One of the great things about America is that we are never void of a debate. Last year, the world’s largest bond fund manager, Bill Gross, coined the term “new normal” to describe the tepid 2% annual growth rate in the U.S. for sometime into the future. Recently, Joseph Carson, an economist in New York, came up with the phrase “new mix” to counter Gross’s predictions.  Carson foresees a growth rate of 3.7% for 2010 and an average annual growth rate for the U.S. exceeding 3% thereafter.

 

Bill Gross’s commitment to his prediction of the “new normal” lies in the fact that the large burden of debt facing all governments including federal, state and local municipalities, coupled with financial regulatory reform, will place a stronghold on growth for some time. Carson, on the other hand, strongly believes there will be a shift in demand from the consumer and housing to business investment and exports.

 

One point of agreement between the two is that consumer spending will be muted under the strain of a 9.7% unemployment rate and a loss of nearly $12.6 trillion of net worth in the recession.  They also agree that the emerging markets around the world should experience more robust growth than the U.S.  Tapping into the trend is the key for the U.S.

 

Both Gross and Carson have data galore from which to draw their conclusions, not to mention large staffs of research analysts to crunch their numbers and theories.  So, if the brightest and most respected minds on Wall Street can’t agree, what can the average investor conclude?

 

I will offer a few suggestions based on my 21 years of experience:
 

Rather than focus on the things we can’t control, it is time to turn the attention to the things we can.  It was so easy to ride the “bull” markets of the past all the while our homes were appreciating at unprecedented rates.  It was easy to cover the wants versus the needs while the net worth was simultaneously going up.  Good, old-fashioned financial planning is now more important than ever.

 

Fighting change and under protest many years ago, I forced myself to learn how to track our household income and spending. This is one of the best decisions I ever made because it allows me to see where our money goes and focus on what changes I can make to improve things.  It is also easy to see when one area of spending, like cycling gear (my weakness) looks “out of whack.”  One of the many discoveries I’ve accumulated through counseling retirees is that the amount typically given to me as an annual living expense is underestimated.  I haven’t concluded if this is the result of denial, lack of tracking (in other words a guess), or the spouse in charge of household spending preferring not to tell the truth.  It is difficult, if not impossible, to plan for retirement or any financial goal if the goal amount is undefined. 

 

Once the amount needed to cover living expenses, with a little cushion for Ben & Jerry’s, is determined, it is fairly easy to determine the amount of savings needed to comfortably make it through retirement.  It takes discipline to save and there are constant distractions that cloud the focus.  Professional athletes and symphony performers practice long hours and generally hire a coach to provide objective advice; sometimes a small correction is all that is needed.  This is the same role a financial advisor fills for individuals working towards retirement, the first home, the first child or, in my case, the first kid going off to college.

 

Tracking income and spending is within our control, even when the markets and economy are inherently uncertain.  I encourage everyone to revisit their “normal” for budgeting, saving and living.  If a “new normal” is discovered, make proper course corrections or give me a call for assistance.  The recipe for success is for all aspects of the financial plan to work smoothly as a well oiled machine!