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Financial Right-sizing
by Kathryn Amenta, Financial Advisor
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Financial independence is not about living in the lap of luxury. It’s about living comfortably within your means and making money decisions based on your true values.
There’s a huge hoax afoot—and you and I are the targets. Just turn on the TV or flip through a lifestyle magazine and you’ll see it. The hoax smiles alluringly from homes draped in opulence. It flirts down the runway in designer labels. It circles the block in a high performing roadster techno equipped for a soft moon landing. It offers sleek gadgetry promising to keep us mobile, plugged in and in-demand.
Whether we’re 20 or 60, earning high or low, urban or suburban, the hoax has our number. It always knows how to dangle something in front of us that we think we desperately need, and says we’re a failure if we can’t buy it. But the biggest hoax is that it pretends it doesn’t exist. It wants us to believe that the desire for luxurious stuff comes from deep within us.
Many, many people buy into the hoax that an opulent lifestyle with all the trimmings is our birth right—regardless of the cost. After all, we work hard, life is stressful and we simply must keep up appearances. We deserve to have a housekeeper, routinely experience fine dining and dress our children in the latest fashion. We also must demonstrate our love for others with expensive gifts. Here’s the catch: All this opulence comes with a shocking price tag.
Over the last 30 years, we have become a nation of spenders, not savers. Americans spend more than they earn, with the greater part of our disposable income going toward paying down our debt. Mortgage and credit card debt are at a record high. According to CardWeb.com, households with at least one credit card carried an average of $9,498 in card debt in 2005, nearly twice the level of a decade ago. Is anybody seriously talking about their future anymore, or what kind of retirement their “must-have” spending is buying them?
I am not suggesting it is wrong to buy things we want if and when we can afford them. But the trouble is, rampant, unchecked consumerism has become epidemic in our culture. The desire to have luxury beyond our financial means drives up our debt, hijacks our savings and dismisses our future. Even if we are income rich, we are asset poor, with nothing to show for our hard earnings except the trinkets that become out-moded every year or the expensive vacation that really didn’t take away our stress after all.
Unchecked consumerism creates stress, layers and layers of stress that affect the quality of our lives. According to USA Today (Oct. 2004), 1 in 4 Americans are seriously distressed about their personal financial situation. Financial distress over what we owe, what we want and how we’re going to pay for it especially takes a toll on our families and relationships. As reported by PRWeb (Oct. 2004), an American Bar Association survey showed that 80% of the couples in the US that divorce each year, cite debt and financial distress as the primary factor.
We don’t just leave financial stress at home. Our work life is also affected by our unchecked consumerism. We feel pressured to make more money, not because of our qualifications, but because we need more to pay for this lifestyle of the rich and famous. Even if we love our work situation, we will be perpetually displeased and on the job search if we are driven to make more to pay for our insatiable desire for more stuff.
Stress over money affects our job performance and can cost us the job we depend on. In Financial Distress Among American Workers, researcher E. Thomas Garman, found up to 80% of workers with financial stress spend time at their job dealing with or worrying about money. Financial distress lowers productivity, increases absenteeism and leads workers to use the company fax, email or phone to resolve their money issues. It spurs turnover in workers seeking more money in another job, and drives up the costs of employee benefits from health issues arising from stress. Employee Benefit News (Feb. 2006) estimated that financial stress costs employers an estimated $15,000 per affected employee. In an increasingly competitive job market, down-sizing by the minute, employers have high expectations about worker performance and focus on the job.
And what of the health ramifications? In E. Thomas Garman’s survey of 3,000 debtors who had contacted a credit counseling agency, those with the highest level of financial distress were in poor health. Financial distress can result in high blood pressure, weight gain and insomnia. According to David Jones, president of the Association of Independent Consumer Credit Counseling Agencies, financial distress can lead to “substance abuse and alcohol abuse.”
If you are convinced that we face a national epidemic and that you want to break your learned habits toward spending beyond your means, there is a solution—and it is phenomenally empowering. It demands nothing less of you than that you take responsibility for your personal financial decisions—rather than giving your power away to the hoax. This is not about someone judging you about how you spend your money or your amount of debt. It is about adopting a healthy mindset—a money consciousness for financial right-sizing.
Financial right-sizing starts with making an honest assessment of your money situation: how much you spend, how much you owe and how much is required to pay for your true needs. What do you truly value in life, and have your financial choices been true to your values? Are you fulfilled in your work and earning what you deserve? Can you find alternatives to get what you want without increasing your debt and robbing your future?
For some people, the transformation from unchecked consumerism to financial right-sizing comes with a life changing event. During the time of her divorce, Jessica Burdman came to financial counseling because she was struggling to maintain her previous lifestyle. “I was consistently overdrawing my checking account, and I had no idea why,” she remembers. “I just felt like I wasn’t making enough money and that if I made more it would be okay. It almost forced me to change careers.”
But Jessica was in touch with the things she truly valued—her daughter and her career. She realized that she’d be sacrificing time with her daughter if she sought to work more hours. She also felt she was well compensated for the work she loved. With financial counseling, she began to investigate ways to live within her means, starting with an assessment of her spending habits. “I acquired an awareness of where I could cut back and save without feeling that I was compromising. I had never really paid attention to where I spent money.”
Jessica found an after-school program for her 3 _ year old daughter that was more affordable than her private nanny’s fees and transportation costs. The quality of care didn’t suffer; in fact her daughter’s joy heightened since the program gave her more time with her school pals. Jessica began evaluating other areas where she could make choices, like in her expensive selection of add-ons to her telephone service. She invited a friend to move in to reduce her housing costs. In all, she was able to create a cash flow plan within her new means, to stop using credit cards as a first resort, put money aside for periodic savings and increase her 401K contribution at work.
“I feel that I have more control in my life now,” said Jessica. “Before I was in constant fear of not having enough money, or losing my job, or having to give up the job I love or my gym class. Now I feel I can budget them all in. There are definitely tradeoffs. But having control over my finances makes me feel good about myself.”
Financial right-sizing does not take quality out of our lives; it gives it back. It moves us beyond the cycle of working longer hours to earn more to buy more. It puts us in touch with what we really value and makes us feel powerful because we make conscious choices based on our values. It provides a sense of security because we have the means to pay for what we need and to maintain a safety net for the inevitable rainy day. It brings out our resourcefulness, inviting us to be creative in finding low cost or no cost ways to fulfill our wants and desires and to pay for the occasional well-deserved treat. Even creating and implementing a plan for our future are within our abilities.
So why not make the shift from financial distress to financial freedom? After all, financial freedom is not about living a luxurious lifestyle. It’s about living comfortably and happily within our financial means. It’s about making healthy, conscious financial decisions based on your values. You’re in control. You feel safe and powerful.
© 2009 Kathryn Amenta
Kathryn Amenta is an expert Financial Advisor to individuals, couples and business partners. She uniquely focuses on overcoming personal barriers to financial success, including underlying beliefs about money, spending, saving and self-worth. Through her proprietary cash flow tools, she has helped clients across the US learn to successfully manage their money, create action plans for their future and enjoy financial security in any economy.
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