I have worked with and observed people with financial difficulty for most of my life. What has surprised me most is that your average person who finds themselves in financial trouble is not who you would expect. Sure, there are a few bad apples, who made poor decisions and lifestyle choices, who, not surprisingly, ended in financial ruin. But most people I have dealt with are not anything like that.
Typically the people who have sought my assistance with their financial difficulty are very well-intended people. They are honest and unfortunate people, who seemed to do everything right, yet ended up in dire financial trouble
I have met with doctors, lawyers, and financial advisers. I have assisted, seniors, single parents, and young struggling couples. Most were living within their means, paying their debts as they became due and even saving for the rainy days. Yet for many, that was not enough to stop them from finding themselves in a place where they could not dig themselves out financially.
I have given some serious thought about how I can truly help those individuals.
While my experience shows me that you cannot protect everyone from finding themselves in that situation, I can’t help but wonder – is there something further that can be done to protect a few more?
A Personal Observation
Studies show that most Canadians think things will be better in the next 5 years. Because of this, we hang on, continue to do what we have been doing and rely on credit to get us through the tight spots. The problem with that is, as things improve, most of us adjust our standard of living to keep step with our improved financial state.
We are continually readjusting to live within our means – to live within our increased earning capacity.
I did that for many years. If I received a raise, I thoughtfully made a decision about what I would spend it on. I clearly remember one raise that I received. After some careful analysis, I calculated that the raise would exactly cover a car payment, so we could get a second car. The additional insurance and maintenance somehow had to be squeezed out of our current budget.
An increase in income automatically meant an increase in my standard of living. We were budgeting and careful with our spending. I thought we were doing everything right.
Living Within Our Means
It appears that the problem with living within our means, is that it places a financial strain on us. We are aware of the financial fragility of our situation. We are hoping for the best, but not planning for the worst.
Most people living within their means are not independently wealthy. When a major life-changing event occurs that affects our situation financially, we are generally unprepared. I see it over and over again.
- Having a child and living on reduced income with extra expenses for a time.
- Being transferred and being without a second income for a short time.
- Separation and having to run two households on the same income while paying legal fees.
- Death of a major breadwinner without adequate insurance.
Suddenly, living within our means has set us up to fail when major life events occur, or when debt levels slowly accumulate. While living within our means, we are putting ourselves at risk, should our financial situation take a major financial blow. We are risking financial difficulty at the first setback that comes along.
A Practical Solution
I may have stumbled across one viable solution rather unintentionally.
I have always strived to live within my means, practice the budgeting I preach, and save for the rainy days. My spouse was considering early retirement so I decided to investigate whether the reduced income would be affordable. The first thing I did was readjust my budget to what it would be if we were living on the reduced income.
I lowered our standard of living.
Next, I put aside the perceived drop in income into a separate savings account. The intention was to see how drastically our lives would change with our reduced standard of living. The results were quite surprising.
Living with the mindset that we had a reduced earning capacity, didn’t seem to change our quality of life all that much. In fact, we were more thoughtful in our spending choices and actually made better decisions. Not only were we able to save the funds being set aside, but our weekly budget was also showing a greater excess than usual. We were actually saving more of our reduced income than we were when we had a surplus!
I started to test my discovery by observing people that appeared financially comfortable. What I noticed was that most seemed to be living below their means.
When my husband did retire, I dropped our standard of living once again to the next level down. Once again, the results have been amazing and once again our financial situation has improved.
Avoiding Financial Difficulty May Be Simpler Than You Think
Do you want to avoid the pressure of always living so close to the edge? Do you want to have the peace of mind that comes with knowing you are financially prepared for when “life happens”? If so, I recommend giving yourself a cut in pay! If my observations prove correct, I believe your financial health would greatly improve and you might even avoid financial difficulty.
No longer will you be spending and budgeting for all the income you earn. Your savings will be increasing, preparing a safety net for those major life events. If you are blessed enough to avoid any financial blows to your budget, you may just have a very comfortable retirement.
Am I saying that honest and unfortunate debtors would no longer be pushed to the brink, and need assistance to help them reorganize once in a while? Absolutely not. No matter how well we are managing financially, there will always be things that we cannot prevent or financially prepare for.
What I am saying is that if we all stopped living to the maximum of our income, and deliberately lowered our standard of living, I believe our financial stress, on the whole, would be greatly minimized and we would all be financially healthier. Avoiding financial difficulty might be simpler than we thought.