A Little Margin Goes a Long Way

a little margin goes a long way

This article originally appeared in our monthly newsletter, Fiscal Therapy.
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WHAT I’M THINKING ABOUT: Financial Margin in Your Life

Meet Steve, a fellow who makes a good $100k salary but saves little.  Early one morning, Steve wakes up with sharp abdominal pain and heads to the ER.  He leaves a day later with one fewer appendix and a $3,000 medical bill. (Don’t worry, his insurance covered the other half of the bill!)  Steve frets for weeks about that bill and ultimately puts it on his ballooning credit card, which he’s not sure how he’ll pay off.

Now meet Wanda, who also makes $100k but has $15k set aside for emergencies and routinely saves $1,000 each month toward retirement.  When Wanda gets that same $3,000 medical bill, she’ll be annoyed at having to pay it, but she’ll move on without any added stress.

The difference between Steve and Wanda?  Not income, but financial margin.

Why Financial Margin Matters

Margin is that space between your normal and your maximum capacity.  It’s that cushion in your life between your everyday responsibilities and your absolute limits.  It’s that Saturday morning when you sleep in, or your 35-minute daily workout, or your few minutes alone with your cup of coffee in the morning before your kids wake up.  Tapping into that margin when needed is fine (and inevitable), but the closer to your limits you live, the bigger the risk of hitting a breaking point. This applies to time, career, and of course money.

Financially, most people do just fine so long as life goes as expected.  But when a medical bill hits, or your car breaks down, or your purse is stolen, or your phone falls through the subway grate, or you get laid off — that’s make or break time.  Financial margin acts as an insulator from unexpected expenses and loss of income: you allocate the funds you’ve set aside for a time like this and move on. But without that cushion, you’ll feel the full force of the impact as every unexpected expense becomes a crisis precipitating stress (and sometimes debt).

Without financial margin in your life, money ends up controlling you rather than the other way around.  So don’t just expect the unexpected, but plan for it.

A series of worthwhile articles in The Atlantic dubs this problem “financial impotence” — laboring under financial strain despite a good income:

As people move up the income ladder, they escape material shortages and consume more. They have “things”—goods, houses, and, most importantly, education—to show for their higher earnings, but they do not have healthy finances. Having those “things” is of course an improvement over not having them, but only for the very, very rich (or the very, very unusual) is there any real escape from the pressure-cooker of American household finances.

I walk these so-called “circles of American financial hell” with clients on a daily basis. They are not in poverty, but the unexpected came and went and, lacking financial margin, here we are. It’s a struggle to regain financial footing and climb out of credit card debt, to manage loads of money stress and navigate relational conflict.

But I also see many examples where the unexpected strikes and it’s a mere blip on the radar.  Why? Financial margin.  The exact same life event strikes two families with similar incomes and stages of life, and for one it’s simply an annoyance and the other it’s a catastrophe. As we begin a new year, I bring up these uncomfortable realities and offer a high-level road map for improvement that your money might be wind in your sails rather than wind in your face.

How to Build Financial Margin into Your Life

Here are some concrete ways you can create more margin in your financial life. I recognize that while these steps may appear simple, it’s not an easy road. Be patient with yourself and work towards progress, once small victory at a time.

Make these first three steps your focus for January 2019:

  1. Define what’s most important.  What are the most important uses of your money?  Identify the goals that will orient you and define your why as you make life decisions.  Be sure to write down these goals in a notebook or spreadsheet.

  2. Get organized. Fill out this net worth statement to understand what you have, where you owe, and where everything is.

  3. Understand what living below your means would actually look like.  We took a deep dive into this topic in this article. Choose a few ways you can cut back spending or find a way to increase your income. This can take time, but don’t let the perfect stand in the way of the good. You’re not going to solve all problems and make all your decisions in one sitting. Instead, slowly work to understand your current limits and make changes to scale back where you can. Grab our budget template here to get started.

After you complete steps 1 through 3, here’s your longer-term road map:

  1. Courageously make changes. Your first financial goal should usually be accumulating an emergency savings fund, sufficient to cover 3 to 6 months of living expenses. The hard reality is that for a lot of people, breaking the cycle of financial impotence will require a major shift in lifestyle. Some large fixed expenses like your rent or car payment may need to change. Even a less dramatic change such as curbing your clothing shopping can feel like a big change. Regardless of the degree, your future self will thank you on the other side.

  2. Learn to say no. Once you’ve established your priorities and limits, it will become clearer when you need to say no to a pull on your money that’s not in line with what’s most important.

  3. Be clear-eyed looking forward. Resolve today to not spend that next raise, bonus, or tax refund. Resisting lifestyle creep and not spending money before it’s in the bank is a key way you’ll begin to add financial margin into your life.

  4. Find support. Consider sharing your new resolutions and priorities with a trusted friend who can remind and encourage you to stick to it throughout the year.


Here’s a rundown on my two favorite themes from 2018, each with the top articles from this year’s Fiscal Therapy.


Grit is your ability to stick with something and persevere. Studies show grit matters more for your success than your educational background. Importantly, grit can be learned, both by kids and adults. Combine it with self-efficacy—believing in your ability to apply knowledge to your life—and you have a powerful combination. A recent study found a major correlation between financial self-efficacy and financial health. Knowing a lot about money doesn’t make you great at managing your own money. You have to learn to apply it and believe that you can, and then stick with it.

Key reading: The Trait That Determines Whether You’re Good With Money, by Charlotte Cowles, The Cut

And finally, be patient: Self-efficacy isn’t perfection. You will make mistakes. What’s important is that you believe you can improve.

Key reading: How I’m Correcting My Financial Illiteracy, by Jennifer Torwudzo-Stroh, The Everygirl

Because once you realize that money management is a skill (like swimming or baking) and not a trait (like smart or good) it’s an easier topic to tackle. Sure, some people have greater access to financial knowledge, but no one is born with the innate ability to handle money — it’s learned.


It’s a marathon, not a sprint, and you must remain wise and clear-headed throughout. As this article puts it, “great things take time.”

Key reading: Great Things Take Time, by Nick Maggiulli, Of Dollars & Data

[Y]ou have to remember to focus on the long term in a world that has become used to having everything now. Whether its your career, your family, your health, or anything else worthwhile, take a step back and realize that it takes time. So when the CEO of the company that can ship you any item in the world in 2 days flat is always talking about the importance of long term thinking, maybe you should listen.

Ready for more? Check out our online personal finance courses designed to address the most pressing money questions and help you develop a financial plan.