Very few of us in this country are independently wealthy, so the majority of us are usually bothered by a sudden demand pressing us to come up with money for an emergency. I spent my working years in business while I studied the political parade of wooden soldiers to Washington and tried to raise several families with different partners in more than a half dozen countries.
During most of the 40 years that I was an employee, I was responsible for the budgeting and financial analysis of operations for several large corporations before I became a general manager and then a vice president. As a consequence, I feel well-versed about fiscal irresponsibility.
Wherever I lived during those years I observed members of society at all levels struggling “to make ends meet.” Whether the social group was a family, a business, or a government entity, there always arose an urgent need for additional funds. The many reasons to spend more money were basically sound when analyzed individually.
Someone in each group needed financial help to do what everyone else in the group had whole-heartedly agreed was necessary. Immediately a search was initiated to find money to replace a failing household appliance, launch a new product in order to dominate the competition, or expand a grossly inefficient, unproductive, or inadequate government program which was causing some political controversy.
The interested party who “needed” the money promoted his cause and worked hard to convince everyone else that what had been planned and approved was essential and must be completed. The head of the household, the executive in charge, the administrative leader responsible in the state capitol or in Washington would nod his head in agreement and turn the job of finding money over to the treasurer. “Theirs was to do or die. Find the money and never ask why!” With hat in hand, these well-dressed beggars humbly went to their local banks to borrow whatever funds were available at the going interest rate.
Recognize the game? Borrow from Peter to pay Paul was the usual result of the search for funds. Promises were made to be broken as lenders are well aware because neither borrower nor lender can accurately predict the future.
Everyone’s been there and done that, I’m sure, and many have found out that this is the quickest way to insolvency. Kicking the financial problem into next year or even next week buys some time to remedy the financial situation. Unfortunately, many times before a solution is found, a new financial crisis overtakes the group, and the risks of default become even greater.
What I have described above for a family unit assumed that there were no savings available “to plug the hole,” “to help weather the storm,” or “to put out the fire!” The rate of personal savings to personal income in America has dropped nearly to zero. It has not been fashionable for years to go without and save when credit cards are being offered to almost anyone, even minors! “Charge it, take forever to pay, and ignore the interest rate on your unpaid balance!”
The more important subjects of “home economics” (paying your taxes, balancing a budget, and forecasting the income your family needs) are not taught to anyone in high school and only to those in college who study business, most of whom choose to forget whatever they learned about fiscal responsibility as soon as they graduate.
The lesson for the man on the street from the Great Depression before consumer credit became so popular was: “You can’t have what you can’t pay for within a reasonable amount of time.” However, with the compassionate spirit that has evolved in the banking and credit institutions, that rule has been almost nullified through their general acceptance of a non-stigma-attached bankruptcy. My conservative analysis of fiscal restraint and fiscal responsibility will not include taking excessive financial risks that could lead to the bankruptcy court to solve a financial problem.
What normally leads to over-spending in a family or an organization is the human desire to acquire more things than an economic entity can reasonably pay for. If the members of a family can’t squelch their insatiable appetite for additional things and experiences, their dreams will eventually exceed all of their sources of income and credit.
Frequently before that actually happens, an important part of the family income is lost due to illness, accident, or some unforeseen setback. Without any significant amount of savings, families find themselves in financial straits and forced either to cut back expenses or to borrow more money. When they can’t obtain additional credit, the heads of the household, or whoever is in charge of the budget, have to call in everyone and tell them, “There’s no more cash, so we’ll have to postpone some expenses.” From then on, tough times are ahead for all those who have never experienced a belt-tightening crisis.
So, how can you avoid spending more than you can “afford?” Especially when there is an unknown amount of credit out there somewhere and creditors are begging you to indulge in their generosity? The standard reply of fiscal conservatives is to learn to live “within your budget.” But who budgets every little item that they spend their money for? No one. Not even the zero-based budget driven companies. When the “crunch” comes in a business, the accountant or the controller who anticipates a negative cash flow has to warn the spenders that there may not be enough money available to pay all the bills.
The best profit plans and budgets are SWAGs (Scientific Wild Ass Guesses.) No one can divine the future, predict the good news, and anticipate the bad. Consequently, there has to be a cushion built into any budget, even though most folks can’t handle a cushion any better that they can avoid using savings. Staying within a budget isn’t easy when there are so many urgent demands for the basic necessities.
The only thing left to do then, ruling out going deeper into debt, is to prioritize expenditures as most serious companies do for their capital expenditures. This practice is anathema in families and most governments whose requirements cannot be postponed for reasons that anyone can understand: each line item in the budget is important, the gross amount of expenditures in that line item has been justified, and the costs being incurred are “normal.”
