It's no surprise that people at the bottom of the income distribution struggle to pay their bills at the end of the month. What's more surprising is that many people who aren't on the bottom rungs of the economic ladder seem to struggle almost as much at achieving financial security.
One example is Neal Gabler, who recently wrote an essay for the Atlantic about his own financial struggles and those of people like him. Gabler is a successful writer, having written several books, worked for PBS, and written essays for magazines like Vanity Fair and Vogue. He even had Martin Scorsese buy the movie rights to one of his books. Unfortunately, that professional success hasn't translated into financial security.
In parts of his essay, Gabler freely admits that this is largely his own doing. He bought a condo in Brooklyn. He sent his daughters to private New York schools and then to Stanford and Emory.
Gabler "chose to write long books that required years of work, even though my advances would be stretched to the breaking point and, it turned out, beyond." Gabler's financial planning left a lot to be desired. When he got a sizable book advance, for example, he didn't set aside enough to pay the associated income tax bill and wound up owing hefty penalties for late payment.
Gabler's candor is admirable as far as it goes. But he goes on to draw the wrong lesson from his experience:
Financial advisers suggest that we save at least 10 to 15 percent of our income for retirement and against such eventualities. But the primary reason many of us can’t save for a rainy day is that we live in an ongoing storm. Every day, it seems, there is some new, unanticipated expense—a stove that won’t light, a car that won’t start, a dog that limps, a faucet that leaks.
An unexpected expense from the vet or the plumber can explain why someone doesn't meet his savings goal in one particular month. But these kinds of expenses are also a predictable part of life. A good financial plan should leave room to pay for these kinds of routine emergencies and still save 15 percent of your income.
If 15 percent savings feels out of reach, you should make bigger changes
If you're over 30 and have been consistently failing to reach your savings goals, it's worth treating that as an emergency in its own right. I live in Washington, DC, one of the more expensive metropolitan areas in the United States. And in the last couple of years I've had two different friends move from here to Midwestern cities — St. Louis in one case, Minneapolis in the other — after a few years of living in Washington, DC.
Both enjoyed living here and were sad to be leaving. Both had stable, white-collar jobs. But they weren't especially lucrative jobs, and both friends knew that even if their careers went well, they would struggle to enjoy a comfortable, middle-class life in the Washington, DC, area. So they moved to Midwestern cities where they could afford a nice house in a good school district for less money.
This kind of decision is tough to make, but it's also a decision that will pay financial and psychological dividends for decades to come. With a lower cost of living, it'll be easier for my friends to save 15 or even 20 percent of their income each month. That will provide a savings cushion that will allow them to deal with unexpected emergencies. Obviously they'll still face some financial risks. But with money in the bank, routine, unscheduled expenses like car and furnace repairs won't make them feel like they're weathering an ongoing financial storm.
And this is the larger problem with Gabler's essay. While he admits that he could have made some different choices, the essay as a whole takes a fatalistic tone. He gives the impression that inexorable economic forces are pushing families into dire financial situations. But at least for families with above-average incomes — like Gabler's and those of many people reading Vox or the Atlantic — this simply isn't true. Most of these families can and should take steps to put themselves on a secure financial footing.