WARNING: Do not Google “lingchi” and look at the images – they are horrible!
Last weekend was Father’s Day and I drove to the mountains with my daughters to escape the desert heat. On the beautiful drive a song came over the airwaves. Taylor Swift sang “Death by a Thousand Cuts.” As you can tell, I can turn almost anything into a personal finance analogy. For most of the trip up the mountain I thought of how people (and I did early in life) get cut in their personal finance lives.
Lingchi is a Chinese word meaning “death by a thousand cuts.” And in the world of personal finance it’s what so many people experience. Let’s explain with some examples:
- January – Need to replace two tires on the car ($300)
- February – Root canal and cap on your back tooth ($1,000)
- March – Dog goes to the vet because he swallowed rocks ($1,500)
- April – Dishwasher needs to be replaced ($600)
- May – Daughter goes to the emergency room ($1,000)
- June – Battery to the car dies ($125)
- July – Air conditioner to house breaks ($400+)
- August – Kids need clothes/books/materials for school ($600)
- September – Birthday gifts for the twins ($300)
- October – New glasses from the eye doctor ($500)
- November – Living room ceiling fan breaks ($250)
- December – Christmas gifts ($1,500)
Now do this year after year after year. That my friends is death by a thousand cuts. Whatever the example that best fits your daily financial lives, we can agree on one thing …. they are real and they hurt. It’s why so many people can’t do basic financial things like create an emergency fund. Unfortunately, it’s also the reason so many people get into credit card debt.
I understand it because I’ve lived it. I was 48 years old (now 58), earning $162,000 (now $300,000), and my net worth was $155,000 (now $1.1M). And it was going to get worse in 2 years because when I turned 50 college expenses were to begin for my 2 daughters. Things didn’t look good and I never seemed to be able to dig out of the hole. I was feeling a death by a thousand stabs versus cuts.
Addressing (Not Avoiding) The Cuts?
It’s not really possible to avoid the cuts because life happens. Looking back on my financial situation though, I should have been able pull it together sooner. My issue was not unique … I was unemployed 3 times from age 28-35. So, anytime I would get back into some kind of reasonable financial shape I’d get beat down again with unemployment. I was on the proverbial hamster wheel.
Unemployment is devastating to people’s personal financial and emotional well-being. It can shake you to the core and some people never recover. In shocking metrics from the US Bureau of Labor Statistics (2018), baby boomers experienced an average of 5-6 periods of employment between ages 18-48. And they had an almost 70% likelihood of experiencing at least 3 periods of unemployment during that span. For me, employment stability was key to us finally getting our financial act together. Employment stability allowed us to slowly get financially healthy.
But think about this for a moment. Unemployment 5-6 times during a 30-year timeframe crushes financials. People don’t talk enough about this but it’s the reason why I “preach” so hard to my 23 & 26 year old daughters to have 2 emergency funds. One of those funds is larger and handles bigger “cuts” like unemployment or significant healthcare issues. The smaller fund handles the “smaller cuts” that hit us every month.
Embrace the fact that life hits with a “death by a thousand cuts.” The faster you understand that – hopefully before you get cut – the sooner you can prepare. People living in poverty are likely always going to be in poverty. That is the hard truth. Unless they have some significant money windfall, they will never get out of their hole. They live paycheck to paycheck and that’s the only experience they will every know.
It’s Time For A (Expense) Diet
Seriously, the word “diet” is an appropriate word here because it’s going to be uncomfortable to get healthy. You’ll need to do some work and there will be urges and temptations. You’ll want that new iPhone or go on that spontaneoius weekend trip with your friends but you’ll have to say “no.” How else are you going to get financially healthy?
Most people need to push the reset button and the best place to start is to track your expenses. Discretionary spending should certainly be an area of focus to quickly reduce spending. Don’t get that new puppy, stop all vacations, and reduce your nights out on the town. Redirect those funds to creating an short-term emergency fund and reduce debt.
Your short-term fund might need $2,000 to handle all the small stuff that never seems to end. Really, this is a number that only you can decide but keep it real and don’t kid yourself. It might take some time but keep at it … two steps forward and one step back (there will be set-backs). It may take some time but eventually, you will reach the target goal. Don’t forget to replenish the fund as you use it.
Essential spending also needs to be reviewed. Name brands, expensive meats, and excessive watering of outdoor plants, and more should be on your radar. Just look for areas you can reduce. Look for leakage in expenses. For example, I found that group life insurance at work is expensive and shouldn’t be used for long-term life insurance needs. Instead, get a term-life policy and save thousands like I did.
Summary
Employment stability is critical to not letting the death by a thousand cuts drag you down and keep you down. Keep your career skills relevant and learn how to survive in an organization. Even in my 22+ years at my current organization, there were a few times I was concerned with my job. We are never really secure and we are all temporary help so the quicker you learn the game the better. The advantage of being at one place for some time is you get to know their game.
The amount of income someone earns really doesn’t change the equation unless behavior changes come with the income. Death by a thousand cuts happens to people making $50,000 and $500,000 annually. Of course, the “cuts” have different definitions based on income. Replacing tires or batteries hurts the lower income person whereas large HOA fees or annual car licenses can pick away at higher incomes.
Here’s the bottom line … expect to be cut with constant expenses that always seem to pop-up at inopportune times. The only way to combat the issue is to proactively create both short and long-term emergency funds. And when I say “proactively create” I mean to track your expenses, reduce discretionary expenses drastically (until you are under control), and look out for the sneaky way that essential expenses slowly drain your wealth.
Keep the faith and thanks for reading!
Mr. TLR