A Lower Standard Of Living Is Nothing To Fear
It’s been three and a half years since the Great Recession officially began back in December of 2007. September 15th will mark the third anniversary of the near meltdown of the global financial system. The economy has been in an official recovery for a couple of years. Yet, for most of us, income hasn’t kept up with inflation—if we’re lucky enough to have income. We’ve adjusted by cutting back or cutting out certain expenses. We’re doing what we can to stretch our dollars and make ends meet.
Lower standard of living in the future
Things don’t appear to be getting any better any time soon. And they may not get better for a long time. We may have to accept a lower standard of living for years to come.
Is that a bad thing? Some think so. They bemoan a reduction in the American standard of living and fear that our children and grandchildren will not achieve the level of prosperity that we have enjoyed.
We were living beyond our means
The truth is, the standard of living many of us experienced until recently was merely an illusion financed by easy credit. We went on a twenty-year spending binge with money we didn’t have. It could not be sustained. Where were we going, anyway? We already had the largest houses, the smallest families, the most convenience, the most electronic gadgets, the best automobiles, the most expensive educations, the most clothes, the best communications, and the best social safety net of any generation, and still, we wanted more? To what end? Does more and bigger necessarily mean a better quality of life?
Nothing to fear from a lower standard of living
I know what the answer is for me, but I won’t presume to answer for you. I’m not making value judgements about how people spend their money. I’m just saying that cutting back on some of these things, which lowers our standard of living, isn’t a tragedy.
A lower standard of living is nothing to fear. It is a blessing if you have the financial resources to sustain it. Rosa and I have enjoyed a relatively modest standard of living for 30 years, but what we have is sustainable. Over the last two years, our monthly income has been reduced by 30% due to lower interest earned on our savings. In response, we’ve implemented a few minor adjustments to decrease expenses, but the only major change we made was to save a lot less during that time.
When our income goes back up, we’ll save more—or not. We may spend the increase in income instead of save it. We have that choice, now. At this point in our lives, we have the financial assets to support our standard of living until we die. It took us 30 years to get here. We couldn’t have done it if we had maintained a higher standard of living.
Reduce standard of living and increase financial assets
As our nation goes through this extended period of slow economic growth, focus on financial assets rather than standard of living. Financial assets are more important. Standard of living is a measure of our level of physical comfort. Once our basic needs have been met, and most of us live well above that level, spending more money does not significantly increase the degree of physical comfort we experience. However, financial assets provide psychological comfort in the form of financial security. They guarantee the level of physical comfort that we enjoy. Add to financial assets and the level of psychological comfort increases dramatically, provided the standard of living remains the same, because the result is increased financial security.
There are worse things than a lower standard of living, such as going broke. If you want to get ahead in these uncertain economic times, reduce your standard of living and add to your savings.
K.C. Knouse is the author of True Prosperity: Your Guide to a Cash-Based Lifestyle, Double-Dome Publications, 224 pages
