I just came across a news story focused on a town that was very recently a 'booming oil town' but is now 'struggling to survive'. It is a perfect example of how precarious the economy, and our lives, can be. While things may seem stable and predictable at the moment, there are no guarantees that our circumstances will always remain as they are now. Whether it is the economy as a whole that changes, our individual family circumstance through loss of a job, or a health crisis, there are no guarantees what the future holds. (I also read two different news stories today about individuals experiencing major health crises in Mexico and needing to come up with large sums of money just to be treated so they can get back to their families in the U.S. Each one of us may want to ask ourselves if we would be able to come up with $50,000-$75,000 in a matter of a few days if needed. Given that statistics show that 76% of people are living paycheck to paycheck, we can safely assume that only a small percentage of people could say 'yes'.)
I am purposely not mentioning the specific town or individual names because my intent is definitely not to pass judgment on or minimize the devastation of the families experiencing these difficult circumstances. I only wish to emphasize the importance for each one of us to make the choice, and required sacrifices, to prepare for potential 'hard times' during the times of plenty (or even times of 'sufficient'). Unfortunately, human nature is to spend whatever we are making and live the maximum lifestyle that our current circumstance allows. If we get an increase in income we tend to increase our living expenses to match it~ buy a nicer car and/or a nicer home, spend more on vacations, enjoy eating out more often or just spend a little more freely than we did before. Again- my intention is not to pass judgment on anyone. I believe it's human nature, and if my own life had turned out more like I had planned it I would likely have done the same thing.
However, my life didn't turn out as planned, and while I would never wish my particular life challenge on anyone, I will acknowledge that my 'challenge' has had a silver lining to it when it comes to finances. As a single mother for 12 years who needed to be available to help my four children cope with the new circumstances they found themselves in and the experience they were having, money was usually very tight. Even when there was a more comfortable amount of money flowing in, there was never any guarantee as to how long it would last. In fact, the only thing I could be sure of was that at some point the cash flow would stop altogether for an undetermined length of time and I would need to live off of savings until things changed again.
This difficult circumstance actually became a tremendous blessing to me because I developed, out of necessity, the habit of saving as much as possible whenever possible. I learned to be creative in making sure that the kids had the things that they needed while spending as little as possible, all the time! My focus was always on building a cushion to prepare for the next 'dry spell', having no idea how long it would be or how much would be needed.
Having spent 12 years in this pattern, when our family reached the point where I went to work full-time and had a regular salary, it was natural to continue living frugally and sock as much as possible into savings. Given the newly increased salary, the savings built up much faster than it had in the past, allowing me to put away more and more for a rainy day-- or a change in circumstance.
Again-- no judgment intended, but simply for the purpose of pointing out the importance of changing our natural habits-- I go back to the news story about the struggling city. One man they mentioned in the article had been working in the oil fields for 23 years making a 6-figure income before losing their income in January 2014. Now they are experiencing a situation where they sometimes have to go hungry because there isn't enough food for everyone. The details given in the news story leaves one to assume that this family, like so many families, increased their standard of living to match the salary rather than making savings a priority. At that time the oil was flowing, therefore, so was the income; and there was probably no reason to believe that the situation would ever change.
Acknowledging that I do not know the particulars of the economy of that town, and more particularly the specific dynamics of the family, let's just explore some possibilities of what could have been. If we lived in a society where our nature was to save rather than to spend, over 23 years a six figure income would have built up savings that could last a family well beyond the two years mentioned in the article that the family has been living off of savings and is now experiencing such grave circumstances. The recommendation is to save 18% of our income, and to pay ourselves FIRST. Taking the lowest possible number of a six-figure income, $100,000 per year, and saving the recommended 18% of that would amount to $414,000 over the 23 years, and that is without any growth. Add in a very modest 6% growth rate and that more than doubles to $892,819. Figure in 3% inflation and it grows to just shy of $1.2 million. While I don't know the particular circumstances of the town or the family, it seems that living on $82,000/year, even with higher taxes taken out, in most circumstances would be very do-able. After all, statistics show that the majority of families are living on half of that, or even less. And with that kind of savings and investments, a family could live modestly, but comfortably, for significantly longer than 2 years in the event of an economic downturn. (Yes- I realize that the stock market is down right now which also would have an impact. Again- I am not passing judgment, nor can I factor in all of the various possibilities. I am merely trying to show the importance of, and encourage people to develop a habit of, SAVING when they can rather than SPENDING in order to be as prepared as possible for tough times that very likely will come at some point in life.)
I believe that the problem lies in the culture of spending that we are immersed in. While in most circumstances a family would be quite comfortable on an $82,000/year salary (after savings, before taxes), my guess is that many others in the town were also making a six-figure income and the 'norm' was to increase the standard of living as the salary increased. None of us want to be living on 'less' when those around us are spending 'more', and so it's natural that we would go ahead and spend 'more' as it comes in, rather than saving the recommended 18%, to keep pace with the community around us. However, in doing so we leave ourselves highly vulnerable in the event of an economic downturn or personal family crisis.
Again- my heart goes out to the residents of this town and all other towns experiencing similar challenges. With no disrespect or judgment against them, I only hope that this has helped those reading it to realize the importance of paying yourself FIRST! Whether you have a six figure income or a fraction of that, it is absolutely critical that you begin making the choice to live on LESS than you earn and set some aside for whatever the future holds. The best way to do that is to start with a budget. As one of my clients recently said, "Once we started controlling our money with a budget, our money quit controlling us. I had no idea it would be so freeing just to know where the money is going and be able to decide if we're good with that!"
There are a lot of free resources available through the Cache Valley Financial Wellness Project to help families take control of their finances. If you are not currently able to save as much as you would like, or if you are still in the debt elimination phase of your game plan, reach out to team.logan.utah@gmail.com to find out which resources are available to help you reach your financial goals. Financial freedom is one of the greatest gifts you can give yourself and your family, and developing a habit of making sound financial choices is one of the most important gifts you will ever give your children! Their future depends on it~
