How Do You Live on $2 a Day? – How the World’s Poor Manage their Finances

According to Portfolios of the Poor written by a leading group of researchers, 40% of the world’s 7 billion people live on less than $2 a day. What makes matters worse is the irregularity of their income. If they knew they were going to earn $2 every day it would be possible to build a budget around it. But they don’t know. During harvest season they may have plenty to eat and even be able to save. At other times they may have to live on one meal a day and borrow to make ends meet. How can someone deal with those massive changes in income? To make things even more dire are expensive emergencies, such as an illness, a burial, or a whole host of other things. Continue reading “How Do You Live on $2 a Day? – How the World’s Poor Manage their Finances”

Why Hire a Financial Planner?

Although I’ve never hired a financial planner, I have had to hire an expert to help me do something I could potentially have done myself. Earlier this year I switched gyms and the new one had less exercise classes. After two years of either going to a class or doing cardio I had still not started weight lifting. I always had a reason to skip it. The truth was I didn’t know how. After some half-hearted attempts to learn I realized I was not disciplined enough to learn this skill on my own. The routines online confused me and my motivation barely lasted past five minutes.

Shortly after joining the new gym they offered me an introductory personal trainer session. At first I was an adamant no. At the time my main objections were that it’s expensive and it’s something I should be able to figure out on my on. But then I saw that I could afford it and realized that I was probably not going to learn it on my own. So I took the plunge and signed on for a one year contract. I can now happily say I am comfortable with my weight lifting routine. And a positive side effect is that my butt has never looked better!

So what does my personal trainer have to do with a financial planner? Both professions have experts who motivate you through behavioral changes. They have been trained to quickly spot possible problems. Plus the best coaches, either for fitness or finances, are just as excited about your success as you are. If it’s fear that’s holding you back, take a look at this great article by Michael F Kay from Financial Life Focus. Continue reading “Why Hire a Financial Planner?”

Neal Gabler Publicly Exposes Himself – Taking Shame out of the Money Conversation

Last month The Atlantic published a very moving article on financial insecurity. Author Neal Gabler shared his private battle with financial illiteracy and shortsightedness in an article entitled The Secret Shame of Middle-Class Americans. If you are struggling with your finances, or know someone that is, I strongly recommend you read the whole article. 

Gabler begins by stating that he is one of the 47% of American who would need to borrow in case of a $400 emergency. He goes on to detail the decisions and assumptions that got him to this place. He assumed he’d make more money next year; that his children needed to go to a private school; that he didn’t really need to tell his wife what was going on with their finances. He did not do anything wrong or irresponsible, he simply went for the American Dream using reasonable amounts of debt and risk. He ignored any signs of financial distress until it was too late. Pair this with the fact that his income after adjusting for inflation is the same as it was twenty years ago and you get a perfect storm.

The article ends with Gabler sharing how he now manages his finances; it is not what he had imagined twenty years ago. Although he has a good income, a long career, and a graduate degree he has not taken a vacation in ten years. He no longer uses credit cards. He and his wife only eat out a few times a year. He is now doing the things that we all know we should do to do well financially. But why is it so hard for us to start here and to do these things by choice rather than necessity? And why are we so ashamed to talk about finances?

Guilt vs Shame

Gabler powerfully points out that as a country we feel ashamed that we cannot attain the American Dream. In my opinion the American Dream may be the cause for all of this financial overextending with debt. In his own words:

In a 2010 report titled “Middle Class in America,” the U.S. Commerce Department defined that class less by its position on the economic scale than by its aspirations: homeownership, a car for each adult, health security, a college education for each child, retirement security, and a family vacation each year. By that standard, my wife and I do not live anywhere near a middle-class life, even though I earn what would generally be considered a middle-class income or better. A 2014 analysis by USA Today concluded that the American dream, defined by factors that generally corresponded to the Commerce Department’s middle-class benchmarks, would require an income of just more than $130,000 a year for an average family of four. Median family income in 2014 was roughly half that.

