I recieved this question from a reader. i thought it was a great question and wanted to share it with you all.

Dr Doug:
Do you think that the US population is beginning to realize that they are living outside their means? And rather than work and adapt we seem to feel entitled to live expensive lifestyles.

Here is my response:
Talking in general terms, yes, I do think there is a sense of entitlement among Americans. I think the vast majority of Americans live above their means (no matter how much they earn).

I have a client who manages a large portfolio. He has a young family and has earned over 10 million a year for the past 5 years. In one month, his business was decimated because of the market. It was not his fault and he did nothing different than had been for the past 5 years. Just bad timing. He was now facing the reality that he could only afford to maintain his current life style for another few years before he would have to “downsize.” I know, sounds crazy right. After all, you would like to think that having a net worth of over 30 million would imply you, your kids and your grandkids and then their kids don’t have to worry about money ever again.

Now, keeping things in perspective, downsizing to him meant having 4 people in help at his home instead of 8. It meant having 3 cars instead of 10. It meant buying a 5 million dollar home instead of a 25 million dollar one. It meant only having 2 vacation homes instead of 5 and it also meant flying first class commercial rather than private charter all the time.

Nonetheless, the point I am trying to make is that I have found that Americans in ALL income brackets lived, and still do live, above their means. Interestingly enough if we continue to give the advice of “don’t worry, the market will come back, or your house’s value will get back to ‘normal’,” then we are essentially telling people to continue to live above their means because it is only a ‘temporary’ situation. I don’t think this is temporary. I really think this is the new “normal.” And if you look through centuries of history, what you find is a few small pocket of massive growth and wealth while the majority of years are filled with average income levels. So, just because we happen to have lived through a period of massive wealth, does not mean by any stretch that we will see it again in our lives. In fact, it is much more likely for us to not see it again.

End result….swallow the lesson now and adjust your lifestyle and expectations. What is the worst that happens? I am wrong and we go back to massive wealth building a few years from now. Fine, call me an idiot then – but chances are if that happens none of us will care because we will be going back to spending excess.

But hey, what do I know.

Dr. Doug

This entry was posted on Tuesday, February 3rd, 2009 at 12:57 pm and is filed under Peak Performance. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.