You know that financial educators, financial planners and finance columnists forever have been stressing the importance of people living within their means as part of a sound financial plan, so that they can meet all of their financial, career and life goals. However, recently the emphasis has shifted to “living below your means,” in order to highlight the needs to save for emergencies, anticipated expenses and a retirement with dignity, so you don’t spend everything that you make.
If Americans heeded that advice, they would have no credit card debt, reasonable and affordable mortgages, reasonable or no car loans, and adequate savings, but that would mean that they would be living like we did in the 1950s, 1960s and early 1970s, when there were no credit cards, no home equity loans, and only three-year car loans. It worked then, and it still works today.
That said, I recently received an email from CW, a former colleague and bankruptcy attorney, who primarily represented debtors when I was on the bench. He indicated that he thought of me after reading a May article in the New York Times about the monthly spending of six families from various parts of the country.
He reminded me that, “I know we always differed in where the fault lies, personal responsibility or creditor responsibility. Easy credit is just too easy.” Funny, monthly expenses like $899 or $528 for restaurants, $917 for horse boarding, riding and guitar lessons, $769 for pet grooming, and $316 for kids’ activities, didn’t shock me in today’s spending culture, even when you annualize them, and that’s without addressing whether those families could actually “afford” them.
However, CW’s response was, “C’mon, make an effort. Does anyone even try to live within their means”?
Speaking about living within your means, that is something that the federal government has long since forgotten about, except that the Biden administration is talking about increasing corporate taxes to fund its trillions of dollars in proposed spending programs. It’s funny, a proposed 15% minimum corporate tax, basically a flat tax, apparently works for corporations but not for individuals, something that we have discussed. Also, when they are throwing around all those numbers, remember that a trillion dollars is a thousand billion dollars, and a billion dollars is a thousand million dollars.
In the past I have encouraged students and everyone to increase their Financial IQ, in part, by turning for advice to a close friend or family member who is clearly good with their finances, and does all of the right things. They have adequate savings; they live within their means; they avoid or minimize debt, as much as possible; they have a realistic budget that they can stick to; they have some intelligent investments; and they have an overall sound financial plan.
Recently, I learned that this concept has been formalized today, like so many things, in that there are what are called savings and accountability circles. Couples or individuals who have common goals — like saving for the down payment on a home, eliminating their credit card debt, saving for a debt-free vacation or for children’s education — work together to help each other meet those goals and are accountable to each other.
According to dayshanova.com, here are some additional characteristics of those who you might want to partner up with, and what you need to be prepared to do.
–They have an immense amount of integrity. Meaning you rarely see them back out on their word.
–They don’t care for gossip, ever!
–More times than not, they see the positive side of things.
–They are generous with their time and money.
–They respect your boundaries and have boundaries of their own.
–They won’t shame you, and if they do, stay far, far away from this individual! Nothing good ever comes from shame!
–You must be willing to take full responsibility. To make an accountability relationship work well (especially in a personal connection like a friend or family member), you must be clear about the goals you are looking to achieve. Whether you are looking to save up for your upcoming college semester, a down payment for a home, or you want to officially get rid of your credit card debt, you must take full ownership, and not your accountability partner, and be clear about your intentions in that relationship.
–Set clear and realistic expectations. Would you like to check in with your accountability partner every week or month? Do you want to have a shared budgeting app or spreadsheet? Do you just want someone where you can go to if you run into a “financial snag” or career move? Do you want to set up a monthly coffee meet or phone call? Setting clear and realistic expectations is super helpful to help define the relationship and so they know how best to support you in your journey!
I want to finish up with a topic that has been all over the news lately, with some personal reflections.
Now that we are getting back to normal and people are out and around, will they get back to dressing as they did before the pandemic, whatever that means for them? No more sweat pants and t-shirts or pajamas all day. Of course it will depend on a whole variety of factors, like whether they will be going back to the office. Retailers are understandably very interested in whether people will be replacing or updating their pre-pandemic wardrobes, and if so, with what. Does our recent experience mean that the trend to informality will increase even more?
For me, who has been wearing a jacket and tie since high school and college, in my careers — and even now in retirement, when I do financial literacy programs and wear a tuxedo as a house manager — I love that I can “dress up” again, but I know that I am unusual. It will be interesting to see the trends and spending over the next year to 18 months.
John Ninfo is a retired bankruptcy judge and the founder of the National CARE Financial Literacy Program. Find his previous weekly columns at http://www.mpnnow.com/search?text=Ninfo
