An unspoken assumption held by many people is that “saving money is optional”. “I know I need to save money,” says a client, “but I just don’t have anything left over at the end of the month”. Think about what is being said here. There are only 2 possible situations a person will find themselves in, financially:
1) An individual consumes more than they produce. This situation is really only a temporary transition to death. You CAN’T continue living this way because if you try, you’ll die-literally-as you find yourself homeless and unable to afford food.
2) An individual consumes less than they produce. This describes nearly everyone. The fact that you produce more than you consume means that you are saving money-by definition. What you do with that excess money is a matter of choice.
When I say this to people, a third option is often invented-“but Dave, what happens when a person consumes as much as they produce and has nothing left?”. I would say that this, for the most part, is a fallacy. The time value of money will eventually catch up to them, forcing them to create some kind of provision for their future. Spending everything you make, living hand-to-mouth, is really part of the transitional phase to the first scenario of consuming more than you produce.
As a practical matter, consuming exactly what you produce rarely happens out of necessity. Normally, when someone says that they are spending everything that they make and that they don’t have any money left over to save, what they are really saying is that they are spending all of their savings and are choosing not to save any money.
The reasons for phrasing it as though the client is being “victimized” by some unseen force to “spend everything they make” can be many, but I think the general idea might be that taking responsibility for one’s own financial situation is seen as scary. If it’s “not your fault” that you’re not saving money for the future then it’s easier, psychologically, to blame something else for your failure to save enough money to support yourself during retirement or for some other future, vaguely defined, goal.
Now, that this doesn’t necessarily mean that you are blaming a person, but life in general. You become a “victim of circumstance”. But this kind of thinking is both faulty and self-defeating.
Reality is neither fair nor unfair. It just is. You’ve probably heard phrases like “wishing won’t make it so” and “it is what it is”. Well, this is the meaning of those sayings: “reality is what it is, independent of your thoughts, wishes, or feelings”. This means that nothing is “out to get you”. This kind of thinking becomes self-defeating because, if taken even semi-seriously, it leaves you helpless. You start feeling helpless, despite the fact that you are not, and you become unable (unwilling) to solve financial problems.
In an era of big government, taking responsibility for yourself isn’t presented as a major virtue. Sure it gets some lip service, but is often practiced inconsistently. The solution to this “victim think” in your financial life is to take responsibility for your financial situation. Do you have clear financial goals for your future? If not, why? You know the future will eventually become the present and that planning for the future is a basic requirement of life so you need to plan for your future. Are there some expenditures that are getting in the way of meeting your future goals? While you should never sacrifice the present for the future, you should also never sacrifice the future for momentary, “range of the moment”, pleasures. Think about what you really want, and then adjust how you spend (or don’t spend) your savings accordingly.
If you’re having trouble doing any of this, a good financial adviser or consultant can help you