Sometimes people over-complicate personal finance when they are in a crisis. They start trying to figure out what they can cut, yet still maintain a certain level of creature comforts. They start doing all kinds of mathematical gymnastics trying to work out whether they can afford this or that, or if they can cut this but keep that. They start flinging justifications around like Mardi Gras beads. But it really isn’t this difficult. When you are in a financial crisis and the poop has truly hit the fan, there’s only one question you need to answer about any potential purchase, any service you’re debating keeping, or any activity you’re trying to stay involved in. That question is this: Is this [insert purchase, service, activity, item, etc. here] going to keep me alive?
Now, this sounds rather drastic, but it really is this simple. Anything you’re contemplating spending money on should be necessary for keeping you alive. By “alive” I mean sheltered, clothed, fed, sanitary, employed, and kept from freezing to death. And this may mean that these are accomplished at a very basic basic level, not the level to which you are accustomed.
What’s the difference between keeping yourself alive and spending too much? Some examples: You may not be sheltered in a 5,000 square foot house kept at a comfy seventy-five degrees when it’s twenty degrees outside because all of that expense isn’t necessary to keep you alive. You may be sheltered in a one bedroom apartment kept at sixty-three degrees. No, it’s not your ideal, but you aren’t freezing to death and you have a roof over your head. You may not be wearing the designer suits you’re accustomed to. Instead you might be wearing someone’s cast off suit you bought at the thrift store. You might need a car so you can keep your job, but it may not be the brand new model you’ve been driving. It might be used and eight years old. What you need to keep you alive is often much cheaper than what you’ve been paying and you’ll find that many “perks” can go by the wayside.
If you’re dealing with a financial crisis, you don’t ask yourself if you want the item. You don’t ask whether it looks good on you. You don’t ask if you can juggle some other payment so you can afford this other thing. You don’t ask if you’ll be able to afford it in the future, even thought it’s a stretch for now. You don’t ask if someone else has one, or if they think you should get it. You don’t ask if you’ll be sorry later that you didn’t buy it, and you don’t ask if not having the item is going to make anyone unhappy. You simply ask yourself, “Is this going to keep me alive?”
Asking just this one question takes all of the ambiguity out of your purchasing decisions. If you’re wondering if you can continue to pay your mortgage or if you should sell the house, you don’t run hundreds of projections about what “might” happen if things get better by such and such a date and you don’t spend hours gnashing your teeth over it. You just ask, “Is paying my mortgage going to keep me alive?” Most likely the answer is, “No,” because, while you need shelter, you don’t need shelter that you cannot afford to stay alive. You can downsize and still remain sheltered, while giving yourself some room to work through your financial crisis.
Do you need cable? No, it’s not going to keep you alive. Do your kids need to be in three sports this season? No, because it’s not going to keep them alive. Do you need a cell phone? Not unless it’s necessary to keep you employed, and then you only get the bare minimum needed to keep your job. Do you need new clothes? Again, only if it’s necessary to keep you employed, decent, or warm, and then you only buy the bare minimum needed to meet those needs and you buy them at the lowest price possible, whether that’s at thrift stores or from discounters. Do you need to eat out? Not unless it’s your only way to get the food you need to stay alive.
One simple question is all you need to take a lot of the stress out of a financial crisis. Sure, it’s still going to be hard to get out of the mess you’re in, but when you stop trying to justify your wants and you stop trying to make too little money cover too many wants and inflated needs, life gets remarkably easier. You free your brain up to do the more productive work of figuring out exactly how to get out of the financial mess you’re in and you see reality much more clearly. When times get better you can start asking yourself some other questions about your purchases, but in the middle of a crisis, you only need to ask, “Is this going to keep me alive?” and answer it honestly with a simple yes or no answer.
(Photo courtesy of James Willamor)