There is an old saying, “when life gives you lemons, make lemonade!” The problem with that old adage? Making lemonade from lemons requires more ingredients than wishful thinking.
Recently, Lyle wrote a blog post highlighting a client’s experience dealing with an unexpected job loss and how, through this stressful time, he ended up finding something more fulfilling. In the blog, Lyle wrote one sentence that stood out to me:
“At first, he wasn’t eager to jump into another corporate role, but fortunately, they had significant savings and a generous severance package.”
Did you catch that? Allow me to highlight one very important detail: “they had significant savings.”
Life is inherently unpredictable; we just never know what is waiting for us around the corner. Preparing for those unexpected circumstances is essential but also pretty rare.
Smart Money Management & The Average U.S. Consumer
When life is going well, cash flow is great, and the stock market is going up and to the right, it can be easy to spend money without worrying too much about our emergency reserves.
However, things can change quickly. The client Lyle mentioned did not expect to lose his job. Fortunately, this client had exercised prudent financial decision-making: between his severance package and his substantial cash reserves, he was able to successfully weather the storm.
Unfortunately, this is not necessarily the case with most people.
The Reality for The Average US Consumer
As you can see from the chart below, credit card debt has skyrocketed over the last few years. This implies a dangerous pattern of over-spending, under-saving and, as a result, a lack of preparedness for life’s emergencies.
Source: fred.stlouisfed.org
To make matters worse, as you can see from the chart below, interest rates on credit card debt have spiked 40% over the same timeframe: from below 15% in 2020 to over 21% as of the end of 2024!
Source: fred.stlouisfed.org
The Lemonade Connection
Let’s go back to Lyle’s client and assume this person was managing their money more like the average US consumer. A sudden job loss or large, unexpected expense for someone that is over-spending and under-saving could put them in a very precarious position, financially and emotionally.
That chapter of our client’s life story could have ended much worse than it did!
“Making lemonade,” or more appropriately, creating something sweet and refreshing from adversity, without the savings and severance package they had, could have been much more difficult, or even impossible without tapping other resources.
Smart Money Management and You
So, what is the solution here?
It starts with making a point to have a properly funded emergency fund. Our general recommendation for most people of working age is to at least have between 3- and 6-months’ worth of spending set aside in an FDIC- or NCUA-insured high-yield savings account.
That requires being more thoughtful and less impulsive with spending, choosing to prioritize saving instead.
The best part about this is that most high-yield money market interest rates have risen over the last five years, meaning that emergency reserves sitting in a savings or money market account with a competitive interest rate will be earning a respectable return! The chart below illustrates this point well.
Source: fred.stlouisfed.org
Making Good Decisions Pays Off
In closing, set yourself up to be able to deal with financial adversity more successfully by intentionally choosing to spend money more slowly and less impulsively.
Instead, prioritize saving money in an intentional and proactive manner. Doing this will set you up to better cope with financial adversity when the storms of life ultimately come!
If you, or someone you know, would benefit from a more customized cash flow plan, please reach out to us!
