It seems that change is always unexpected and feared. And yet change is always all around us. Life is creation, and creation brings about change. Creation occurs constantly. There can be no life without it. So change is a constant, as well. You cannot escape change. Yet, you assume change will not happen. How do I know? Because you get into debt.
Assumptions about your future financial status are erroneous
When you take on consumer debt, you assume that nothing in your financial life will change for the worse until the debt is paid off. You get into debt based on your income and financial stability at the time you agree to the loan. You assume those factors will remain the same or get better over the term of the loan, and so does your creditor. This is an erroneous assumption. Change occurs the second you sign the loan papers: Appliances in your home are wearing out. The paint on your house and the shingles on the roof are deteriorating. Your children are growing. You and your spouse are getting older. The brake pads on the wheels of your car are getting thinner. The economy is in flux. Terrorists are plotting another 9/11. Your wife is pregnant but won’t know it for another month. The company you work for is planning to downsize, but a public announcement will not be made for another six months. The list could go on and on. At least some of this change will put demands on your finances and may affect your income in the months and years to come. If enough of the wrong kinds of change occur, you may not be able to make the payments on the loan, or you may have to juggle other obligations to make the loan payment.
What about positive changes?
What if change brings good fortune? You will have no trouble making the payments on the loan, but you will probably take on more debt given your improved financial status. Isn’t that what happens? Isn’t that what happens until change brings misfortune?
Debt and change lead to more debt
When change puts the clamps on your finances, what do you do? Why you borrow some more if you can, don’t you? You hope to get out of debt by taking on more debt. And then hope nothing changes for the worse until you can get your financial house in order.
The Great Recession of 2007 should have taught us that spending money before we have earned it is risky, that the money to repay the debt may not be there in the future because of relentless and unpredictable change. But we have short attention spans and credit is cheap.
Debt causes a fear of change
We fear change because we have already bet on the future with debt. When change comes, we resist or deny it is happening. We assign blame and scapegoat. We enlist the government to play games with interest rates, manipulate markets, and bailout corporations all in the name of preventing change. This meddling doesn’t avert change, it just produces unintended consequences, which is another name for change.
Change is inevitable; prepare for it
You cannot escape change. Why not prepare for it and embrace it? One way to do that is to avoid debt. Avoid committing future income to debt repayment. To avoid debt, you must have a cash reserve. Where else is the money going to come from to pay for expenses that exceed your normal monthly spending? A cash reserve comes from saving. Saving is possible if you spend less than you earn. If you spend less than you earn you will not only have cash to pay for expenses that exceed your normal monthly spending and to supplement your income during financial adversity, you will have the financial flexibility to adapt to change. The amount you save each month is a buffer against a reduction in income or an increase in monthly expenses. When income is reduced or expenses increase, you can reduce or eliminate saving until either the situation passes or you adjust to it with additional income or a reduction in spending.
Let me give you an example: My wife, Rosa, lost her job as office manager a couple of years after we had wed. She worked for a wholesale florist who did a lot of business in Mexico. The Mexican peso had been severely devalued and this cost the wholesale florist a lot of business. Rosa was laid off. During the few years we had been married, we based our budget on one income even though we both earned paychecks. We saved the other income. When Rosa was laid off, she substitute taught for a few months. She liked teaching so well, she went back to college full time to complete her bachelor’s degree and earn a teaching certificate. Upon completion of her degree and certification two years later, she began teaching full time. Over that three year period, we were able to meet our monthly obligations, remain free from debt, and continue to contribute some money to savings each month. Rosa paid cash for the completion of her degree and certification from the money we had saved prior to her layoff.
Rosa might never have finished her degree or become a certified teacher if it hadn’t been for that layoff. Because we were financially prepared for change and embraced the changes that occurred at that time, we came out of the situation three years later stronger financially and making much more money than before the layoff. Twenty-five years later, Rosa’s teacher’s pension and retirement healthcare benefits allowed us to retire at age 56.
A cash reserve is not an option
If you want to deal positively and successfully with change, saving is not an option because change is not an option. Start building a cash reserve today by cutting your monthly living expenses until you are spending less than you earn. Save the difference. Do this even if you have debt. Make timely payments on your debt and it will eventually be paid off. Paying off debt is not the problem, a lack of savings is.
Accumulate a cash reserve and you will no longer have to fear change. In fact, it will become your friend.
K. C. Knouse is the author of True Prosperity: Your Guide to a Cash-Based Lifestyle, Double-Dome Publications, 224 pages