Calculating Your Own “Sustainability” May 22, 2013Expert BlogsOff

GE and other big-name financial services companies have recently cut or eliminated their dividends. Historically, if a big company were to reduce its dividend, the market would fear the worst. In these cases, however, corporate management is arguing that cutting the dividend will lead to more strength. Corporations are conserving cash to get through the economic crisis.

We can use this business technique in our own financial lives. Regardless of where it comes from, we live on cash. Most of us live off our salaries, but sometimes we’re living off of savings or investment income, too. If any of these sources were eliminated or reduced, how long could we last? That’s a question of SUSTAINABILITY.

The greater your sustainability, of course, the more economic power you have. “Old fashioned” financial planning used to recommend holding six months of living expenses in cash (checking, savings, money market funds, CDs, etc.) as a safety cushion. Maybe what is old is new again, because the idea is regaining interest. Most PINK professionals have the kind of job that takes months to replace if lost. Six months’ savings would certainly ease job-hunting pressure.

Another angle on “sustainability” is to think about how flexible your costs of living might be. If most of your paycheck goes to mortgage, car, real estate, tuition, and insurance payments, then you don’t have many options to make 6 months’ savings last any longer. But, if those fixed costs are low, then you are actually in a position to make 6 months’ savings last even longer. That’s not belt-tightening, that’s empowering!

What’s your sustainability? How long could you last given your current spending? How much could you reduce your spending to make your cash savings last longer?

By Marie Claire Allvine

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