It seems as though every other person you meet these days is interested in saving money. Personally, I think this is a good thing (and not really bad for the economyÂ as the media likes to propose).
The way I look at it is this:
- When times are good, I make conscious spending choices and am able to save a large proportion of my income.
- When times are less good, I make conscious spending choices and am able to save a large proportion of my income.
In other words, I prefer stable, balanced money habits to the crazy splurge and save cycles of money ‘crash diets’.
I think that our individual finances would be a lot healthier if we took the long view of things — and I think the economy would be better off, too. After all, wouldn’t it make more sense to have a stable pattern of economic expenditure, rather than a pattern of overspending and then massive cutbacks?
When Times Are Good
Recently, J and I went from two incomes to one. Â Because we had always been money savers, we didn’t have to change our lifestyle dramatically. In fact, we stillÂ are able to save more than many of our friends.
Prior to our collective income being reduced basically in half, we were able to max our our TFSAs & RRSPs (roughly equivalent to American 401ks and Roth 401ks), have a hefty emergency fund. Even with all that, we’ll still have enough left over for some renovations and camping trips when the snow stops falling.
You may think that the reason we were able to do this was because we both made rediculous amounts of money. Not true. Â We both believe that there are some things more important than money — work-life balance, for example (I could be earning at least twice as much on my own if I wanted to, but I’m not interested in only chasing the money).Â So our income even at that time was well below the average family income in the area. And we live in one of the more expensive cities in the country.
When Times Are Less Good
J voluntarily left her place of employment late last year when it became clear that the work environment was negatively affecting her health and our relationship. This was just as the job market went from “we can’t get enough people to fill these jobs” to “we need to lay off half our staff or more.” Despite her best efforts, finding a new position has proven difficult, and so for the past 3-4 months, we’ve been living on half of what we had before.
However, even with this significant change, we still max out our TFSAs, will make contributions to RRSPs (although not max them out — because of tax bracket considerations more than anything), and will even have some cash to do some camping and renos around the house. Even beyond that, despite our income being cut in half, our spending habits haven’t changed.Â
Because our finances were balanced between saving and spending, we could withstand changes to our economic system.Â The result of this balance is that even when that income drops or the economy is in rough shape, we don’t have to worry about finding extra money here and there.
Earlier, I likened my approach to money management to nutrition. When it comes to food, you can either choose a balanced, stable diet orÂ you can choose to yo-yo between periods of “eating normally” (also known as overeating) and “going on a diet”.Â Whether you’re “on the diet” or “off the diet”, you never want to eat less than what your body needs for its basic function.
The same is true when it comes to financials. I like to think that I’ve got a pretty balanced financial diet. I don’t yo-yo, my spending and savings patterns are consistent with my needs both in the short and long terms. I always spend less than I earn, so that whether times are good or bad, I can make small adjustments but still “get all my nutrients.”
Many others — maybe you — find themselves caught in a yo-yo pattern of dieting is like those people whose spending reflects their earnings. Need to tighten the wasteband? Well, we’ll cut down on the dining out this month. Got a raise? Let’s take an extra vacation this year.
Like the dieters who don’t eat less than what their bodies need, these folks don’t spend more than they earn. Sometimes, they’ll take out a 6-month loan if they can get really cheap financing, but their payments are always well within what they can handle and they often even pay their debts off ahead of schedule.
If these were the only two scenarios, things wouldn’t be so bad. Spending to the max and then putting yourself on a spending fast is one thing. But there is a problem deeper than theseÂ financial yo-yo diets.
A lot of people point to greed as the basis for the economic problems we’re currently experiencing. And there is some truth to that. But I think that greed is just a symptom of a more significant disorder: our societal relationship with money is simply unhealthy.
What a lot of people do is the financial equivalent of binging and purging. They spend, spend, spend while times are good. Then they purge, purge, purge when times are not so good. They gorge themselves, and then starve themselves.
They accrue debt, and then try to cut back their spending to pay it off.Â Sometimes, there’s just no more room to cut back. And then they lose their houses. Their families. And even their lives.Â Â It’s financial anorexia.
Physical anorexia occurs when you eat less than you need to survive.
Financial anorexia occurs when we spend more than we earn.Â
You may think I’m stretching the analogy, or that I’m suggesting that physical anorexia isn’t a serious thing. Please don’t misunderstand me — anorexia is a terrible disease, with very real and terrible consequences. And I’m not suggesting that financial anorexia is a psychiatric illness, or that it has neuro-biological components. I’m certainly not suggesting that it start becoming a medical diagnosis.
But if you turn on the news, you’ll see that financial anorexia also is very real and has terrible consequences. It has psychological compontents. It has sociological components. And, while perhaps not as obviously as physical anorexia, it can kill.
What Do You Do
I haven’t ever been physically or financially anorexic. I haveÂ been a yo-yo dieter, both physically and financially, though, and I know that the best way to get yourself out of that situation is to educate yourself.
Go to the library. Take out a book on basic finance or nutrition — just one at a time, though, or you’ll be less likely to actually read anything. Look at some of the great blogs out there; there have been a fair number linked in my weekly reads posts.
Over time, you’ll educate yourself enoughÂ to be fairly comfortable with routine, every day decisions. Feeling foggy? Try cutting back on sugar. Want to buy a new TV? Save up and look for sales.
But what if you’ve got yourself in deeper trouble?Â I’m not a doctor, and I’m not a financial expert or advisor. I do know that some people can get out of it themselves — especially when it comes to debt problems, there are many stories of people who were able to pull themselves out. But you don’t have to do it alone.Â Check with your city, state or province, or a local college or high school many offer free credit counselling services or financial planning courses. Find a financial advisor who will give you a free consultation.
And don’t forget to educate yourself in the process. The more you know, the less likely you are to go back to your habits, and the more likely you are to live a healthy financial life in the long run.
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