What’s Your Financial Style – Fixed Lifestyle or…Life?

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Do you ever feel that you earn a pretty decent living, but at the end of the week, month or year, there just isn’t much to show for it? You have a good job, a nice home, a good car and the overall trappings of middle class life in the 21st Century. But it seems no matter how much money you earn, it’s always tied up in the cost of basic living.

There’s never enough in the bank, little in your pocket and the extra’s you want are usually put off until a later date that never seems to arrive. Do you feel that most of the time it seems as if you’re barely getting by?

You’re not alone.

In Why the Rich Don’t Feel Rich (Yahoo!Finance 9/29/2010), Laura Rowley dissects the absurdity of a couple who don’t think of themselves as rich even though they earn in excess of $250,000 per year! To put this income in perspective, according to Rowley, an income at that level puts them in the top three percent of all households nationally.

How does a couple earning over a quarter of a million dollars a year come to think of themselves as anything but rich?

I think it comes down to two financial styles: a Fixed Lifestyle Emphasis and Life Emphasis.

What’s the difference?

The ”Fixed Lifestyle” Emphasis

A Fixed Lifestyle emphasizes the trappings of life—the “assets”, if you will—that make your life what it is. Often, they might even define it. The attachment and psychological dependence on those assets is why I refer to it as “fixed”. You sense that you can’t leave it or seriously modify it.

A fixed lifestyle emphasis might require living in a certain type of house, or a certain community, or driving a specific type of car. The focus is always on things, and those things use up most of the household budget leaving little for much else.

With a fixed lifestyle emphasis you can look very successful on the surface, but often feel squeezed at the same time. This is at least partially because this financial style often makes heavy use of debt. That debt, in addition to high carrying costs in general, creates a structurally expensive financial condition that won’t be easily reversed in the future.

To one degree or another, I think most people fall into this category. We can mistakenly assign this financial style to people who are rich or obsessed with looking rich, but any of us can fall into it—and most of us do. All it takes is a strong devotion to one or more major “things” in life. Most of us do that without much thought.

The “Life Emphasis” financial style

From a financial standpoint, a budget that has a life emphasis focuses on the portion of your financial resources that aren’t soaked up by the trappings of the fixed lifestyle. Its how much money you have after you’ve paid for the basics like housing, transportation and other stuff.

Everyone has basic living expenses, but the difference is that the life emphasis seeks to intentionally minimize these, freeing up resources for savings, investments and fun.

People who live this type of financial lifestyle can often appear to be have-nots on the surface. But they’re usually the ones who live lives that are more cash rich and stress free than most others.

Which is the better financial style?

Hands down, it’s the life emphasis! The fixed lifestyle emphasis centers on things, and with things come costs, attachments and entanglements. Every one of those has the potential to control not only your finances, but also your emotions.

The life emphasis tends to produce a financial life that’s more liquid and less encumbered. You’re able to make moves and take chances that those of the fixed lifestyle emphasis are either unwilling or unable to make.

How might a fixed lifestyle emphasis show up in our spending patterns?

Housing. In many fixed lifestyle households, housing is so heavily emphasized that the family lives in a nice home but finds itself otherwise struggling with finances. It all stems from the decision to commit a disproportionate amount of assets and income toward housing.

It could involve an insistence on living in a certain community or zip code. Or it could involve being over-housed. As examples, a single or elderly person might live in 3-4 bedroom home, or empty nesters in a community with top schools even though they have no children.

In each case the person or couple are paying for housing that provides marginal (or unnecessary) benefits at a high cost. The insistence on living in a certain type of home or neighborhood consumes an excess amount of resources, often without the person realizing or acknowledging it.

Less expensive alternatives are available, but they won’t be seriously considered because the person identifies emotionally with the home or the location.

The price paid for a home sets consumption patterns for life, and owners of large or high end homes often develop a habit of paying others for what they could do for themselves. By paying others to keep and maintain a home, not only do you raise your basic cost of living, but you also force yourself to earn even more money to pay for it all.

College for our kids. Many people try to give their kids a Mercedes education on a Chevy budget. How do you know when you’re doing this? When you’re taking on mountains of debt to do it. That debt creates a fixed expense for you and your children for decades to come.

While it may seem noble to step up to the edge of bankruptcy to educate your children, keeping it within the limits of your financial ability can help both you and your children to avoid long term debt, as well as to put you in a better financial position so you’ll be free to help them in other ways that may be just as important at some time in the future.

Cars. In our you-are-what-you-drive culture it isn’t at all uncommon for people to drive a car that they aspire to, rather than what they can truly afford. Much like a home, a car is another purchase that locks us into long term spending and consumption patterns. In many households, cars eat up a disproportunate chunk of income, either by debt on a dream car, or by financing carried on two or more vehicles.

