One of the most surprising discoveries in financial planning, has been observing how people react to unexpected financial hardship. The unexpectedness of the change is often as hard to come to terms with as the actual hardship. A change in financial situation often coincides with life transitions. Divorce, the death of a spouse or a fallout with a business partner, can cause unforeseen financial implications. The shock is often exacerbated if there was sketchy knowledge of the financial situation. Sometimes partners hide information, but sometimes a partner is too fearful or complacent to insist on knowing.
When it becomes apparent that someone must scale down their standard of living, the reactions vary widely. On the one extreme, people react with fear, anxious about making it work and filled with regret for the life they have lost. They ponder how they will manage without the luxuries they previously paid for without much thought.
On the other extreme, people react with determination to make it work. Whilst others adopt a victim role – they blame others and delay the inevitable consequences of their new financial reality.
Changes in financial situation are not always unexpected. They can also be by choice. Some people make a powerful decision to walk away from an unhealthy relationship, because despite few financial resources, they have their freedom and the choice to make it work.
Whatever the initial, often emotional, reaction to the change in financial condition, I have yet to work with a person who did not report an increase in life satisfaction after they adapted to their new reality. It seems that making the powerful decision to own your reality, and to work with that reality, is more important than having more.
These individuals seem more content, and more appreciative of what they have even though it may be significantly less than before.
Adjusting your lifestyle to suit changing circumstances is a competence everyone should build. Even the wealthiest. Even if you never need to use this skill, you need to know that you can should you ever need to.
I think that it is the anticipation of having to tighten your belt, or even the embarrassment attached to admitting that you have to live within a narrower budget, that is worse than the actual living through it. Somehow people see this as shameful, rather than powerful.
It is this aspect of financial planning that has really surprised me – witnessing how powerful and content people feel when they do change their spending habits to live within their new means.
As we’re expecting the world to become more unpredictable, and financial outcomes in general to be more uncertain, developing the belief in your ability to live with less, will become a superpower. We must all prepare to use this power.
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Kind regards,
Sunél