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Financial Insecurity – Could this be true?

by | 18 May, 2016 | Career Planning, Future of Work, Life planning | 0 comments

picture of a person's hand showing empty pocketsFinancial Insecurity – Could this be true?

Warning: This isn’t probably the cheeriest article you will find me writing for this blog.

But the story is compelling, and quite real for many people living in first world countries who would normally consider themselves financially well off.

Financial insecurity is increasingly a reality for baby boomers and retirees.

Following is an excerpt from an article entitled “The Secret Shame of Middle Class Americans” written by Neal Gabler and published in the May 2016 edition of the highly respected magazine The Atlantic. Here is a link to the article.

Writing about himself, Gabler it would seem on face value to have set himself up for a pretty comfortable life – from a financial security viewpoint. See what you think:

“I never figured that I wouldn’t earn enough. Few of us do. I thought I had done most of the right things. I went to college; got a graduate degree; taught for a while; got a book contract; moved to a small inexpensive, rent controlled apartment in Little Italy to write; got married; and bumped along until I landed a job in television (those of you with elephant memories may remember that for three years I was one of the replacements for Gene Siskel and Roger Ebert on the PBS movie-review show Sneak Previews). Then my wife and I bought a small co-op apartment in Brooklyn, which we could afford, and had our two daughters…….”

So far…..Is he a candidate for financial insecurity?

The situation that Gabler describes would seem to be the sort of path that someone, born of a middle class family in a first world country, would take in terms of gaining an education and getting a job, and a level of pay, which is in keeping with his qualifications and skills.

The picture does look reasonably rosy so far doesn’t it? In fact, the author went on to publish several books, got other jobs on television, sold movie rights for his books and so on.

Given what has taken place in his life so far it would be easy to conclude that Mr Gabler would be in a fairly comfortable financial position.

Here’s what happened

It’s quite a story, but it is not unusual by any means. Here are some of the key points:

  • After their 2 daughters arrived his wife returned to work, and they managed to get by even though child care and private school expenses cramped their finances
  • They chose private education because they wanted the best for their children and were prepared to make the financial sacrifice
  • Ultimately they moved from the co-op apartment they had purchased in New York City and rented a house in an area where it was less expensive to live, and private education expenses were significantly less
  • They were able to save enough to get a mortgage to purchase the property they were renting, hoping meanwhile to sell their New York apartment.  His wife was able to give up her job as a film executive
  • Financial trouble really commenced when they were unable to sell the New Your Co-op apartment because the Co-op kept rejecting unsuitable buyers. This meant having to service two mortgages, for years!

And…….

  • Then the housing market in New York soured, and he had no choice but to sell their apartment at a significant loss
  • He lost his job in television, and his primary source of income now, which was writing long books, wasn’t able to produce much needed income on a regular basis.
  • His wife wasn’t able to find work in her old career. Gabler told her that was OK (manly pride), he said he could continue to support her
  • His daughters grew up, they were very good students who were able to gain admission to prestigious universities. Gabler borrowed the money for their college education (Stanford, Harvard Medical School, Emory)
  • Poor cash flow, big tax bills, paying penalties for late payment of taxes
  • His income remained steady, but not keeping up with inflation
  • Good years, lean years, living on credit during the lean years
  • And so on………

And ultimately….

The following quote, again directly from his article provides a glimpse of the type of financial insecurity that Gabler has experienced:

“I know what it is like to have to juggle creditors to make it through a week. I know what it is like to have to swallow my pride and constantly dun people to pay me so that I can pay others. I know what it is like to have liens slapped on me and to have my bank account levied by creditors. I know what it is like to be down to my last $5—literally—while I wait for a paycheck to arrive, and I know what it is like to subsist for days on a diet of eggs.

I know what it is like to dread going to the mailbox, because there will always be new bills to pay but seldom a check with which to pay them. I know what it is like to have to tell my daughter that I didn’t know if I would be able to pay for her wedding; it all depended on whether something good happened. And I know what it is like to have to borrow money from my adult daughters because my wife and I ran out of heating oil.

You wouldn’t know any of that to look at me. I like to think that I look reasonably prosperous. Nor would you know it if you looked at my resume.”

