Another Silver Lining to the Recession?

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This is a guest post by SD Guy

We’ve been hearing about inflation for a long time. You can inflate a lot of things, (a beach ball, a whoopee cushion, etc.) but the type of inflation I’m referring to is economic – “rise in the general level of prices of goods and services in an economy over a period of time” (Wikipedia) Inflation means your money is worth less now than it was a year ago. It’s a small difference, but it adds up – your dimes and nickels don’t buy near as much as they did 100 years ago.

According to the June 2009 edition of Forbes magazine, the American economy may, for the first time in 54 years, see falling prices (deflation). This means that over the next little while you’ll notice lower than usual prices on some of the things you buy regularly. Forbes estimates the decline in prices of consumer goods will continue through 2010.

So what does this mean for us?

At least for the next little while you’ll be able to get more for your money (literally). It probably won’t be a significant change, but in Japan for example, prices dropped 3.8% from the year before. If you’ve got a $2,000 monthly budget, you’d be saving about $76 dollars a month.

As a general price drop occurs, you might find companies more willing to negotiate the prices for their goods and services – the good ones would rather drop prices a bit or offer a discount rather than lose you as a customer. Obviously you’ll need to be proactive, and search opportunities out, but finding the right time to push could save you a couple extra bucks.

The book ‘Five Lessons a Millionaire Taught Me‘ refers to the ‘Seven Magic Words’ – “Is that the best you can do?” – as a negotiation mainstay. Asking can’t hurt – they’ll either say “no” – or drop the price. Capitalizing on opportunities to negotiate a lower price is a useful tool for bargain hunters, and the time to sharpen these skills may be now!

What to Watch Out For

You want to take advantage of this ‘break’ as early & as often as possible.

Historically, wages have changed in respect to the inflation rate, and deflation means slightly lower wages. Your salary will slowly align with the overall economic state.

While lower prices sound great for consumers, they’re a scary proposition for businesses. It was deflation that fueled the flames of the Great Depression – businesses weren’t able to make enough money to keep their doors open. Currently, businesses have legitimate concerns that spiraling prices are hurting business, causing more layoffs, and reducing the ability of companies to create new products and new jobs.

So what’s the answer?

If you have been saving up for a major purchase, you might be rewarded with a golden opportunity sometime in the next few months. Patience and preparedness are important, and if you’re ready you might stumble onto a great deal. If you’re just plugging along, you’ll probably find a few more bucks in your budget you can save for a rainy day.

*All statistics pulled from the June 2009 edition of Forbes Magazine

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1 Jeff@StretchyDollar

Looks great! Thanks for the chance to post. I wish I could jump on to a big mattress like that, it looks pretty fun!

2 Jason@RedeemingRiches

Great post Jeff. This is a topic not talked about much since we rarely deal with it in the economy.

Although there may be some positives in terms of getting some good deals, the uncertainty of employment is greater since businesses are looking to cut workforce to help offset lower profits.

If this is the case, most people would be better off taking the extra savings and plunking it into an emergency fund or paying off consumer debt so they are better prepared to handle the rough ride.

3 Kevin@OutOfYourRut

This is a great post, one not many have ventured into even on the web. Lower prices truly are a silver lining in the economy.

Emphasis really does need to be placed on negotiating for lower prices though. Unfortunately, falling prices aren’t uniform. While housing and to some extent cars and food are becoming less expensive, other categories still favored by the public purse–taxes, healthcare, education and utilities–are still in an inflationary spiral. Negotiating on major purchases, repairs and services might help to offset these.

With the new shift toward thrift, it’s easier now than ever to pare back on expenses like eating out, entertainment and buying the latest clothes and gadgets. That’s one of deflations secondary benefits. Not so many people are afraid to say “I can’t afford it”.

4 Corporate Barbarian

We’re not planning any major purchases in the near future, but I’ll settle for a few extra bucks for a rainy day. Unfortunately, the higher taxes that we’ll pay will probably negate the savings.
[rq=3420,1,blog][/rq]A Worthy Adversary

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