Budgets don’t control expenses, people do. A budget is merely a reference point to measure the actual flow of cash against what was anticipated and to calculate a positive or negative variance. For each line item budgeted, an estimated amount is established to be spent using assumptions that may or may not correctly predict the flow of income for the period budgeted.
Consequently, when a budget is put together using everyone’s input, a prioritization of expenses should be assigned that will cancel some projects, delay implementation of others, and suggest what items in the budget are optional or deferrable when there is inadequate cash flow from a “reversal of fortune.”
Someone in the family, the business, or the government always ends up with the nasty job of cutting expenses, frivolous pet projects, “non-essential” personnel, and even new, hopefully life-extending procedures. But most families, many companies, and practically all governments never do that until they are heavily in debt and can’t borrow any more. Arbitrary crisis-driven reactions and restrictions on spending cause stress and bad morale. Frequently, in the case of a business, they result in counter-productive measures.
It must be obvious to anyone by this time in a business cycle why there isn’t any money to spend. Desires to spend by the authorized purchasers always seem to outrun the normal capacity of a social organization to generate income flow. The few times there is an excess of disposable income, control of expenses is ignored, and saving the excess is an option of the last resort. When the flow of income is less than anticipated, financial trouble usually lies ahead, and the frustrating turmoil of trying to make ends meet always ensues.
From the viewpoint of the person who has held the purse strings very tightly while realizing that sooner or later he would have to open the purse to keep the peace, I will share the underlying fear that accompanies that thankless job. Every time money is finally authorized to be spent and made available to purchase something that has been desired for a long time, a brand new, casually discussed desire rears its ugly head. It has been hiding behind the disputed item, simmering in the mind of the most neglected member of the social organization who realizes that the time has come to ask for consideration of his or her critical purchase which simply can’t be postponed.
The plant controller in the Finance Department is like a plant industrial engineer in a factory who hesitates to resolve a bottleneck on the assembly line for fear that his boss will demand that he resolve a potentially worse bottleneck that has been covered up by the first one. The controller frequently drags his feet in approving expenditures, knowing that when the pending expenditure is authorized, he will begin to feel the pressure to release funds for a “more urgent” problem that he “only recently” heard about.
When the upstairs bathroom is finally remodeled and the invoice is pending payment, a wife will politely reveal her desire to upgrade the kitchen. As soon as a new machine is installed on the shop floor to break a bottleneck, the plant manufacturing engineer will be looking at catalogues for some exotic machine to break the next bottleneck. When a local government’s program to give relief to some “deserving” group in our society is finally “up and running,” a forgotten or ignored group will be pressuring the local mayor and city council to consider allocating funds for their “very urgent” request.
There is always someone in every society with an unaddressed desire to make life better for the abused, the ignored, and the long-suffering: to protect the environment, to improve “the system” (pick your favorite “broken” one), and to eliminate a potential health risk. No one asks where the money is coming from to deal with this unwelcome problem, what higher priority item may have to be delayed, or what the process is to get the change implemented. The only question ever asked is: Why in the world does it take so long to get the money to “fix the obvious?”
To fix the obvious requires that we teach human beings to accept delays in satisfying their most sought-after wishes. Not an easy task, especially when annoying problems need to be resolved, past wrongs must be corrected “even if it takes money” and a change in the law, and in harmony in the social ambience has to be addressed so that a smoother, more efficient operation can ultimately be achieved. At least before the next family complaint is voiced, or the next union grievance is filed, or the next public demonstration or “march on the capitol” is organized.
Coveting what our neighbor has, what advertisers think we should buy, what our competitor is doing, or what an ideal society would provide for the “poor in spirit” and those who “hunger and thirst after righteous” is the underlying cause of our present failure to “live within our means.” Resistance to these temptations may be futile.
Material progress may be made in leaps and bounds with periods of fiscal desperation and economic crisis in between. Borrowing may not be evil, if we are cautious or lucky. But craving to have more when we can’t be satisfied for very long with what we actually have can be a disaster for the average wage earner, the small company, and our local government.
I certainly don’t wish for another Great Depression to educate the younger generations about how precious the bare necessities are. Gratitude for the present lifestyle we have in this country may be hard to evoke from the spoiled. A fundamental awareness of the premium infrastructure available to the average citizen in America is essential to generating a shared sense of satisfaction. More of us need to become comfortable with the blessings we have rather than beg for or dream about having more things because someone else appears to have more than we do. Aspiring to improve our lot through dedicated hard work and not speculation pays off in the long run more often than not.
Although you may not end up with a superabundance of material possessions that must be housed, cleaned, and maintained, you will hopefully end up with a greater appreciation for the things you have acquired. Using fiscal restraint might even provide you with the additional peace of mind that comes with having saved something for that rainy day that is sure to come!