It looks like most of us are destined to feel ashamed that we cannot reach the American Dream. To make matters worse we have a tendency to hide anything that goes wrong, especially in our financial life. Personal finances are rarely discussed openly because we feel it is a private failure. People are more likely to talk with someone about breaking their diet than the amount of credit card debt they carry. This secrecy around finances means people may be slower to see they have a problem. Not only does the secrecy mean we continue to dig a hole longer than needed, but we are ashamed of it.

Professor and vulnerability researcher Brene Brown says shame is “highly correlated with addiction, depression, violence, aggression, bullying, suicide, and eating disorders.” In her Ted Talk on shame Brown defines shame as feeling “I am bad,” whereas guilt is “I did something bad.” Shame withers you down, while guilt can teach you. In order for shame to grow it needs three things: secrecy, silence, and judgment. You can definitely see all three of these ingredients in personal finances.

In his article Gabler shows us how he moved from ignorance to shame to guilt and now to growth. Many of us can relate when he describes how small decisions and assumptions led him down a path where he lived beyond his means. A lot of the time we ignore how our decisions impact our financial well-being because we think we’ll use debt just for a short while until things get a little better. We may even completely neglect acknowledging our finances if we feel uncomfortable talking about money. From there shame can creep in as we see our finances in the red.

When I had to go into debt to cover groceries I felt ashamed. I felt I had failed to manage my money and angry that I was unemployed despite my post graduate degree and years of work experience. Thankfully I talked about this with a friend who let me know I could change. She helped me look at my situation and make a plan that moved me in a better direction. Her encouragement gave me hope and I plan to return her service to my future financial planning clients.

Gabler mentions visiting a financial counselor who had him get rid of credit cards and start paying off debt. When we share what we are ashamed of with a trusted friend or professional we can then begin to look at the behaviors that got us there. We may be tempted to try and change the behavior on our own, but if that fails seek a trusted friend to discuss the issue with. Once you find one behavior you can change, or make a plan to get out of your current situation you will feel empowered and begin to let go of shame. Keeping in touch with your friend will help you stay accountable. Moreover, he or she can encourage you when you are tempted to go back to previous habits.

Changing the American Dream

Gabler is incredibly brave for sharing his story. I hope that many people will take a look at their own financial decisions and focus on changing behaviors that got them in trouble or are heading them down that road. Moreover, he does a wonderful job of showing us how 47% of Americans find themselves in similar straits. Wages are not growing the way they used to. People are graduating from college with crushing debt to a lukewarm job market. Our expectations of ever increasing income and better gadgets are making matters worse. All of this is blatantly apparent whenever an unexpected expense comes up and we need to use debt to cover it.

Gabler made decisions that aligned with his values, but they ignored his financial reality. A lot of stress comes when we’re unsure of cash flow and have no savings for those always reliable unexpected emergencies. My call to action is that as a society we can save more so that when life throws us an extra expense we can take it in stride without digging a debt hole. We can plan more so that we do not need to saddle teenagers with mortgage size debts in order to get an education. We can learn to live within our means to enjoy the freedom of being satisfied. We can learn to be happy while paying off debt because once the debt is gone we’ll know how to be happy without spending more.

The decision to include financial reality when making life choices can feel like an unwanted chore. Talking about money can awaken a fear of uncertainty and a sense of being overwhelmed. That fear is a signal growth is needed. Maria Popova wrote a beautiful article on how fairy tales can teach us the importance of being scared. She reminds us that “the terrible and the terrific spring from the same source, and that what grants life its beauty and magic is not the absence of terror and tumult but the grace and elegance with which we navigate the gauntlet.” 

How do you navigate the gauntlet of finances? Money isn’t everything, but avoiding planning can make it feel like it is. Gabler says financial worry crowded out everything else from his mind. By sharing his path Gabler gives us an opportunity to share our own experience with financial illiteracy and insecurity. Shame tells us that we are wrong for being where we are. Talking about what shames us is an act of courage. Changing behaviors that no longer serve us is the way of growth. My hope is that as a society we move away from shame over being unable to reach a materialistic dream. My hope is that we move away from the dream of a rich bank account to a reality of a rich life.

Have you ever shared a financial issue you were ashamed of? What was the experience like?