Update to Budgeting for Everyone, Summer 2011
By Charles Moran
Surviving the global economy
In these days of global economic meltdown, when a small but powerful and avaricious minority - already entrenched in positions of influence over the finances of a disempowered general public - feeling their own interests threatened, grip and squeeze ever tighter; when governments, desperate to pay for their ruinous wars, pull every economic trick in the book to hoover up whatever is left of the nation's wealth, what can the average person do?
I have a suspicion, which I think is quite reasonable, that the aggressive and remorseless acquisition of money, when it becomes standard operating procedure for, for example, the stock-market whizz-kid, broker, or investment banker, is actually an attempt to compensate for a deep-rooted personal inadequacy on the subject. Those whose jaws gape wide to snap up every last nickel are probably cursed with permanent financial diarrhoea. Their deft manipulation of the markets is a sort of baffle. It may look cool to the casual observer but it distracts attention from the uneasy truth - a truth which any one of them would be the last to admit, as each considers him- or herself a peerless "expert" on money.
From this suspicion stems a no less reasonable theory, that - as corny as it sounds - to establish the understanding and routine of straightforward, routine household budgeting in the personal lives of professionals, in this field more than any other, would have the knock-on effect of calming and stabilising the economy in general. As they relaxed in the handling of their own affairs, so they could theoretically cease to pummel the rest of society for an ever larger slice of the pie. Equally, the global economy could benefit, since the basics of budgeting apply equally to the finances of a company or country, as to those of an individual or family.
This is an aspirational solution - and, incidentally, a strong argument for a schools-based financial education which also teaches maths on the (correct) principle that its primary practical application, outside the classroom, is as a money management tool - but it is long-term and so does not cover the emergency here and now. Right now, it is more important than ever to raise a bulwark against external attacks, not by arbitrarily amassing and hoarding wealth, but through competent budgeting. That's not to say that having several millions in the bank is a bad thing in itself, but money, especially in such large volumes, is like a spade: it can dig the foundations of cities, or it can dig graves. It's a matter of how it's used. One thing is certain: without, as a prerequisite, a clear head and, yes, the specialised knowledge of how to manage it, money can as easily bring destruction upon its keeper as usher them into the earthly paradise that they anticipated.
The effects of instant affluence
Take the National Lottery as an example. Given the natural unpredictability of human responses to change of any kind, add to that the utter randomness with which jackpot winners are chosen, and you have the recipe for financial fireworks - i.e. a wild variety of disparate reactions on public display. In some cases, we see money flex its terrible muscle, laying waste to everything around it or wrenching the environment into strange new forms. Some men are brought low, some take others down with them. While one drinks himself to premature death, another succumbs to gambling, this time with hospital-ward sized stakes. Yet another spends till nothing is left, then wrecks all he newly owns.
On the brighter side, the most extreme responses are a small minority. A few winners continue with their lives as if nothing had happened - perhaps the thought of changing anything makes them too uncomfortable, or they simply lack the necessary imagination. More encouraging still, the majority seem to raise their game to match the challenge of dealing good-naturedly with such momentous power. Maybe their sudden release from financial constraints and anxieties acts as a boost to self-esteem and self-image, to the extent that they tap into an innate, inner wisdom on the subject. Their response on the whole seems to be measured, muted even, their quality of life evolving benevolently, by smooth transitions, to a higher level.
That last statement no doubt generalises and idealises the process they undergo. Reality, I know, is always more complex. It is probably also an over-simplification to suggest that the best moderated, most efficient, responses are commonest to winners in middle age, rather than the very young or very old, but my reasoning is that the former would more likely be overstimulated, the latter cowed, by their winnings. (Yes, I am aware there will be many exceptions - indulge me in this!)
Another factor in support of this idea is that the craving for "stuff" tends to wane among older generations. By the time they notch up enough years to qualify as a member of the armchair and slippers club, they will usually have bought, taken, used, misused, stored, hidden, sold, worn out, thrown or given away enough stuff to last the rest of their lives. Their desire will have blunted itself on the cold hardness of things. Although I am not entirely acquiescent as a club member myself, it is many years since I even vaguely coveted The Rolex, The iPad, The Porsche, The Country Seat, The Luxury Yacht or The Lear-Jet. After all, if I owned those things but there was nothing more I could want from life, all I would be left with at the end of the day would be some cleverly-arranged pieces of metal, wood and plastic.
