Managing Money: When Less Is More

Managing money, © solovyova - Fotolia.comSometimes it’s easier to listen than read:

Managing Money: When Less Is More (click)

When it comes to managing money, we hear a lot about abundance.  And prosperity.  And how we can have what we think about, if we just think long enough and hard enough.

There are two situations where that thinking may be a luxury we cannot afford.

Sometimes the wolf is at the door.  We are so far behind in our bills that we cannot see daylight.  It’s not just that the month is getting hard to close out.  It’s that something extreme has happened—a loss of the only income in the household or an investment wiped out in one fell swoop.  Maybe we’re about to face foreclosure … or bankruptcy … and by managing money differently we can alter the direction of our financial future by taking equally extreme action.

The other time is when we do that long-term calculation and realize that we cannot get from here—through retirement and old age—if we continue on as we are today.  (And the younger we recognize this, the better.)

You see, more often than not, our income forms a bell-shaped curve:  low in the early years, moving upward as we acquire skills and swooping upward as we gain traction with our expertise.  Then our income peaks and starts slipping down as our energy level can’t compete with the young ‘uns or technological change surpasses our ability to keep up.  The downward curve may be gentle, sliding us into retirement age, or it may be an abrupt free-fall.

In any case, when we do the dreaded “what-do-I-need-for-the-rest-of-my-life” calculation and are too far along the income curve to still change the outcome of that calculation materially, it’s time to look at drastic cutbacks.

Both situations are called “reality.”

Neither is fatal.  Nor is either one a judgment.  Each simply is.

Wolf At The Door

When the wolf is at the door, the cutbacks may be temporary, just long enough to get back in shape, back in balance, back to where we can afford the lifestyle we had enjoyed.

These cutbacks may entail all the niceties of life, the non-essentials.  Or they may mean a major downsize in our residence to get down to a monthly nut that we can handle.  Maybe we will stay here until we have the upward income thrust again and can afford to live how we see ourselves living in our mind’s eye.  From there, if we‘re managing money smartly and all goes well, we’ll thrive because what we had experienced was just a temporary setback.

[SIDEBAR: Just know that some people who go through this kind of drastic cutback never go back to where they were because they recognize that they’re actually happier with less.  Their happiness did not lie in all the “stuff.”  Bigger was not better.  But that’s a topic for another article.]

I Can’t Get There From Here

“According to data compiled by the Social Security Administration:

•    A man reaching age 65 today can expect to live, on average, until age 83.
•    A woman turning age 65 today can expect to live, on average, until age 85.And those are just averages.

About one out of every four 65-year-olds today will live past age 90, and one out of 10 will live past age 95.

When we’ve done a calculation of what we have saved, what we’ll get from Social Security, what we expect our investments to generate … and how many years we have to cover according to that life expectancy … we’ll know what we have to do.

The question is:  Are we willing to do it?

What makes taking action easier is to recognize that certain parts of what we consider necessities today are actually expendable.  We kept accumulating over our lives, but rarely divest ourselves of things that no longer made economic sense.

  • Summer houses that we used when the kids were young but that we don’t use because the kids are gone and our interests have changed.
  • Houses that may be filled with good memories, but that are far too big for the number of people living in them now … and far too expensive to heat or cool.
  • The third car that we kept for when the kids came home, but now they have their own cars.  And it would be cheaper to rent a car if they fly home.
  • The “investment” we made in a vacation place that we haven’t been to in three years.

The list is endless.  Some are large items.  Some are small.  But they all cost money in ways of which we may not be aware.  And if we’re willing to let them go now, multiply that value by the number of years ahead of us and see what that amount could represent.  It could be life-changing.  Especially later.

While these changes are more permanent—not just taking a financial breather in order to rebuild—they represent a way of managing money that results in stress relief that almost always outweighs the perceived “sacrifice.”

Such decisions are very individual.  But so are the consequences.  So I ask:  what are you willing to forgo today in order to ensure a more “abundant and prosperous” lifestyle when your income-generating days are over?

