In the October 24th issue of the Dallas Observer. In “The View from the Bottom,” Mark Donald recounts the struggles of three men to keep their families and their identities intact in the wake of job loss and financial reversals.
When the euphoria that fueled the growth of the telecommunications bubble suddenly evaporated, reality hit our area particularly hard. Donald cites statistical evidence of the resulting pain in Collin County, Texas home of many telecom employees: property tax delinquencies up 21%, foreclosures up 57%, personal bankruptcies up more than 30%. There’s been plenty of trouble to go around, and the three men profiled in the Observer story are probably representative of what’s happened in many lives over the past couple of years. Let’s look at the examples a little more closely.
The first story details the rise and fall of Ted. This young Air Force veteran advanced quickly from the status of “cable guy” to “telecom engineer” during the boom years. Along the way he acquired a family and many, many toys. After layoffs at three different companies, Ted lives in a homeless shelter. His wife and child live with his in-laws in another city. The toys were all swept away in Ted’s downward spiral. He is in therapy and operates a forklift part time.
“Walter” was a nimble manager who seemed to skip from the deck of one sinking ship to another, collecting treasure all the way. In 23 years, he had never been unemployed until 2001, when he hit a three-month gap between jobs. Responding quickly, he stayed dry by declaring bankruptcy before losing his house, but sent his creditors overboard holding more than $90,000 of his debts like so much iron chain. After a few weeks as a househusband, driving cars borrowed from his in-laws, he was able to get on board with another high tech company, and broke out the cheap champagne to celebrate. “Walter,” the bashful pirate, didn’t use his real name because taking bankruptcy, which he called “a no-brainer,” still carries a stigma that might impede his career advancement.
John’s financial struggles were not the result of his being fired. He quit his job in order to concentrate on completing his M.B.A. It has been harder to find the sort of job he felt would be available for him once he had the new degree, but he has managed to get along with his credit, his family and his identity still intact, thanks to firm principles, grounded in his faith, and an ingenious austerity program. His family has not been deprived, but they have allowed themselves only “no-cost” amusements. He has not taken charity, but has traded his volunteer labor for food from a local food bank. John and his family have survived over 15 months without employment because they had previously developed the habit of living within their means. It hasn’t been easy, but it has worked.
Who’s to Blame?
Three stories. Three outcomes. In the Observer, Donald portrays all three as victims of circumstances beyond their control. That’s where I differ with the moral to be drawn from these cautionary tales. The biggest factor in determining what happened to each of these families was their debt load and the presence or absence of emergency funds to deal with the job crunch in their industry. Debt doesn’t happen by accident. As “Walter” acknowledged, when the bubble burst, “Like everyone else, we were already spending right up to our means.” Actually, with over $60,000 in unsecured debt, it’s safe to assume that “Walter” had been spending well beyond his means for some time. If you’re sharp enough to stick somebody else with your bills, you may keep some souvenirs from your binge. Otherwise, your lifestyle, like Ted’s, merely implodes.
This is why I stress with all my clients that the First Fundamental of Fiscal Fitness is Always Save Ten Percent of Everything You Earn. Failure to do so means living too close to the edge. Life has a way of knocking all of us down at times. The only prudent course is one that gives us enough room to stumble and fall without going over a cliff.
Want to Avoid Becoming a Victim?
The first step is recognizing that achieving financial security has more to do with your personal choices than it does with market forces and other factors you can’t control. It also helps to understand why it’s so difficult to make good financial choices. The psychology of money has gained attention with the award of this year’s Nobel Prize for economics to one of the founders of behavioral finance. Old economic and investment models work better for pension funds and huge corporations than they do for ordinary families. Behavioral finance concepts, as incorporated in the Cambridge System,TM help make it possible to do effective financial planning for real people.
