ARTICLE How people end up in financial distress and don't see it coming! Part 3 Written by: Gary Wilde © Copyright Gary Wilde 2010 - All rights reserved 20 January 2010 [Follow these links to read Part 1 and Part 2 of this article..] If you are currently dependent on your primary source of income and access to short term credit facilities to pay your bills and maintain your lifestyle each month, the chance of you experiencing some form of financial distress at some point in your life is a virtual certainty! It may happen next month, next year or in the next 10 years... but the odds of you avoiding it are strongly stacked against you unless you make some fundamental changes to your patterns of thinking and behaviour when it comes to money. People are quick to blame the recession, government, stock markets, employers and other fickle external forces for their financial difficulties. However, fluctuating economic performance, the follies of government, the cyclical trends of stock markets and the volatile nature of business are realities of life. Anyone that depends on these forces performing consistently in their favour is being naive and setting themselves up for inevitable disappointment, if not disaster. It's not how well or how badly these forces perform that determines your financial security; it's the manner in which you prepare yourself for these inescapable fluctuations that determines the extent to which they will affect you when they do happen. E.g. the greater your financial reserves, the smaller the impact of downturns will be on your financial security. However, if you have limited or no financial reserves, the negative impact of any downturn or unexpected loss of earnings is virtually immediate and often devastating. The disturbing truth is that as many as 98% of economically active people have limited or no financial reserves and are therefore entirely dependent on their primary source of income to pay their monthly expenses, service their debts and maintain their current lifestyle. While many will argue that circumstance is the cause of their vulnerability to financial distress, the hard truth is that it is their own behaviour that exposes them to such hazardous risk. The evidence of this is revealed in Part 1 and Part 2, where we see how people's spending habits, lack of foresight and their enslavement to the need for instant gratification, constantly denies them of the opportunity to steadily build their financial reserves and hence their financial security. But there is another social phenomenon that is responsible for perpetuating this destructive pattern of behaviour... Humans are aspirational beings. We constantly seek to grow and improve ourselves as well as elevate our social standing. This is one of our strengths as a species, because it drives us to innovate and evolve in every area of life. However when it comes to building our financial security, this trait has proven to be one of the most powerful invisible forces that bind most people to their fate of living on the edge of financial disaster... let me explain why: With the introduction of mass production, advanced technology and evolved socio-political structures in the last hundred years, the middle class of society has grown exponentially, giving the ‘average man in the street’ access to comforts and even luxury. A consequence of this has been a significant shift away from a life of survival, towards a life of social competitiveness. In fact, where people are perceived to be positioned on the social hierarchy has become an obsession in westernised cultures. Social climbing has become an overarching priority in the lives of most people and is a key driver of $ billion industries across the globe. The allure of luxury and social status has the world entranced to such an extent that even the most intelligent and educated fall foul of its trappings, because emotions trump intellect 99% of the time. The desire to be perceived as being positioned higher and higher up the social ladder is far more emotionally compelling for most, than their desire for financial security and the peace of mind that comes with it. The most generally accepted measure of social standing is wealth. However, because we don't have access to everyone's bank accounts or balance sheets to determine how financially successful they are, we tend to assess other people's social standing on the basis of what they can afford to buy. It is therefore assumed that the price tag of your possessions is a reflection of your social standing. While anybody that is working to pay off their house, car or retail accounts each month (i.e. most people), knows that their possessions are more a reflection of what they owe than what they own, everyone seems to be very happy to perpetuate this grossly inaccurate myth... because they're all completely invested in it. It's a vicious cycle, the consequence of which is that whenever people come into more money or gain access to more credit, they immediately use it to upgrade their possessions and lifestyle and thereby upgrade their perceived social standing. The thought of saving or investing their money or forgoing the use of the credit they have access to, is seldom even a consideration... which is why they don’t have any financial reserves. The scary truth is that if you constantly use your financial resources to buy things that cost you money, rather than buy things that make you money, you are doomed to live the rest of your life, no more than 30 days away from financial distress... which is more likely to happen than not. So what happens when things do go wrong? Unfortunately they tend to go disastrously wrong because people fear losing their perceived social status even more than they wish to improve it. As a result, rather than volunteering to downgrade their lifestyle and offload costly possessions in order to minimise their losses, they wait until their creditors do it for them... and lose everything as a result. Many people reading this will argue that they would never do such a silly thing, however when people are in a state of heightened fear or anxiety, they tend to do silly things because their behaviour is dictated by their emotions, not logical thought processes. Human behaviour is predictable because people tend to maintain their habits, not break them. However when we realise that this is a choice, not a life sentence, we realise that we have the power to change our financial destiny, by learning to manage our emotions and choosing to behave differently. Until next time, become more conscious of the future consequences of your financial decisions and rather use your money to build your long-term financial security, than consume it on possessions that serve only to satisfy your ego in the short-term. By doing this, you will virtually eliminate the possibility of experiencing financial disaster in your lifetime! To your Wilde success! Gary Wilde 
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