At life's end, a person may realise that they truly have nothing else but a lifetime's accumulation of dextrously shaped matter and, what's worse, they can see no alternative purpose for their past, present, or any future, life. Their effects (with the meaning of "possessions", it's a rather ironic usage, since possessions may be the only lasting effect of their life's work that they're aware of), their "stuff", may be the only tokens of living which they still have, to cling to. What chance, then, of their letting go, in favour of the concomitant randomness of a giant cash windfall?
So. This theory predicts that, between the youthful frenzy of endlessly getting, owning and experiencing, and the numbed senses and desires of old age, there is a mid-point at which sudden wealth would likely be most serendipitous. As someone edging ever closer to the farther border of these middle years, I no longer have much of a vacuum of material goods - or even physical experiences - to fill, not because I've owned or experienced everything, but because I've had and done enough to believe - rightly or wrongly - that the rest is substantially not much different. However, I can still see a use for a large influx of money because of what it would mean personally: freedom of choice.
People who are either insanely terrified by, or insanely desperate for, change, discover when it comes that they have little or no freedom of action: their reactions to the altered circumstances are more or less predetermined depending on the progression of their insanity and the suddenness and magnitude of the change. A person given such an opportunity could only strive to remain as sane as they had been previously but, to succeed, it would not be enough for them to walk a tightrope between extremes. What I mean is that, to work to positive effect, money needs not just a balanced attitude of mind, but also a purpose.
Money and purposes
The importance of financial purpose cannot be overstated. For example, why is it that some individuals, despite better than average earnings, seem hell-bent on amassing debts, through loans or credit cards, that bind them on pain of legal process to their creditors for years to come and at punitive levels of interest, in order to buy stuff which (if it were truly needed) they could, with a little patience, easily save up and pay cash for?
It seems obvious that the key to the puzzle lies in the word "patience" - they don't have any - but I don't believe that's the reason in all cases. Perhaps the true key lies with the word "bind": as debtors, they cease to have freedom of choice over their spare cash. This state would have a perverse appeal to someone made nervous by the personal responsibility of making real-time decisions, and needing more than the usual degree of predetermined structure in life.
Looked at more broadly still, and a little more positively, indebtedness offers such a person a ready-made purpose for their cash, which otherwise (and this is not said ironically) would weigh heavily on their pockets - too much unfocused power! Smart budgeting harnesses that potential. Of course, for money to have purpose, first there must be a purpose for life itself - but that is a whole other subject in itself, and not one that can be covered here. Suffice to say that budgeting allows the individual to formulate and align their financial purposes with broader, personal aims - and is most effective when it does so.
To suddenly find oneself in possession of a nine-figure sum, courtesy of the National Lottery, as one couple did shortly before the time of writing - more on them later - must present a startling set of challenges, which the winner may never have anticipated. Rather like receiving the gift of a fully-grown tiger: how do you familiarise and involve yourself with it enough to take pleasure from it, without getting torn to pieces? Such sums represent financial potential of a totally different order of magnitude, one which would demand a degree of purpose (not to mention determination, commitment, skill and discipline) to match.
Responding to sudden wealth
Most people, if pressed, would admit to having, however vaguely, sketched out a plan of action in the event of a major boost to their resources, be it a Lottery win, inheritance or whatever; this is one expression of purpose. Native optimism, a vital element in survival, predisposes us to do so. If you don't have a "sudden wealth" plan yourself, then you might find it an interesting exercise to draw one up. (At this point, I was about to detail my own contingency plan but decided on balance that it would be just too much information and self-indulgence.)
Given the extreme variety of human responses to sudden change, mentioned earlier, there is probably no sequence of personal decisions or reactions, in such circumstances, which is common to everyone, not even at the most fundamental level. However, I would wager that the following (not necessarily in the order given) would apply to a significant proportion of those whose "sudden change" consisted of unexpected wealth:
1 - Realisation
This is just a recognition of what had just occurred. Having absorbed the information they might, for instance, heave a great sigh of relief. Because that is what their change of fortune should usher in, if nothing else: a release from the unremitting burden of finding the wherewithal to survive the rat-race, and from the uphill struggle to drag themselves out of it.
