Sooner or Later Your Standard Of Living Will Fall

Yes, dear reader, that means you. No, don't shake your head and say, "I'm insulated." You are not. Here's the story of how I was forced by circumstances beyond my control and equally by my own stupid mistakes to cut my standard of living in half.

When I left Morgan Stanley I was living pretty well, traveling frequently, making good money and living in a bachelor's dream pad. I drove a Mercedes (oh, what a mistake that was!), ate out whenever I wanted, pretty much where ever I wanted to and wore Armani suits and French-cuff shirts. Plus, I had enough income to support the credit cards I was charging ever more of my consumption on.

Then came the market crash and my income was literally halved in about six months time. The old timers used to say, "when a bear market hits you'll take a big paycut, so save now while the getting is good." I should have listened. Instead I went about making all the stupid mistakes everyone in this country is about to, or is currently doing: I withdrew all my 401(k) money, maxed out the credit cards, and other various financial tricks (you see, trading revenue dried up, and I wasn't about to churn my client's accounts) until I had nothing left. This process lasted about a year. By then the markets had bottomed and while I had managed to hold on to, or even increase in some cases my clients money the good old days of the 90s were gone forever and I inhabited a vastly changed financial marketplace--one that was being gamed at the 'top' and for those at the 'top' in increasingly disturbing ways. But I tried my best to survive.

Alas, debt continued to pile up. But there was no way I could afford the standard of living I had grown accustomed to. To top it off, I was married now. Something had to give--and it did. I no longer ate out much; I moved into a small apartment far from the nice area I used to live; my car was repossessed; and then I had health problems, three nasty back procedures, among other issues. Being 'technically' self-employed at the time--but still working under the rules of an umbrella of an increasingly vicious compliance department--I could barely maintain a lousy health insurance policy and soon I spiraled deeper into debt, much like one the country is spiraling into now. And yet, somehow I still managed to spend more than I earned. Even after I cut my living expenses by a third.

So, more downsizing ensued. Out went every subscription to all my magazines. My wife had to get a job. I downsized my telecom bill, maintaining only the flimsiest of family plans. HBO? Gone. Showtime? Gone. At one point I considered going to plain-old dial up I was so hard up for cash. Family stresses increased to a breaking point and soon my marriage began to fail.

The death-knell was ringing, but I couldn't hear it.

Furthermore, my credit rating and credit had deteriorated so quickly and so badly that I considered bankruptcy. But you see, I was in an awful bind. I had a license to trade securities and if I declared bankruptcy I would lose the license. (And I do understand this rule, after all, if someone can't manage their own financial house, how can they manage that of others?) I struggled to stay ahead for almost a year, but kept slipping even further behind. Finally the financial services company I worked for after leaving Morgan Stanley got wind of my debt issues and, well, for lack of a better word, pushed me out of the business. (Keeping all my clients, in the meantime.) So, the only real career I ever knew was gone in a poof of what Chicago-school economists call 'creative destruction.'

So, all I had to fall back on at this point was The Agonist and a friend at a radio station who helped me find some fair paying work as a part-time, fill-in host and a family that was willing (and had some resources) to step in when it looked like I was going to fall off the proverbial cliff. But still it got worse. My wife left. She'd had enough. I was alone. I met the bottom as best I could. But getting to the bottom was the most miserable two years I have ever endured. Had I known then what I know now I would have done things very differently.

But let us continue the story.

I went off to Turkey to work--you all remember that adventure, right? Soon forced to return for family reasons I then moved to Austin and found, by some stroke of luck, an amazing job. But this time I didn't repeat the same mistakes. I had a decent salary supplemented by decent commission checks. I was determined to avoid repeating the same mistakes, as I could see the financial tsunami we are all witnessing coming on.

So I saved. I drove a 20 year old beat up Acura (which runs just fine, thank you very much) that I inherited from an aunt who had died the year before. (Yes, I was that hard up at one point.) And I saved some more. I started paying down my debts as quickly as I could. And I saved more again, keeping as much as I earned as possible in the bank. I rarely went out, cooked for myself and allowed myself only three luxuries: broadband, cable and books. (As an aside, I urge each of you to add up the amount you spend each year on broadband, cell-phones and cable, it really is a staggering sum.)

I lived lean, very spartan. After all, I don't need much. We all don't need much. A roof over our heads, a way to get to work (maybe for some a car, others the metro, and for others a bike), reasonably priced food, water and a little entertainment (much of which, surprisingly, can be found for free, take libraries for example, or 'concerts in the park' or the local free theatre).

The lesson I learned was realizing that needs are different than wants. Sure I want to feel the elegance of being enclosed in a silk Armani suit again. Sure I want to be able to eat sushi once or twice a week. Sure, I'd love to drive a BMW or some such. Sure, I want a lot. But I don't need it. I have what I need. And thank the gods that my ego isn't caught up in all that crap anymore. Things don't define me. What's in my heart, in my head, in my soul is what defines me. I am the sum of my experiences and in that sense, I am a very rich man.

Another quick aside, or confession of sorts. I'd always aspired to political office. But I always told myself I would do it only when I was mature enough to do so--to do so for the right reasons. What's funny is that I think I am mature enough now for it, but the irony is, it's not what I want anymore. Besides, I've made far too many mistakes to ever get elected anyway.

Anyhow perhaps I should get back to the point of this story, the moral as it were.

At some point most Americans will be forced to downsize. It is inevitable and you won't have any choice. This process will take an enormous toll on people's health, families and savings (if they are so lucky to have any). Take my personal experience and multiply it several hundred thousand, or even a million times and that's what the next ten years are going to look like. Certainly lots of plain old destruction, and less than creative, if you ask me. Never in all my time blogging about and predicting the coming financial crisis did I ever imagine it would be this bad. I knew something bad was coming, but this? Nope, never imagined it. I guess that's the optimist in me.

And while I am not in the business of offering financial advice anymore perhaps you might learn something from my experience(s). For I am one of the lucky ones. I'm a (relatively) young white, well-educated male who learns quickly and can sell just about anything. (There is still a great deal of racism in this country, Obama notwithstanding.) That makes it easy to hire me in just about any industry. But many, far too many people are not nearly so fortunate as I. Many people weren't as lucky as I am in getting a good education. Many people aren't as lucky as I was in being born a man in a man's world. (I wish it were different, but it is what it is and I would change it in a heartbeat if I could.) Many people aren't as lucky as me when it comes to luck. You see, the world isn't fair. And I've been just plain dumb lucky a lot. That's not something to build a future on. Waiting around for luck also isn't a good strategy, either.

But common sense, something I often lack in volumes, can overcome luck. And in that vein may I be so bold as to make a suggestion: downsize now while you have a choice and prepare your family, because nothing is as important as they are. Choose to do so now, because when you don't have a choice it's disastrous.

Besides, the Fed isn't going to bail you out. Trust me, I know.