? Or is it more complicated than either of those things, where some parts of your life feel fine and other feels tighter than they've ever been? 37:48 Then tell me in the comments, or come find me in the community, because I think the most honest picture of what an economy comes from is what people are actually experience, not just one number. 37:57 I think the economy can be genuinely hard, and you can still be able to see the door. Now, both of those things are true at the same time, and the headlines almost never let them be. 38:07 And that's what I'm thinking about today. I am Michelle Vaughn, and this is The Observation Room. If you stayed this long and you want to learn more or be a part of my community, please join me at michellevaughn.co. 38:17 We talk about money and business and work and life and all the things in between, and I would love for you-