Buying lower end new or used cars, and/or keeping them long after they’re paid off may not enhance your image the way you’d like, but it will keep your income free to do other things in life that might make you feel even better.
An addiction to big ticket items in your life might seem satisfying on some level, but it’s also a sure fire way to raise your basic cost of living, making you feel poorer than you really are.

Take a look at the spending categories—can you see your own spending patterns in any of them?

(photo credit: uggboy)

Kevin At Out of Your RutThis post is from FiscalGeek staff writer: Kevin Mercadante. I’m very excited to have him contributing to the site. You can find out more about him at his own blog OutOfYourRut.com.

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{ 7 comments… read them below or add one }

TheMadTurtle 2010/10/19 at 10:49 am

Related to cars – a lot of people who like classic cars are really not very ‘in the know’ regarding how affordable they actually are. If you’re a car person, go for a classic! Often times, with a little research, you’ll find a really solid “driver” for thousands less than a new car. Have a “daily driver” that is dependable, but don’t finance your “dream car” – save up $5,000 and you can find a really cool classic to tool around in. A classic will turn more heads than a brand new BMW or Mercedes any day.

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Kevin 2010/10/22 at 7:11 am

I’m not a classic car guy myself, but I have to agree that the turn more heads than luxury cars. Anything that will enable you to live your dream without breaking your finances is worth looking into. Excellent suggestion.

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Spedie 2010/10/20 at 9:02 am

I used to be a Fixed Lifestyle, but now am a Life Emphasis person – with one exception. That exception is my house. But that is going on the market next spring. I hope I can sell it! Because so much of my change (due to Dave Ramsey and the Debt Snowball) from Fixed to Life, I am able to put enough money extra on the mortgage every month to bring the house out from underwater. I am literally throwing thousand dollar bills at the mortgage, hoping half of them will stick.

After that house sells, I am going be Life Emphasis all the way! I can’t wait.

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Kevin 2010/10/22 at 7:12 am

It does sound like a nice transition, doesn’t it? You’re moving from supporting the trappings of life, to actually living your life. The happiest people I know are also the least encumbered–do you think there’s a connection???

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Spedie 2010/10/22 at 8:39 am

Kevin, you bet there is a connection. I had all the trappings: a huge house (3,000+ square feet), 2 new cars with payments, credit cards, an awesome theater in the house that only the very rich have. The theater was wicked!

I sold that house and downgraded 3 years ago to 2,232 sq feet. Still a bad decision because it is 4 bedrooms and 2.5 baths for 3 people. That is still way too large for 3 people….

I sold my truck. The other car went in the divorce. I was lucky enough to sell the truck right before gasoline prices went crazy and so the truck was still worth something. I now drive a paid for Toyota Corolla 5 speed. I love my little car.

I got rid of the credit cards. The last one went on Xmas Day, 2007 and I am much better for it!

I have just about sold the theater. The components went in about 2 weeks off Craigslist. The chairs sold on Craigslist in 3.5 hours! Both cash buyers. I still have the 110 inch diagonal screen – still working on that…once that’s gone, then that’s all of it.

I have cleaned out my house, sold a bunch of stuff, and gave away a lot on FreeCycle…no more ridiculous amounts of stuff to clean, organize, maintain, etc.

Instead, I am putting money into investments…maxing out my Roth, etc. And now I have a huge emergency fund – over a years worth of bare bones living.

I am definitely more unencumbered, and I am enjoying every minute of it! When I get an unexpected cost, or lose my job (I am the primary wage earner and I have gotten laid off twice in the past 2 years), I do not freak out. I have the savings for a long time and so I can be relaxed in job interviews. I don’t need the work force for quite some time. Do you know what happened? In both cases I was working again in 3 weeks for more money! I went from $75K per year to $94K per year because of the two layoffs! I BENEFITED from both layoffs!

Ha! Imagine that???

Kevin 2010/10/22 at 9:52 am

Spedie – The advantages in life tend to go to those who travel light, and to be financially liquid–that’s what you’re now doing. The pay increases make sense. The fact that you aren’t desperate is something employers can pick up on. Every one you come in contact can sense it. Money tends to come to those who have the least need for it.

When you’re broke, people can sense that too. They play hard ball and get you to accept less, sensing that you need the next dollar. It’s hard to even put up a front that you aren’t desperate when you’re broke or over-extended. Best thing is to never get to that point. The next best is to get out of it as soon as possible if you are. You’ve done that.

Life’s better on the other side, isn’t it?

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Spedie 2010/10/25 at 6:45 am

It sure is. Now if I could only explain to other people how to make “the jump”!

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