Is Your Financial Baseline Too High?

Hi Reader,

Welcome to The Money Series and if you are new here, thank you for signing up. Personal Finance can feel ambiguous and overwhelming, but I am here to help simplify the journey.

Recently, I was listening to a podcast where a young woman shared her career journey. One conversation in particular caught my attention - she was working in a company and didn’t feel like the role suited her personality. Before deciding to stay or change jobs, she spoke with a senior colleague who had been at the firm for 2.5 decades to understand the career drive.

She asked him why he had stayed in the same role for so long, and his response was eye-opening: ‘I have a housewife who doesn’t work, three kids in private school, and two mortgages. Where am I supposed to go?’ His answer shocked her because it implied he wasn’t there by choice but rather out of financial necessity. He was trapped—not by passion for his work, but by the lifestyle he needed to maintain.

Now that’s the crux of today’s conversation.

First, let’s be clear on one thing. if you love your job and choose to stay because of that, you’re not stuck. However, if you feel financially tied to a job due to high expenses and the need to maintain a certain lifestyle, then you may be in a financial trap.

When you have a stable, regular income, it’s easy to increase your financial baseline - the minimum amount required for you to stay afloat. Many people are paid well but also have expensive lifestyles. They finance cars, move to bigger homes with higher rent, or take on large financial commitments, thinking, ‘This is only 10% of my income, so it’s manageable’. But when you add up these costs, they can quickly push your financial baseline to a level that restricts your flexibility. High living costs can make it difficult to save, invest, or make life-changing decisions, such as starting a business, switching careers, or even relocating to a new city or country.

There are several consequences of a high financial baseline:

• Job Inflexibility. Like the senior colleague, you may feel unable to leave a job, even if it no longer fulfills you.

• Limited Savings & Investments. The higher your expenses, the less room you have to save for the future or invest in wealth-building opportunities.

• Reduced Risk-Taking Ability. If you dream of starting a business or taking an unpaid sabbatical, you may struggle because you don’t have the financial cushion to support you.

• Inability to Handle Life’s Uncertainties. Living paycheck to paycheck leaves little room for unexpected expenses, such as medical emergencies or family support needs. In the event of job loss, one’s quality of life may be affected significantly.

While some situations require large outflows for some time, having a high financial baseline relative to your income consistently over a long period is not a safe option.

What Can You Do?

• Set Spending Limits. Decide what proportion of your income you want to allocate to necessities and discretionary spending, ideally 60-80%.

• Trim Excessive Expenses. Whenever your expenses increase above this threshold, decide what needs to and can be trimmed off and trim them off.

• Adapt to Economic Changes. If the increase in your financial baseline is due to rising costs in the economy, either find ways to boost your income or adjust your lifestyle accordingly.

• Prioritize Savings & Investments. Aim to save at least 20% of your income to build financial resilience and create opportunities for future growth.

Breaking free from financial dependency starts with conscious spending and strategic planning. By keeping your financial baseline in check, you’ll be free to make choices that truly align with your personal and professional aspirations.

Reflect on This:

• What recurring cost(s) did you recently add to your finances?

• Is it truly necessary, or can you reduce or eliminate it?

• If you needed to take a career break tomorrow, how long could you sustain yourself financially?

Till next week, I am rooting for you, money-ly!

Dee

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Disclaimer: This does not constitute financial advice. Please conduct your research or consult your financial advisor for important financial advice.