Try to imagine the enormous range of possible financial conditions in which human beings can live. At the lowest end is bare subsistence—those with the minimum food and shelter possible to sustain life. At the highest end is unlimited wealth—multi-billionaires who have more than they, their children, and their grandchildren could possibly spend.
Most of us, of course, live in relatively narrow bands somewhere in between these extremes. In our book Wired for Wealth, co-authors Brad Klontz, Ted Klontz, and I describe these bands as “financial comfort zones.”
On the high end of our particular financial comfort zone are what appear to be the wealthiest people we know. On the low end are what we assume to be the poorest people we know. Those who share a financial comfort zone tend to have similar incomes, lifestyles, spending and savings habits, and beliefs and assumptions about money.
For those growing up in wealthy families, “normal” may include private schools, international travel, live-in household help, and expectations of an Ivy-League education followed by a lucrative career. Those growing up in families managing from month to month on limited incomes will inhabit a much lower financial comfort zone. Normal for them might include shopping at thrift stores, after-school jobs, and little or no expectation of higher education.
In both cases, the expectations people grow up with tend to keep them in their financial comfort zones. These zones are artificial financial boundaries that we impose on ourselves, and they are not necessarily defined by what we can or cannot afford. Yet we become uncomfortable if we move too far past them.
Certainly, people can and do expand their financial comfort zones. Children who grow up in low-income families, for example, may be able to get an education and go on to careers that bring them financial success far beyond that of their parents.
The real problems arise when circumstances unexpectedly push people out of their financial comfort zones. Suppose a relatively poor couple wins several million dollars in the lottery. All at once, they will have the means to move into a much higher financial comfort zone. Yet making that move will mean leaving behind their familiar expectations and way of life, which will separate them from their family and friends.
It’s no wonder that many people, coming into unexpected wealth, unconsciously feel a need to get rid of it. It’s one way to get back into the familiar zone where they know how things work, they are comfortable, and they belong.
The same thing can happen to a person in a higher financial comfort zone. Suppose a high-earning professional couple, who have grown up with wealth and an affluent lifestyle, have lost nearly half their net worth in the current economy. Then one of them is laid off. They aren’t going to starve. In fact, they could scale back their spending a great deal and still live perfectly comfortably.
Yet this may not seem like an option to them. Just like the low-income lottery winners, changing their financial circumstances moves them out of the place they belong. It’s possible they may go into debt or spend down the assets they do have left, jeopardizing their financial future, in order to maintain a lifestyle that keeps them in their financial comfort zone.
Ironically, this couple would have a better chance of returning to their financial comfort zone if they were willing temporarily to move out of it on the low end. Becoming comfortable with less for now, in order to invest in one’s future success, can be an important factor in building a financially secure future.