Let me know in the Comments section below if you’ve been faced with managing money through either of these situations, and how that made you feel.

xxxxxxx

Bio: Sharon O’Day lost everything at age 53: her home, her business, everything. But how could that be? She’s an expert in global finance and marketing with an MBA from the Wharton School. She has worked with governments, corporations, and individuals … yes, she was the secret “weapon,” if you will, behind many individuals in high places. Yet she did! Since then, with her finances completely turned around, Sharon has gone on to interview countless women. She’s done extensive research to understand how that could have happened, especially with her strong knowledge of numbers and finance.

The surprising answers are shared in her tell-it-like-it-is posts and articles. Today her mission is to show as many women as possible how to become financially free for the long term, through her coaching programs. She has developed a step-by-step plan to get past all the obstacles that keep women broke and scared … and from reaching the financial peace of mind they so deserve … if they’re willing to do what it takes!

  • This one hits me right between the eyes. It’s in the “investments” that we need to part with. We finally sold the summer home after it sat for three summers without any of the kids being able to enjoy. Finally gave up pool memberships and things that we hadn’t used in years. Am still in the big house though. It’s ridiculous and we need to start the forward motion to downsize. It’s sad when I can’t remember the last time I went upstairs 🙁 A very timely post for this babyboomer and her husband!

    • Glad it was meaningful, Martha. Sometimes it’s just good to have someone write “randomly” about something you’ve already taken care … and something else that still needs a little attention. 😉 Here’s to your courage thus far!

  • This was really meaningful. I remember a time not too long ago that we had to do with less is more. It was a difficult transition in our lives but what I learned is that “stuff” is not important peace of heart and mind are!

    • That “peace” is invaluable, isn’t it, Angela? If we can learn from those difficult times and remain cognizant as we go forward, we can make much, much better decisions!

  • Great advice, Sharon. I’ve lost so much in the last 8 years and now I am basically starting all over! I think twice before purchasing and put a little amount aside each week. Taking one step at a time.

    • That’s the best thing you can do, Alexandra: work at releasing as much stress as possible, look at your reality and live within it as you take little steps to make it better. Sounds like you certainly are!

  • You do always tell it like it is, Sharon. Less is more. A lot of people get caught up in maintaining the status quo when their lives have changed…often for the better, as you pointed out…and they need to make that adjustment.

    • If we could get rid of “what will others think of me?” we would probably have a little less denial. But that denial is usually just on the outside; inside they’re eating themselves alive. Can you imagine the stress that exists behind living that sort of lie, Sherie? That’s why I tell it like it is … 😉

  • MamaRed

    You have no idea how timely this one is Sharon and working through the details is a challenge! Thanks for bringing your wisdom and gifts to the table.

    • Hope there was something there that gave you a little encouragement, MamaRed, as well as some useful information. The truth is, straightening out finances can be messy and uncomfortable, but it’s doable!

  • Excellent ideas and strategy! Thank you for sharing these tips!

  • Tom Holmberg

    Great tips for people facing difficult financial situations. All too often I have seen family and friends do nothing in the face of “wolves at the door” in the hopes that something will change. All too often they loose everything by choosing to bury their head in the sand.

    • You’re right, Tom, the wolf doesn’t go away by himself!

  • Sharon, these are excellent ideas on how to deal with two sad but all too common realities.

    • There seems to be a greater awareness of the damage done by the bad economy these past few years, either because the internet provides a massive personal reporting structure or because it’s so generalized that it remains in the news. But those same issues have always been there, just not as visible. Anyone who takes their finances for granted does so at their own risk!

  • Carmen M. Perez

    I have faced financial devastation due to illness…I keep it simple these days and I know it will never happen again…I am prepared NOW. Thank you for sharing your excellent ideas. Xx

    • I’m glad to know you have a finger on the pulse of your finances, Carmen. What you experienced tells me you take nothing for granted today, am I right? It’s the old saying “Once burned …”

  • Staying prepared in very important – Thanks for the great tips

  • So true… Being prepared and being willing to do what is necessary is key for when You do need in times of crisis and the future

    • My hope in writing about these topics, Carly, is that people will stay “connected” to their financial situation … not be in denial or get careless. That is the greatest protection against nasty surprises!

