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55+ AND ALIVE: Living on the margin

Davis College of Business Dean Dr. Don Capener
Davis College of Business Dean Dr. Don Capener

There is a common saying about how life would be good if you could only access and use “other people’s money.” With “other people’s money” you can take more risks and make mistakes without concern of personal loss or even responsibility, right?

The purpose of this month’s column is to demonstrate that living on the margin, or using other people’s money or resources to live above your means, not only increases your stress, but will ultimately waste your time and energy that could be used in more productive and meaningful ways. My advice to you is move as far away from the margin as possible.

What do I mean by living on the margin? If you trade stocks, you are familiar with the reality of a “margin call.” No one wants a margin call because it means you need to deposit additional cash to make up for losses in your margin account, which are essentially lines of credit.

During the financial crisis in 2008, there were several famous margin calls including the one that bankrupted Lehman Brothers. The most famous investment bank, Goldman Sachs, could not cover their own margin call until they convinced Warren Buffet, CEO of Berkshire Hathaway, to invest in preferred stock of Goldman Sachs as part of a recapitalization of the investment bank. Not living on the margin has made Warren Buffet one of the most admired men in the world.

Most of us operate margin accounts without calling them such — credit cards, automobile loans and home mortgages that maintain zero equity and expose all of us to margin calls. Because margin accounts are essentially a credit line from a financial institution—we agree to use other people’s money to buy something we can’t afford or take risks to generate trading profits.

Margin accounts or no-equity home mortgages are great when the market goes up because you can buy more than what you could personally afford in the hope of future profits.

Living on the margin can also mean your life is tough — that you only have just enough on which to survive. Many of us over 55 live paycheck to paycheck, just “getting by” but having no leeway for anything going wrong.

Because pensions and forced retirement accounts are rare, most people must be disciplined in their savings habits and resist the temptation to borrow from our 401k accounts, even for illnesses, weddings or college education. The classic example of living on the margin financially is the subsistence farmers who only manage to grow enough food in a good year, but cannot build up enough reserve to protect against drought years.

Low-wage earners are very vulnerable when they become sick or lose their jobs.

Living on the margin also means you may act recklessly in your life. Using drugs or excessive drinking is a good example of living on the margin. Another is taking careless or imprudent risks, such as participating in extreme sports or activities without adequate forethought or preparation. Sky-diving can be enjoyable and is all well and good, but jumping into it (no pun intended) if you have high blood pressure may be unwise without consulting your doctor. Similarly, deciding to summit Mount Everest when you haven’t had intermediate climbing experiences may get you into grave trouble.

In other words, we often have a choice to not live on the margin, and we choose to take those risks, anyway.

The problem with anything on the margin is we significantly increase the probability of receiving a margin call should our fortunes reverse.

Another implication of living on the margin is that your life is not like that of “normal” or “mainstream” society; you live on the margins, or the edges, of normal society.

In almost all instances I’ve discussed, this is because of poverty or because of choice. If you are living on the margin, take steps that will put you in control of your time and money, and give you peace of mind.

My recommendation for a more peaceful and fulfilling life is to:

  1. Close credit card accounts you don’t need or use infrequently and reduce or eliminate revolving balances.
  2. Sell items you don’t use, or de-junk your apartment or home.
  3. Don’t overcommit in terms of time or money.
  4. Allow an extra 5-10 minutes for travel time to meetings
  5. Invest in a rainy-day fund that can sustain you for six months or more if you lose employment or become suddenly ill.
  6. Pray or meditate on good things in your life
  7. Work smarter and more effectively. If you are paid on salary, tryto reduce the time focused on work by 10 hours a week.

I promise, you will feel better when you stop living on the margin.

Dr. Don Capener, Dean of the Jacksonville University Davis College of Business, lives in Jacksonville with his wife, Annie, and their two youngest daughters. His 55+ And Alive is an occasional column in The Florida Times-Union’s PrimeTime section. He can be reached at dcapene@ju.edu.