Professor's House

Living Beyond Our Means – Don’t Spend What You Don’t Have

The idea of living beyond our means triggers the memory of television snippets we watched recently about the three American major car manufacturers who came to Washington requesting a bailout. For people in dire need of funds, they sure had the temerity to romp into Washington in their private jets. To add insult to injury, they came unprepared.

Why did that scene remind us of living beyond our means? The reason is simple. When large corporations are in the brink of bankruptcy, it’s because the flagrant consumption of resources starts at the top and trickles down rapidly to the bottom, until it spins out of control and there are no resources left. If senior management engages in wasteful practices of the company’s resources, it must be happening in lower levels as well.

Examples of Living Beyond Our Means (at Work)

Let’s take the corporate life first.

Executive: hops into a private jet to a destination that is only 100 miles away.

Clerk: goes to the coffee station, throws the coffee out of the thermos and makes a brand new pot (even if the coffee was brewed only 45 minutes ago).

Executive: purchases fund-raising tickets at $5,000 a plate for his friends and family – total order: $250,000.00

Clerk: throws away half a dozen hanging folders because she doesn’t like the color.

Executive: Approves a $300,000.00 budget for the employee Christmas party and then spends another $300,000.00 for an intimate dinner party with senior executives and their wives with fat bonus checks on standby. This party is held in a skiing resort and overnight hotel packages have also been purchased, bringing the total tab to slightly half a million dollars.

Clerk: pads his overtime sheet, almost doubling the number of overtime hours rendered.

Executive: Orders the parking lot renovated so an indoor parking lot for five senior executives could be built.

Clerk: Orders a box of USB disks and a box of CDs for backing up files, even if his old flash drives aren’t full.

Executive: Commissions three oil paintings by a famous artist for his office that will cost the company half a million dollars.

Clerk: Takes home a box of paper clips, highlighters and scratch pads for her child in school.

Perhaps the reason a multinational is teetering into bankruptcy is not so much the lack of sales, but because there are cases of irresponsible spending that pervades throughout the corporation. It takes only a handful of culprits to initiate irrational spending and the pattern repeats itself at different levels. If we were asked to tally how resources are spent, we’d probably go into shock.

Examples of Living Beyond Our Means (at Home)

How we spend our personal money mirrors our tendency towards conspicuous consumption. Let’s examine a few aspects of our lives and see why we’re living beyond our means without our being aware of it.

Case # 1: The neighbours next door installed a swimming pool. You’re envious and you start asking around how much a similar pool would cost. You’re barely meeting mortgage payments and your children are in private school forcing you to request a larger line of credit. You go ahead and buy a pool. The salesman persuades you to purchase accessories and to add some fancy features like a cascading water fountain. You’re sucked into his sales pitch and say yes. You’re not only living beyond your means, you’re also keeping up with the Joneses – a lethal combination.

Case # 2: Your daughter comes home one day all excited. Her school has planned a two-week tour of London and she asks if you could pay for it. She was on a two-week tour to Mexico six months ago which you also paid for. You can’t bear to break her heart so you say yes. That’s two major trips in a year. Total tab: $6,500.00.

Case # 3: Your husband made you choose between a high end coffee machine ($1,800.00) and a set of three Lalique crystal vases ($1,500.00). “We can afford only one purchase this year”, your husband says. “Next year, you can get the other one.” You choose the espresso machine. Two months later, the Lalique crystal vases went on sale and you went ahead and bought them instead of waiting until next year as your husband advised.

Case # 4: You received your Christmas bonus, a sizeable sum. Instead of paying down your mortgage with it, or making a huge payment on your credit cards, you go to the nearest BMW car dealer and make a down payment on the latest model so you could get rid of your two-year old car.

Case # 5: You go to the supermarket with a cart overflowing with products that were not on your list but can produce a week’s worth of five meals for a family of 4. You get home and you’re exhausted. You don’t feel like cooking, you pack everyone back into a car and go to a restaurant for dinner.

Deal with your Means, Not Live Beyond Them

We’d like to offer some tips on how you can live with what you have. You’ll be surprised at how much you can save by practicing judicious spending. You have a mortgage to pay for a long, long time…are you going to mortgage your future and that of your children as well?

  • Save gas by planning your trips in such a way that you’re going in one direction for a series of errands. Ask the school moms for car pooling opportunities. Choose a one-stop mall where you can do all your errands: post office, dry cleaning, food shopping, drug store, etc.
  • Repair now and renovate later. If you have money, do the urgent repairs first. Think of renovating when you’ve saved enough for it.
  • Recycle ingredients as often as you can. We get trapped into trying a new recipe calling for an ingredient that we end up using only once. If the ingredient is expensive, think of other recipes that will allow you to use the ingredient again.
  • Use magazine coupons for your detergent, cleaning, and baby purchases.
  • Pay down credit cards that have the highest interest rate. Consolidate your loans if necessary so that you’re making only one payment instead of several payments at different interest rates.
  • Don’t buy a new dress for the office Christmas party. Accessorize.
  • If you love wine and it’s a “must-have” in your household, there are liquor outlets that allow you to bring your own bottles and fill up from barrels. Everyday wine for example does not have to be expensive. For the holidays, liquor stores offer discounts for bulk purchases.
  • Don’t go into that cruise just because the couple at the gym are going. Use the money instead to pay down debt.
  • If your car is in good condition, keep it for as long as you can. Say no to the car dealer who’ll take you on a test drive and then offer flexible car payment plans.

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