2 - Celebration
Almost all would celebrate. (The spirit of celebration is acknowledgement: it is the tradition of marking events seen to represent the end of one phase of life and the beginning of another.) In what form and to what degree would depend on a) how significant the change would be for the individual affected by it; b) what, to them, would constitute enough recognition of it; and c) how much extravagance they could now afford. Thus, an all-expenses-paid trip for the entire office to Las Vegas at the one extreme and, at the other, an extra glass of sherry before bedtime, might have equal meaning for the celebrant. A man would have to be barely alive, though, to let the moment pass utterly unacknowledged.
3 - Meaningful Change
It almost goes without saying that they would make one or more changes in those areas of life where, from their viewpoint, change was most needed, but there are three types of change, each characterised by, and named for, its chief element. To clarify what I mean, here they are:
3A - Change in Substance
Here, "substance" is used as in the phrase "a man of substance": a person of property; someone who owns much, be it land, houses, cars, antiques, and so on. Anyone who, rationally or delusionally, has judged themselves deprived, who has gazed in envy at the possessions of their neighbours, will embark on a course of change in substance as their primary concern. Does there not seem something rather serious and just a little desperate about this activity? All about making up for past injustices, catching up with - then overtaking - the peer group, always owning the bigger, newer, shinier, more powerful thing?
3B - Change of Viewpoint
This implies a change of location and environment, and would be the first focus of attention for someone who was conscious of having been stuck in one place - an unprepossessing place - for some considerable time. You are sure to recognise this condition as it is so common; for the average non-Lotto-winning mortal, it is only relieved by taking holidays. I say "relieved" although, as anyone who has had one knows, a bad holiday can leave a person yearning to get back to the safe drudgery of working life. Ideally, holidays meet the elementary human need for refuge, respite or retreat, a chance to lift the elementary nose from the basic grindstone and smell the fundamental flowers. Such is the attraction of this concept that, even knowing they will be back on the production-line in a week, most people relish the chance to immerse themselves in a moment of freedom.
A ruinous holiday, on the other hand, is so much worse for the heightened expectations we may have of it. Of course, the cause of our disappointment may be external (as by daily torrential downpours) but, perhaps more often, we carry the seeds of our own destruction with us like so much excess baggage. Maybe our inner or domestic troubles are so weighty, we can't ignore them even for a few days; we may be overly conscious that, all too soon, we must return to a bad situation made even worse in our absence; or, in the harsh glare of self-examination we are convinced - sometimes with reason - that we just don't deserve to feel better.
Unexpected affluence, however, raises the possibility of a refuge unlike anything previously known; one that could last as long as the resources to support it. No pressure to cram every hoped-for pleasure into a fixed schedule. No overdue bills to return to. Ironically, with the stresses of normal life lifted, the urgency of escaping them may also evaporate - and that indeed does happen in some cases: the Lottery winner no longer needs to work but works on, either because they never wanted to do anything else and are now able to continue for enjoyment (or occupational therapy) alone, or because they can't think of anything else to do. At the other extreme, the unsuspecting heir to the family millions for whom work was never otherwise than a reluctant chore, takes himself off, with his inheritance, on one unscheduled, never-ending break.
3C - Change of Function
This is perhaps rarer than the other two types, although perhaps only as an initial response to sudden wealth: in other words, few people would immediately make a "career-move" - i.e. continuing to work but in a different field than before, with no lapse in personal productivity - but most should eventually come round to the need to function usefully once more, having experimented with and derived whatever pleasure they could in the other two ways, namely from material acquisition or a change of scenery. Despite what was said earlier about the unpredictability of it all, there seems to be a progression, in most cases, from Recognition, through Celebration to Meaningful Change, either as Change in Substance or Change of Viewpoint (or both), followed by Change of Function.
Consequently, this last step could also be called Relaunch or Re-engagement, if it occurred after a period of reclusion from normality. Typically, according to the theory, the new rich-lister will have first celebrated in whatever way they saw fit, then withdrawn from the life they knew, to a remoteness, and for a time dependant on their character, outlook and history, but then - what? Well, there remains the basic instinct to be valuable in the eyes of others, to help, to be of use. That, and the frustration of not having the wherewithal to follow it unconditionally, would have to be especially strong in those whose immediate meaningful change was one of function. How soon others, presented with the same breadth of options, chose to do likewise would be a gauge of the potency of the "useful" gene in each.
