The economic downturn has been tumbling for more than a year now.  Cutbacks are happening in almost every industry, while expenses for essential items like gas, food and energy are increasing.  All you have to do is look around your neighborhood or community to see that people are hurting.  Heck - you don’t even need to leave your home to know that people in all walks of life are suffering and blogging about it.

I’d be willing to bet that the majority of people in America have taken a minimum of a 20% decrease in net worth in the last year.  Home values have declined drastically.  Interest rates have gone up, and many people have adjustable rate or interest only mortgages that are about to blow up (I understand rates are historically low, but that doesn’t change the fact that adjustments add hundreds of dollars to most families monthly expenses).

The stock market sucks.  Interest bearing accounts and CD rates are much lower than a year ago.  Retirement accounts have been deflated like a two-week-old birthday balloon.  If you’re like my family, it’s depressing to think about the multiple steps backward in retirement planning.  The “paper” losses are staggering and depressing to say the least.

Times like these have forced families to take drastic measures.  I have several friends who lost their jobs, and a few that are on the verge of losing their homes.  It’s a sad state of affairs, and I hope that things take a turn for the better soon.  I feel like the Presidential election this fall will hinge on the issue of the economy, much more so than the topics of Iraq or health care or social security.

Like most families in America, my wife and I have made certain choices to adjust to the current economic climate.  We have looked at creative ways of increasing income, but mostly we have chosen to cut expenses.  We are extremely thankful that the choices we make are not between feeding our children and paying the mortgage like so many others, and we count our blessings every day.

In spite of things, we have a happy, healthy and spiritually prosperous home.  Nevertheless, frugality is the order of the day for us, and a recent post at Frugal Dad confirmed to me that this is an excellent term to describe our life.  We’re not cheap, but we do look for ways to make our money work harder for us.  Also, even though times are tough, we continue to look for opportunities to invest our savings (mostly in college funds for the kids).

As I said before, net worth has been falling for most people, including us, while at the same time expenses and cost of living has been going up.

Here are some of the major expenses that have gone up for my family over the past year:

1.  Food -15% - 20% increase on most essential items

2.  Gas - 65% increase

3.  Utilities (water, propane/gas, sewer, electricity, trash) - 30% increase

4.  Property Taxes - 10% increase (mostly due to increased state assessments in spite of decrease in value)

5.  Airfare - 60% increase (my oldest daughter lives across the country from us and flies here during breaks from school)

6.  Baby Products - 100% increase (we had a baby this year - two in diapers)

7.  Insurance (health, auto, home) - 15% combined increase

Here are some ways that my wife and I have been frugal to make up the difference in increased expenses:

1.  We buy food less often and in bulk from a wholesale grocer.  Average Monthly cost savings = $40

2.  We use coupons for anything and everything, including food, oil changes, clothes for the kids (if we don’t have a coupon, then we tend to delay the purchase of non-essentials). Average Monthly cost savings = $100

3.  We don’t drive places unnecessarily to conserve on fuel expenses. Average Monthly cost savings (compared to 6 months ago) = $150

4.  We increased the temperature of the air conditioning by 2 degrees over prior years to cut back on electricity, and closed off all vents in rooms we rarely occupy. Average Monthly cost savings = $100

5.  We cut the majority of entertainment expenses, like going out to eat, unless we had a gift card to use (we were never big on this to begin with though). Average Monthly cost savings = $50

6.  We upgraded our cable to digital service with a movie package and stopped renting movies completely. Average Monthly cost savings = $20

7.  We cut back on new clothing for me and my wife and just focused on the kids.  Average Monthly cost savings = $60

8.  I have learned how to do the majority of repair work on the house and vehicles (with some exceptions, but this was a pretty big cost saver for us this year). Average Monthly cost savings = $60

9.  We stopped watering our lawn in the summer and reduced the amount of landscaping.  Average Monthly cost savings = $30

10.  We use rewards cards for everything possible to build up funds in UPromise account and accumulate points for hotel, air and car rentals when we go on vacation. We also decided to stay closer to home for vacation this year, and we chose not to go on one vacation that we normally would have in years past.  Average Monthly cost savings = $100

These changes in behavior and spending habits saved us approximately $710 per month.  So, has this been enough to offset the increases in expenses.  Surprisingly, for us, the answer is NO.  In spite of all this, we are still coming up negative as compared to a year ago.  This doesn’t mean that we don’t invest in the future, especially for our kids.  We consider paying into our investments a monthly expense too; however, unlike the majority of our other expenses, we have not been able to increase the rate or amount of each investment over the past year.

So, what does this mean?  Like most families, we have to dip into reserves/savings every month to balance revenues versus exenditures plus investments.  We have managed to narrow the gap, but for how long?  If cost of living continues to rise, we are going to have to make more drastic changes in our life, in order to stay on track and achieve our goals as a family.

Still, as I said before, I’m thankful.  Our problems pale in comparison to millions of others, but I do feel like it’s important that middle class families be able to voice their concerns.  I don’t want my family to take a step backward, and I don’t think that it’s good for the economy if we do.  We may be frugal, but we are good consumers.  America needs me to spend money, as well as save it for the future, but something more will have to be done soon to get this expense to income ratio right side up again.

What about you?  How has the current state of the economy affected your family?  Has it been severe? What changes have you had to make in order to survive or “stop the bleeding,” so to speak?  Are you a frugal family, like me and my wife, or have you been forced to embrace frugality out of necessity?

Please share what you and your family have done to survive or thrive in this economic state.

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