Helping clients figure out how to live within a greatly reduced income is one of my favourite things to do.
But I don’t think my clients approach the work with any feelings of excitement. Like David and Julie,* who came in to get to grips with how they could manage if David went back to University full-time for a couple of years. Although it was a goal that they both fully supported, and would lead to higher income potential once his study was complete, neither of them was particularly looking forward to surviving on one income. “I suppose this will force us to be good with money” was the most positive thing they could find to say.
David and Julie came in ready to slash and burn parts of their current spending.
From my point of view, that’s putting the cart before the horse. We can’t look at the numbers until we’ve defined what’s really important. Because if we don’t know what’s important, how do we know if we’re wasting money or not? And also, when we just look at what we’re currently spending, and cut back what we can stand to, most people are like David and Julie. They’re only prepared to slash and burn some numbers. Most of their expenses (often the big ones) are deemed absolutely non- negotiable. Where and how we live, what we eat, how we travel, where the kids go to school – almost everyone starts with these numbers carved in stone. Can’t be changed – and usually because of great-sounding reasons. “Our local community is wonderful – such great people and amenities.” “And because we can’t move from our wonderful community, we have to have one car each.” “Plus, the kids are so happy at their school – their teachers really go the extra mile for them.”
My experience is that some of the non-negotiable expenses that we’re all ready to defend at the first sign of cost-cutting aren’t even that important to us in the big scheme of things. To be fair, no-one likes change all that much, and it makes sense to me that our deepest wish would be for nothing to change except the amount that we’re spending. But that’s not possible. So before we set a spending plan, we need to examine first what we value most deeply, and how we want to live. I’ve found that the Kinder questions are the best way of exploring this. They were devised by George Kinder, a Financial Planner who saw the answers to these questions as foundational in designing an investment portfolio for his clients. His three, deceptively simple questions are:
**1. Imagine that you are financially secure, that you have enough money to take care of your needs, now and in the future. How would you live your life? Would you change anything?
- Imagine now that you visit your doctor who tells you that you have five to ten years left to live. The good part is that you won’t ever feel sick. The bad news is that you will have no notice of the moment of your death. What will you do in the time you have remaining to live? Will you change your life, and how will you do it? PS: You cannot go into any new debt during this time. Your financial life is the same as it is today.
- Now imagine some extremely bad news: Your doctor says you only have 24 hours left to live. Ask yourself: What dreams will be left unfulfilled? What do I wish I had finished or had been? What do I wish I had done? Is there anything I need to say to anyone?**
In my experience, the first question tends to elicit answers that demonstrate my client’s wants. Their idea of the good life – how much they work, where they live, what they drive, wear, eat. If they’re not planning on working full time, or at all, in this scenario, hen how they plan on spending their time is also illuminating. The second question cuts right to their deepest values. There’s nothing like feeling that time is short to focus us on what’s really important. It makes personal the research that shows that once a fairly modest standard of living has been achieved, just being richer will not automatically make us happier. The third question takes us to unfinished business, to regrets, and to the desire to leave some form of lasting legacy. When Julie and David answered the first question, they were united in their desire to live somewhere “within sound” of the beach. This was not going to be an option while David was studying, but it did point out a very obvious (and fairly cheap) form of recreation they could swap in for the more expensive activities they were going to be swapping out. The second question brought up a strong desire to spend more time with friends and family. In the context of not having much time left, the exact location where they lived, or the cars they drove, didn’t matter so much. They agreed on a need to feel safe, but especially as in their situation any move was likely to be temporary, their previous position that they couldn’t possibly live anywhere but their current house was one they were prepared to give up. David’s main regret in response to the third question was that he hadn’t studied what he’d really wanted to when he first went to university, and had gone on to a career he found stifling and unfulfilling. Which re-iterated that their planned course of action was the right one.
Now that our understanding of what we were trying to achieve had moved beyond the basic “spend less”, we were able to set up a plan that not only achieved that, but also felt right to them. Every dollar they were spending was in a category that was important to them, and they left the appointment looking forward to the way their life was going to be, instead of dreading it. Which is why helping clients figure out how they can live within a greatly reduced income is one of my favourite things to do. The work takes clients from feelings of fear, and sometimes hopelessness, to an understanding of what they value most deeply and how they want to live.
*Names and circumstances altered to maintain confidentiality.