Monday, December 19, 2011

Annual income twenty pounds, annual expenditure nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery. – Charles Dickens

What was true in David Copperfield’s time still remains true today. If we spend more than we earn, the result is misery. Misery in the form of guilt, stress, lying, rationalization, denial, and the list goes on.

I have interviewed many people throughout my career as a financial planner, and I have come across different money personalities and philosophies. By far the most successful people financially and the most satisfied in their life overall have the money philosophy of not spending more than one earns. How simple a concept, but difficult in reality.

Our modern culture idealizes excess consumption, accumulation of “stuff” as being superior to meeting the basic needs of food, clothing, and shelter. It provides status to own designer labels, bigger houses, eat at expensive restaurants, own luxury cars, etc. This is not inherently “bad” if your income will support that lifestyle; and allows you the opportunity of not spending all you earn. Often that is not the case; people justify living beyond their means for varied reasons, most of which involve some form of rationalization.

I’ve met people over the years with high incomes, multiple mortgages, and expensive toys living paycheck to paycheck. On the other end of the spectrum I have met secretaries who saved 10 cents of every dollar they earned, who accumulated over a million dollars. I’ve met housewives who were in charge of the finances accumulating hundreds of thousands of dollars over time. The people who saved had less stress and more options as they approached “retirement.”

I am generalizing here, but it has been my observation that those who live beyond their means and accumulate “stuff” instead of saving money for a rainy day, lead a less balanced, more stressful life. They may be one paycheck away from a disaster.

This type of money personality has an attachment to money that prioritizes pleasure and enjoyment now over the potential misery that will be created by the loss of a job, a health crisis, or premature death.

If you are in a situation where you feel you are living beyond your means sit down by yourself or with your spouse/partner and ask these questions:

1. Are you using credit cards to buy groceries or other items you used to buy with cash?
2. Are you using savings to pay monthly bills you used to pay from checking or taking cash advances on your credit cards?
3. Are you spending more than 28% of income on your home mortgage?
4. Are you saving less than 5% of you income?
5. Is your credit score below 600? – If your score falls below 600 you are probably over your head.

Many people get in trouble during the holiday season by over-spending. These may be a warning signal that it is time to make some changes before your money situation gets out of hand.

In my years of yoga practice and teaching yoga, I have been taught and try to teach others to apply the principles of self-observation and the cultivation of balance in our life. It’s exploring where you need to be to be able to tell yourself, “I have enough,” rather than feeling victimized by the belief that “I’ll never have enough.”

We must take the time to really explore what is important to us and to our loved ones. And then set a plan in place to achieve what will make you feel confident and in charge of your future. This holiday season, instead of accumulating “stuff,” let’s accumulate experiences; a walk in the woods with your children, baking cookies together, helping out at a food pantry with your family. Once we truly know what is really important, we can find the balance in our money life as well.

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