Choices and consequences

The author, Neal Gabler, isn’t looking for pity.

He acknowledges that many of the life choices made by himself and his wife were made without thinking about the implications – particularly the financial implications.

Looking at the elements in his life story I concede that I’ve made similar sorts of life choices, some good, some bad -we all have that mix of good and bad choices in our lives.

But, as Gabler points out, these choices “define who we are…….We don’t make them with our financial well-being in mind, though maybe we should”.

Financial Insecurity – the purpose of this post!

Gabler wrote this article to highlight a problem for the middle class in America, one that I’m confident would be shared by many middle class people in first world societies.

And, that problem is….nearly half of Americans would have trouble finding $400 to pay for an emergency.

Gabler is one of them. My purpose is writing about this is twofold:

  1. To prompt you to assess your own risk of financial insecurity?
  2. To propose how to mitigate that risk

What really attracted my attention and interest in Gabler’s article was what he quoted at the beginning of his article.

He referred to information about an annual Federal Reserve Board survey that monitors the financial and economic status of Americans. Again I quote:

“The Fed asked respondents how they would pay for a $400 emergency. The answer: 47 percent of respondents said that either they would cover the expense by borrowing or selling something, or they would not be able to come up with the $400 at all. Four hundred dollars! Who knew?  Well, I knew because I am in this 47 percent.”

Evaluate your own risk

The following questions (adapted from the same article) don’t involve a lot of detailed financial analysis.

Most people will know immediately what their situation is.

Question: How many months could a family headed by someone of ‘prime working age’ and between 24 and 55 years of age continue to self fund its current consumption if the family were to lose its income (assuming money wasn’t borrowed against an asset to fund this)?

Edward Wolff,  who is quoted in the article, is writing a book about the history or wealth in the USA, and it relates to this very question.

Wolff’s research indicated that a family with an average income of roughly $50,000 per year, who had lost that income, could continue its spending for six days!

Question: – how long could you keep going if you lost your income?

picture of piggy bank with sign which says saveFinancial Insecurity – My take on this

For me this is a sobering question.

Life is full of unexpected events, including loss of your job, or the cost of major repairs, or cost of surgery and so on which could quickly change one’s financial circumstances.

Personal circumstances differ so it would depend on things like level of savings, how much equity there might be in the principal place of residence.

But….consider job loss for a moment.

I’ve written elsewhere in this blog about the dramatic changes taking place to nature of employment worldwide, changes driven by the evolution of the digital economy.

My profession is job search coaching and career transition coaching.

Every week I am dealing with people whose positions have been made redundant, tossed aside, discarded by the system that most of us grew up trusting. There are no guarantees in life. This especially applies to job security – there is none.

Unexpected loss of income for the family due to job loss is very much the reality today. It also should not be taken for granted that finding another job under these circumstances will be easy, or happen quickly.

What’s the alternative?

The digital economy has given rise to the age of the entrepreneur.

Never before in history has it been easier for the average person who has a computer, and an internet connection to start their own business.

Sure, there are risks in any start up. But if you are an entrepreneur, the only person who can fire you…….is you.

If you are currently employed, please note that I’m certainly not advocating that you quit your job and start your own business. Do your homework and due diligence before you do that.

But at the very least, investigate ways to create an independent income……one which you generate by yourself, for yourself, which is related to your own interests, skills and ability to learn and upskill.

Treat this business venture like a second job – do it in your spare time. It’s just like having some sort of insurance – create a new, separate income stream, ideally one where you can earn residual income.

If you have an income which isn’t dependent on what your boss is prepared to pay you then you can begin to develop choices about living your preferred lifestyle, and you mitigate some of the risk of financial insecurity.

As a wise person once said – “dig the well before you get thirsty!”

How do you do this?

If you’re interested in exploring options for learning how to generate an independent income stream then you may be interested in the information I’ve put together on this page.

Note: In the interests of being completely open, I’ve joined this community of entrepreneurs called SFM. I’m being coached by them, and I’m pleased to say I have had some success with my online business. I am an affiliate of the Six Figure Mentors (SFM). After reviewing the information I’ve prepared, and you decide to apply to join the community, I want you to know that I will receive a commission for this.