  • Thanks for the great tips and the encouragement to be and stay prepared… Awareness of the different scenarios is vital – your posts provide great education and support.

    • Moira, you’re so right. It’s too easy to “numb out” when it comes to our finances. Things are going okay, so we relax. But healthy financial control requires ongoing vigilance … not obsessive focus, but awareness.

  • Great article. I love your analogy of “the wolf being at the door” meaning we have to cut back temporarily. Thank you:)

    • Takes us back to shades of Little Red Riding Hood, doesn’t it Daniele? 😉

  • I love your direct approach, Sharon. I went through much of your list several years ago and am happy to say I’m very content in my smaller home with fewer possessions and no financial worries as long as I stick to my budget – my retirement plan is in place to last me until age 90 and I re-evaluate it every year.

    • Boy, and doesn’t it feel good! Once you’ve done that and you find an income stream that you enjoy generating, it’s “gravy.” Congratulations, Lisa!

  • Great post! It’s important to save money, but also to define what we really need.

    • It’s interesting to see, Tereza, that one’s “needs vs wants” definition actually changes, so it’s not a one-time internal discussion!

  • Hi, Sharon, I had reached the “belltop” ages ago and spent money without thinking too much: clothes, cosmetics, travels, unnecessary insurance policies (I think we Swiss are at the top of the list for overinsuring) – you name it. it is difficult to start to downsize but “what a feeling” of relief when I realised I do not need all those designer clothes or the anti-aging-super-duper-no-more-wrinkles cream which does not do a thing for you.

    Your post says it so well: “When we’ve done a calculation of … we’ll know what we have to do.” It is all in taking the first step in the right direction, is it not?

    • Yes, Barbara, the first step IS the toughest. “Fortunately” I was forced to take it at 53 and never “upsized” again after getting through the rough patch. I’ve kept a small personal footprint … and am thrilled! All it means is that you have more discretionary income … and not a fixed nut to pay each month that feels like a burden in any way. As for those creams, I agree! 😉

  • As usual, your articles always speak great words of wisdom. We are where you are talking about.. age 70.. most investment income has gone away along with huge losses.. 2 large houses are on the market but no one is even looking at them. Right now we are learning to pay cash for every purchase which definitely makes us think seriously about each item we buy.. and doing without some things that are actually critical to my husband’s health right now.. it is hard but we are gradually adjusting. Thanks for your encouraging words.

    • Pat, I don’t know if the real estate market is loosening up at all where you are; I know it is in a few areas. I can only hope so; being able to unload one or both houses should take so much pressure off and bring some breathing room, especially because you’ve learned to function at a whole new level. You’re in my thoughts often.

  • Thanks, Sharon! Great writing, great wisdom.

    • Thanks, Lauren, hope your ‘peregrinations’ are going well! 😉

  • Frustrated over here

    Sharon, this time your writing pissed me off. I dont have a vacation home, or ever did. I dont have a third car. Heck, I dont have a working oven, a working microwave, a working snowblower, half the fixtures in the house are broken, I cant earn much, and I am seriously demoralized. So, I guess that I am not in the place of your typical reader.

    • Dear FOH, with rare exceptions, we all go through financial ups and downs, some gentle, some violent: starting out, doing well or not, marrying well or not, suffering some financial blow or blows, building back, not building fast enough, really struggling, whatever. My readers are in all different places on that seesaw. So, in order to share what I’ve learned by living through those cycles myself, some articles will be targeted more specifically at where one reader is today, more than another. And next week the opposite will be true. I’m sorry that fact pissed you off. If you were to read through the comments, I can tell you there are some people in pretty serious financial pain, for all different reasons. And others who have pulled out or are starting to pull out. I hope that is your case very soon.

  • Great post as usual Sharon. The older I get, the more I can see the pleasure in cutting back and being happier with less, especially if it means I don’t have to relive the poverty of my youth.