Tuesday, December 9, 2014

Fighting the Most Common Chronic Financial Illness

Chronic illness is a long-lasting condition that can be controlled but not cured. As described by the Centers for Disease Control, chronic disease is the leading cause of death and disability in the United States.
In financial terms the most common chronic illness is the “Disease of Fixed Expenses”. This affects all demographics and incomes. It is the never ending list of payments and obligations that one accrues through ordinary life. It becomes an acute illness when the “patient” gets ill, fired, laid-off, and or retires where the monthly income is significantly reduced or eliminated.

This can be controlled through conscientious budgeting, but this is not in the nature of 95% of the population. The advice is always the same- Save, spend less, avoid immediate gratification, have a plan, etc., etc.

This advice is always in a vacuum that doesn’t take into account the pressures to spend by family and friends is endless. The most organized and frugal person may not control their dependent group leading to a feeling of hopelessness or just “going with the flow”.

Some easy suggestions to ameliorate the problems.

1.      Anticipate that house payments, car payments, insurance payments, and tax payments never go away.  Realize that the most expensive house and or car is not necessary and these possessions are only tools. After a couple of years, the $25-40,000 car gets you to the same location as the $60,000 vehicle. The more expensive car with insurance, maintenance et al costs over $1,000 per month for 5 years.

2.     Discuss money with your family/dependents and carefully explain “how much a broom” costs and come up with a reasonable spending approach. Let them make compromises to get what they want.

3.     Realize you are getting older, and basing your “happiness” on things is misguided and driven by television and movies.

4.     Avoid being jealous of another’s success.

5.     Stay healthy and avoid medical costs.

6.     Anticipate unanticipated disasters – things are going to happen; face it. These characteristically require significant expenditure, often all at once, and often without time to develop a less costly strategy. Thus, planning for, and having an account with, say, $100-$150K, set aside only for emergency purposes, is wise.  If you do, there are several principles: don’t touch it for anything but an emergency; never borrow from it thinking you will repay (shortly) in the future. You won’t. Are you wise?

These may sound preachy but I am guilty of all these sins and now realize the shortsighted of my lifestyle decisions.
Making more money does not improve the condition, it only changes the paradigm. More money=More expenses=More Fixed expenses.


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