The income trap…when yesterday’s luxuries become today’s necessities

Not surprisingly, my financial therapy clients with low to moderate income and few assets often experience symptoms of financial stress such as anxiety and depression. Even though they juggle their funds by alternating which bills they pay each month, they still come up short. Interestingly, even clients with triple digit incomes and substantial assets report symptoms of financial stress such as panic attacks, mood swings, and a loss of interest in regular activities.

Paradoxically, the attainment of more income does little to alleviate financial hardship. Increases in salaries are expended on larger houses, finer wines and more frequent and extravagant vacations. Soon yesterday’s luxuries are today’s necessities. Too often, when a couple’s spending is disproportionate to their income, they contend with more than harassing calls from bill collectors. Financial pressures lead to arguments, especially as the pile of unopened and unpaid invoices fill the mailbox. Numerous research studies reveal that arguments about money are more likely to predict divorce than arguments about other topics. Utah State University researcher, Jeffrey Dew found that those couples who are burdened by higher debt argued more frequently about their finances and spent less time together. One reason couples may argue about money is they do not share a unified view of their family income, assets and liabilities. One study found that half of the couples surveyed reported significant differences in knowledge of family assets and liabilities.

Poet E. E. Cummings summed up the financial condition of these clients when he acknowledged,

I’m living so far beyond my income that we may almost be said to be living apart.”

Are you and your income “living apart”? Would you like to get your spending more in line with your income? Are your financial problems exacerbated by relationship tensions?

If so, you may benefit from reevaluating your spending priorities.  For many couples, spending creeps up each year until there is not enough money to pay for all those luxurious necessities. That is, until there is a financial crisis. A Pew Research found that many Americans changed their minds about which everyday goods and services they could live without when unemployment, foreclosures and personal bankruptcies were on the rise from 2006 to 2009. Over this period, a declining proportion of all the adults surveyed viewed the following items as necessities: microwave (-21%), clothes dryer (-17%), home air conditioning (-16%) and dishwasher (-14%). Looking more closely at the survey answers reveals that higher-income adults are more likely than lower-income adults to rate more of the items as necessities regardless of the prevailing economic conditions. It seems that as higher incomes are spent instead of saved, people become trapped into a more luxurious lifestyle.

Implementing spending cuts is never easy. Financial therapy may help you sort out what is really necessary for your financial wellness and relationship satisfaction.

 

Dr. Jean Theurer is a Certified Financial Planner® and a Registered Marriage and Family Intern.