August 8, 2006

The Balance Beam eXperience

The Cost of High Living

“What some people mistake for the high cost of living is really the cost of high living.” (Doug Larson) In a recent issue of the Wall Street Journal columnist Jonathan Clements wrote about this topic and spelled out some undeniable truths about money. See if you recognize yourself living any of these truths.

It’s hard to cut back. As your salary has climbed, your standard of living likely also has risen. You probably eat out more and purchase pricier cars, and you might have traded up to a bigger home…Within reason, there’s nothing wrong with this. Constantly deferring gratification isn’t a great strategy for getting the most out of life. Still, there is a price to be paid for this ever-rising standard of living. As your lifestyle grows more costly, it becomes more difficult to retire, because you need a bigger nest egg to sustain your standard of living…but once you get used to a certain standard of living, it’s extraordinarily difficult to cut back.
You’ll never be satisfied. Instead of cutting back, most people constantly strive to raise their standard of living. They are forever aiming for the better car, the bigger house or the larger paycheck, only to become quickly dissatisfied once they get what they want. Academics refer to this as ‘hedonic adaptation’ or the ‘hedonic treadmill’. As the thrill fades from our latest promotion or purchase, we start hankering after something else – and so the cycle goes on.
Borrowings have to be repaid. This might seem obvious. Yet I wonder what people think as they rack up huge credit-card balances, take out auto loans and borrow against their homes’ value. How exactly do they plan to repay all this money? Or do they intend to bequeath these debts to heirs?
Fancy cars and expensive clothes aren’t a sign of wealth. Rather, they are a sign that somebody once had money or chose to borrow it. The money has since been spent, and the folks are poorer for it.
Your family could prove to be your greatest liability. If your adult children or your retired parents get into financial trouble, you’ll probably end up bailing them out. The lesson: Teach your children to save diligently and invest intelligently before they leave home, and don’t be coy about talking to your parents about their finances.

I highlighted five of the truths Clements spoke of in his column “Getting Going: “Amid Losses, 12 Financial Truths Persist.” These truths have the ability to knock you off the balance beam faster than you can say the word “money”. As in any truths, awareness and personal responsibility are the first steps to changing your behavior. Get real so you do not find yourself on the losing path of high living.

Showcase

“Money is not just pieces of paper or electronic blips with prices attached. It is far more: our fondest hopes, our most fervent dreams, our worst nightmares, all balled up into an explosively emotional package.”

Jason Zweig

“If you live for having it all, what you have is never enough. In an environment of more is better, "enough" is like the horizon − always receding. You lose the ability to identify that point of sufficiency at which you can choose to stop.”

Joe Dominguez

“Living in debt is nerve-wracking, insomnia-producing, and family-wrecking. Just don't do it. There is nothing you can buy that feels as good as being in debt feels bad.”

Ben Stein

“I used to say, ‘Things cost too much.’ Then my teacher straightened me out on that by saying, ‘The problem isn’t that things cost too much. The problem is that you can’t afford it.’ That’s when I finally understood that the problem wasn’t ‘it’ – the problem was ‘me!’”

Jim Rohn

Personal Reflections

Take a look around. It seems as though everyone is spending money right and left. Yes, money can bring you security, comfort, joy, and the finer things in life, but it can also bring you grief and destruction, and leave you buckling under its power. Jim Rohn is right, the problem isn’t the money; the problem is us. We have the power to make choices about our money and what we do with it. Only we can answer to the cost of our high living.

It has been very easy for me to fall into the trap of more is better, and never being satisfied, but I’ve learned my lessons over the years. Carrying too much debt doesn’t lend itself to sleeping well or having a joyful day. I now keep my credit card limit low to force me to pay now rather than later and to keep impulse buying to a minimum. That’s also a lesson I am teaching my children.

Have a fantastic week and live within your means.

Stephanie www.7steps2abalancedlife.com

drszh@7steps2abalancedlife.com

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