Prices for other foods and beverages, such as grapefruit, chicken, turkey, and wine, during the same time period have climbed at least 20%. The price hikes can be hard to swallow for savers who seek to stick with personal spending budgets as part of their long-term financial plans.
Yet, they are also providing opportunities for advisors to help their clients juggle budget issues and develop cost savings strategies. By reaching out to clients, furthermore, advisors can ensure that their clients are continuing to allocate a portion of their earnings toward investments as part of long-term savings programs.
A variety of factors have been driving up food costs. A severe drought in Texas and the western U.S. has caused grain production to plummet, which has caused feedstock costs to rise, thereby increasing the costs of meat and dairy products. The U.S. cattle herd has shrunk to levels last seen in the early 1950s while the Federal government has reacted to the drought by declaring 11 states to be disaster areas.
Other factors are also at work. The Porcine Epidemic Diarrhea Virus, which can be deadly to new-born pigs, is taking a toll on hog production, while Florida citrus farms have been hit hard by a disease called citrus greening. At the same time, a fungus has swept from Mexico to Peru that is greatly hindering coffee production.
It’s unclear when the drought will end and when controls for diseases that are driving up food prices will be developed, so consumers would be well served to expect continued pain at the cash register going forward.
As part of that thinking, advisors may want to revisit budgeting with their clients and provide advice on how to cut food costs. The process also gives advisors a chance to reinforce the concept that budgets are intended to be flexible spending guidelines rather than rigid mandates. To start with, advisors should point out that budgets are crucial for ensuring that investors can set aside a sufficient portion of their income to save for long term goals.
With rising food prices, however, complying with budgets can be difficult, so it may make sense to readdress the matter. Budgeting, of course, is a flexible process so advisors can point out that individuals have a variety of options when responding to increased food prices.
It may be appropriate to assess if clients’ current budgets are resulting in sufficient savings rates. Some clients may not be saving enough while others may be saving more than they need to reach their goals. In the latter example, such clients may not need to find ways to respond to higher food prices.
Many clients will not fall in the camp, however, and will need to find ways to cut their expenses. For example, many clients have budgeted for dinning out, which of course is considerably more expensive than cooking at home. Such clients may wish to offset higher grocery bills by saving money by curtailing how often they eat out.
In supermarkets, clients may also want to consider avoiding prepared foods and other convenience products. Consumers may also be able to cut their food expenses by buying in bulk at discount warehouse retailers. If those options have already been implemented and haven’t reduced expenses sufficiently, then clients may need to look at other expenses.
Some options may include reducing proposed vacation expenses, delaying purchasing a new car, and curtailing entertainment expenses. Trimming budgets, of course, can be a painful process, so advisors should be prepared to emphasize that following a disciplined spending plan can yield rewards over the long term such as a secure retirement or saving a sufficient amount for children’s college tuition.