However, as said or implied earlier, for all those who completed the circle of changes by re-engaging with society, there would always be the few who got stuck at the Celebration stage (throwing an endless series of parties), or Change in Substance (perpetual shopping spree) or Viewpoint (eternally on holiday). Eventually, either they're driven insane - the perpetual shoppers by their compulsion, the eternal holidaymakers by boredom - or they had always been quietly insane, until their new wealth made the condition conspicuous. I think the latter.
Power and responsibility of wealth
What, then, about the couple who had a nine-figure Lottery win? Well, they celebrated - publicly, having decided to invite the media because they wanted to "enjoy" the win - and declared that it wouldn't change the lifestyle they had, and were content with. What happened then? They were practically buried under a mountain of begging letters. The situation abruptly ceased to be satisfactory. What did they do? Of course, now having a reason for it, they made a Meaningful Change - in fact, a Change of Viewpoint: according to reports, they paid a neighbour generously to feed their pet fish, and simply moved out!
Had they predicted, before claiming the cash, how much trouble they would generate for themselves by publicising the win, they might have realised from the outset that they had two starkly contrasted options: either quietly move to an exclusive and secluded neighbourhood, say nothing to anyone and live with the discomfort of self-imposed silence, or speak, and take full responsibility for the consequences. Which would entail what?
Well, one possible course of action was to set aside a percentage of their vast fortune for charitable giving, hire a local church-hall and fifty people, sort out the (few) genuine and deserving cases from the pile and let them have some money. Such a project would have been well within their means - but it would have demanded an immediate Change of Function. If you can imagine how unfeasible this option might have appeared to the two winners - if, having barely recovered from the shock of it all, they had even thought of it - then you'll understand how rarely it happens. Arguably, though, it's the healthiest response there is.
The guardianship of money
The rationale for this is something I touched on in the original Budgeting for Everyone: the possession of money, especially in large amounts, is more fittingly expressed as the stewardship of a corralled, but untamed, socio-economic force. It is a fluid, polymorphic entity, without empathy or loyalties. Returning to a previous analogy: like a tiger, it resents confinement and ultimately sickens - not for lack of space, but because it is isolated from the multitudinous interactions which are its purpose for existence. Another analogy: a lake, to avoid stagnation, must have inflow and outflow, whether by feeder and overflow channels or through rain and evaporation. Money works similarly - the word "currency" implies as much.
The problem faced by us ninety-nine plus percent of humanity, is how to prevent our wretched puddle of cash from leaking or evaporating away before the next rainfall. We know that one bad monetary decision could take us to within a hair's breadth of destitution: that's a strong disincentive to take any, other than the most innocuous and routine. Those few fortunate enough to have dammed themselves a virtual reservoir of money can afford to be bolder. However, only the bold amass such fortunes by design; in the case of naturally meek and timid souls who gain them by chance... all bets are off.
The inescapable fact about money, though, is that its entire value relies on its being yoked to a clear purpose and put to work. Big money needs a big purpose and bold, broad strokes. That's why Change of Function is so appropriate in the event of sudden affluence. Needless to say - and I can only add what you'd expect me to - budgeting answers the needs of both the rich, to put their wealth to best use, and the not-so-rich, to protect, manage and build upon what they have.
So, what's happening now with our family budget? Well, there's both good and bad news. I continue to update it every week, as I have done for the last twenty years or so. It remains indispensable to me, and has never ceased to do what it was intended to. Recently, I've redeveloped the computer spreadsheet on which it runs, adding extra features. That's the good news. The bad news is that the software I use is still the original MS-DOS-based program dating back to the mid-1990s. Won't run on any Windows version later than 2000. Most uncool. Consequently, I'm still looking for a programmer willing to undertake the project of converting my budget into a piece of contemporary technology which would sell, in return for a fifty percent share of the eventual proceeds. It doesn't sound very appealing, I know, but if you, reading this, qualify for the job, it could turn out to be the best career-move you ever made!
Copyright (c) Charles Moran 2011
If you've found this article interesting, then please check out my other written work:
Education, Motivation & ADHD. This piece concerns the problem of getting education to impinge on students who have disassociated themselves from it.
Clutter! This article suggests a practical solution to the problem of a disorganised household.
Peace, Politicians, PR & Promises. The relationship of promises to confidence, and of politicians to war.
This page uploaded on: 28th July 2011