My article, What Charles Dickens Can Teach Us About Personal Finance was recently featured on Yahoo Finance. Another title I considered for this article was The Micawber Principle: The Cornerstone of Financial Security.
The inspiration for this article comes from a quote by Wilkins Micawber who is found in the Charles Dickens novel, David Copperfield. Those who are regular readers to our blog will know Dickens characters are our favorites. For the last eight Christmas seasons, David Marotta has taken a different character from A Christmas Carol as the subject of a personal finance lesson.
What I’ve learned after many years in wealth management is highlighted by the Micawber Principle. It is not the paycheck but the margin that determines financial peace and security. David Marotta emphasizes this point when he shares that each individual’s financial future is mostly dependent on actions that are with in his/her control. By moderating your spending in relation to your means, you have margins to achieve or maintain financial security.
Here’s the quote that is the inspiration behind the Micawber Principle:
“Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds nought and six, result misery.”
Sure, this is the same old advice about living withing your means. But what makes it unique is the recognition of a micro-thin line between peace and stress. Spend a dollar below your income and you have peace. Spend a penny more than you can afford and the emotional scales have completely tipped.
The Micawber Principle doesn’t just apply to those who are actively earning money. For those clients who are in the draw down mode of retirement, we develop a safe withdrawal rate for distributing money from their portfolio and conservatively assume that this distribution will need to last until age 100. Whether moving towards or actively in retirement, it’s important to have margins in place to ensure financial security.
Continue to the article by clicking here.
Image: Kyd (Joseph Clayton Clarke), via Wikimedia Commons