Wednesday, November 28, 2012

Five Ways to Get Poor

Bert Whitehead, M.B.A., J.D ©
1)  Stay in a Dysfunctional Relationship.  
I have often described divorce as "mutual impoverishment."  While many different relationships can have detrimental financial consequences, divorce in particular leaves both parties handicapped -- often for their lifetimes.  Our divorce laws are designed to protect the most vulnerable spouse, but seldom can the contribution of a high-earning mate be equalized.  So the dependent spouse who typically embraces the primary parent role at the expense of career development often faces a continuing downward spiral in living standard while the higher earner must start a new financial future from scratch. And while two people living together costs less than living in separate households, the reality is that the costs of living apart after a divorce can be financially devastating if both parties attempt to maintain the marital standard of living.

The lesson here is to be choosy about your mate at the outset! "Till death do us part" states a commitment that embraces the mutual support and teamwork that optimizes the marital relationship. But that is still no guarantee of financial prosperity.

Of course other dysfunctional and financially draining relationships can be non-marital. By definition a dysfunctional relationship is one where maintaining a commitment is detrimental to both parties. This can also include parents and children, abused spouses, and those who continue long-term relationship with an afflicted partner who will not take the steps necessary to achieve recovery.  Often the most committed spouse unwittingly aggravates the dysfunctional relationship through co-dependent support.
2)  Develop Some Bad Habits.  
No one is perfect; some are more imperfect than others.  The Seven Deadly Sins (Pride, Anger, Sloth, Greed, Lust, Gluttony, and Envy) are considered by many to be the roots of various addictions (hubris, chronic rage, procrastination, gambling, sexual obsession, compulsive spending, over-indulgence in food and drink, covetousness, etc.).  These bad habits are 'deadly' because they are often considered the origins of many other 'sins' or dysfunctional behaviors that are difficult to change.

My experience is that addiction of one type or other is often at the root of financial distress.  Addictions involve misuse of both personal and material assets, so they are often the harbingers of poverty.  Recovery from financial downfalls due to active addiction is seldom successful unless the addiction is directly addressed and dealt with effectively.

3)  Let Your Skills Atrophy. 
As our global economy grows increasingly complex and competitive, skills we develop in our youth become obsolete much sooner than in earlier cultures and societies.  For example, in the past a journeyman carpenter could be assured of a job for life with very simple tools.  This job today requires considerable computer knowledge and more advanced mathematical capability.  The knowledge of a financial planner and other complex professions is estimated to have a half-life of eighteen months.  Half of our knowledge relating to our profession becomes obsolete in just a year and a half.

It is not only more difficult to get a good job without advanced education, the education that qualified you for a job five years ago is likely to be insufficient in today's labor market.  Paradoxically, the more advanced an education required to get a job, the faster those skills and knowledge become obsolete.  Thus, most advanced professions require more continuing education to maintain licensing.

4)  Put Up a Good Front. 
This is essentially the motive for maintaining consumer debt, such as balances on credit cards.  Typically, someone who lives beyond their means is trying to be someone they're not.  Maintaining this illusion to impress others takes a huge psychological toll, which aggravates the guilt and fear.  Dampening those feelings requires more spending on props to maintain the false facade. The  person is sucked into a vortex of poverty.

There is a distinction between 'good debt' and 'bad debt.'  'Good debt' may include a home mortgage, an education loan, or a car loan for someone starting out.  These can be considered 'good' because they enable a person to get leverage, e.g., get a better job, so they can earn more.  This is relative to their ability to earn, so a $250,000 mortgage, or a $100,000 education loan, or a $50,000 car loan is not appropriate as a 'good debt' for a new college graduate who earns $35,000 per year.
5)  Don't Celebrate Thanksgiving. 
Getting poor, or rich, is more of an attitude than a measurement.  Relatively speaking, the poorest 10% in our society are richer than the richest 10% of humans in the world.  "Prosperity depends more on wanting what you have than having what you want." --(Geoffrey Alpert)

I appreciate the editorial review contributed by Chip Simon, CFP®, an ACA colleague in Poughkeepsie, NY

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