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Why "recurring costs" and "social costs" matter more than income?

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Everybody needs to understand one simple fact--reducing costs is more important than the rising income and savings. Because the cost keeps rising permanently, income does not. Second, inflation eats into your income and savings, but it cannot eat your costs; it only increases your costs! Therefore, if you cut a cost permanently, you have created a lasting income at least in that amount for yourself forever! In plain English, if you eliminate a cost, it is like you have created a permanent income for yourself, which even becomes more valuable as time passes and inflation keeps chipping away the value of your income and savings!

The reason why "recurring costs" and "social costs" must be brought under control is because they repeatedly keep transferring wealth from a larger group to a relatively smaller group of people without generating any new wealth in the process; in fact, they keep destroying wealth in almost all cases. This process cannot last for too long before we all end up in a growing general poverty, stagnating economy and rising inflation.

Although there is not always a clear cut between the recurring costs and social costs, and all social costs are often recurring costs too, we could agree on a simple definition to separate one from the other by saying that "recurring costs" are those that costs everybody on a regular basis, and the "social costs" are carried by the public.

The main sources of recurring costs are--interest, energy, and insurance (all types)! Of course, rent, mortgage, maintenance and the likes are recurring costs too.

The sources of social costs are: government, poverty, healthcare, legal system, prison, police, fire-fighters, environment (pollution), raw materials, wars, natural disasters, outsourcing, food stamps, and maintenance.

In order to be able to accumulate savings, as private and public households and businesses, we need to take three important steps: 1) Freeze the cost; 2) Reduce the cost, and 3) Wherever possible, eliminate the cost. This is the foundation of the concepts of Zero Cost Economics, which also provides solutions to achieve these goals.

In other words, as important as it is to get involved in wealth-creating activities to create a healthy, vibrant and robust economy, it is even more important to follow the concepts of Zero Cost Economics. The reason is when you have no cost or a low cost of living and existing, you need to not work as much as if you would have had to deal with the rising costs of all kinds; some savings would go a long way.

To be even more precise, an economy is unpredictable and an uncertain issue as we all, individually or collectively are; we don't know what can happen to us in an immediate or long-term future!

As private households, we may lose our jobs due to a bad economy, be unable to work as a result of an accident, or retirement. The first thing we need to do is to make sure that when we get into one of these or similar situations, we have cut our recurring costs as much as possible and lowered it down to a minimum. That would be an ideal situation to start with.

The same applies to the public households as well as to the businesses, because a bad economy can have the same effects on them as it has on the private households.

The second step would be to accumulate enough savings or financial reserves for the lean years when you have to live without income or income below your cost of living or existence. This applies to private and public households as well as the businesses alike; otherwise, the road will end up in poverty or bankruptcy.

 

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http://www.khavariforgovernor.com

Farid A. Khavari, Ph.D., is a noted economist and independent candidate for Florida governor in 2014. He is the author of 10 books including Environomics: the Economics of Environmentally Safe Prosperity (1993) and Toward a Zero Cost Economy (more...)
 

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