In
its simplest form, personal financial planning is governed by one
inescapable requirement: Total income over remaining lifetime must be
greater than or equal to expenses over remaining lifetime. If you're
lucky, "remaining lifetime" is the sum of working years and
retirement years, where you are not physically working during
retirement.
In
practice, planning gets complicated by the many forms of income and
expense, but even they can be simplified when you realize that there
are basically only two types of each: constant and exponential. The
exponential types, in particular, can get pretty tricky, since they
depend on the ability to accelerate growth of money without limits,
and that money can represent both physical things and non-physical
things. As the constant types have been increasingly linked to the
exponential types (for example, your "constant" salary is
likely paid by an employer who relies on exponential growth in
profits), they too have become harder to plan for.
Now
that we face hard limits to the availability of quality ecological
resources, upon which our economy and our physical survival is based,
basic assumptions built into our economy are beginning to lose their
usefulness, which is making successful planning by most individuals
and many organizations even more difficult. In addition to reducing
room for growth, which has been assumed to be infinite, we are
degrading the ability of social and physical ecosystems to absorb or
nullify the negative effects of our actions within a period of time
that is meaningful to people. This results in decreasing exponential
income and increasing exponential expense, as an average, for our
whole population, which reduces our effective lifetime.
One
positive aspect of our situation is that we are collectively becoming
a global village, re-creating some important dynamics of
near-isolated communities of the past. In an idealized version of
such a community, the social and environmental impacts of economic
activity were felt directly by both businesses and their customers.
Since the number of prospective customers was practically limited,
businesses had to focus on keeping them satisfied; and since
resources were limited, their consumption had to be kept below the
regeneration rate (such as the growth of new trees for wood) if the
business along with the community was to survive over a long period
of time. Businesses were rewarded with enough profit to create new
products or services only if they could find more resources or
efficiencies in the use of existing resources, and if it didn't
result in harming the community. Exponential growth became possible
as a community's territory expanded and its population grew to take
advantage of the newly available resources. Combining of multiple
communities also contributed to that growth, leading to our present
situation. Enabled by multiple technologies that have also grown
exponentially, we have turned much of our planet-sized
spaceship into a giant community of communities, subject to rules
of survival similar to the ones those early communities had to live
with, but without most of the self-replenishing resources they had.
Our
new community and the environment it occupies is much more complex
than the ones we were naturally evolved to maintain, which is a big
reason for our heavy dependence on technology. Our computers and
communications enable us to share and mentally process experiences
around our community, translating its complexity into much simpler
forms we can comprehend, thus keeping us from being aware of all but
the largest of the consequences of our actions, and, even then, not
with the gut-level feedback we naturally depend upon for knowing and
acting to change the status of our environment. Put another way: We
have taken over Spaceship Earth by cannibalizing its parts for our
pleasure and thereby sabotaging its life support systems, while
knowing a lot about the small part we were supposed to operate before
we went rogue, and knowing very little about the rest of it.
One
thing we do know is that life tends to maintain habitability
for itself, and there is still a chance that species we haven't
destroyed could fix enough of the damage we've inflicted to keep our
planet habitable (if still uncomfortable) for at least a few decades
more than if we don't let them. To give them that chance, we will
need to let them have more resources. From a personal finance point
of view, I estimate will all need to learn to limit our individual
expenses to under $12,000 per year, which, not surprisingly, is most
easily done by reinforcing the necessary regrowth of natural
ecosystems and their denizens so they can provide more replenishing
resources like what we evolved to consume (of which we should use
less than half). This should also help reduce our greenhouse gas
emissions, one of our largest negative impacts on ecosystems both
directly and indirectly (through climate change).
Ideally,
the world community would eventually function like an isolated
sustainable community, utilizing exponential income and expense only
as necessary to deal with conditions that require swift growth or
contraction to maintain survivability, instead of an ongoing
expectation for personal gain. For most of us, our life focus would
shift to favoring quality over quantity. The inevitable fraction of
the population that found this impossible to live with would have the
option, like generations of the past, to explore new environments –
this time in space – and make them habitable for people, so long as
those efforts did not degrade the lives of existing communities.