Beware of the Invincibility Complex

August 11, 2007

A few months ago I met a couple from my distant home country (and town). They had good jobs back home (both in the IT industry) and had a good life, but their company was acquired and they lost their jobs, making them decide (after a few frustrating years trying to get back on their feet) to come to the US. Now he’s valet parking and she’s a nanny.

This is a classic scenario with some immigrants. Due to several factors, including language and culture barriers, a lot of immigrants don’t have the same options available as American-born citizens have. I’m not talking about illegal immigrants. These generally have it the opposite way. They come from a hard life and find a much better life here, even if they are scrubbing toilets.

My family legally moved to the US about a decade ago. My parents owned a small business and had a really good life back home, with a small penthouse, driving good cars and financially comfortable. Not really rich (upper medium class), but we had it good. However, the violence in my home town kept them sleepless at night (my sister was turning into a teenager), so they decided to move to the US hoping to finally be able to sleep at night and also give us a better education. They are doing OK here. They’re not starving or struggling, but they’re definitely not as well as they were. My dad’s 65 and he has to wake up at 5 am almost daily to go to work.

But I digress. The point I wanted to talk about in this post was about a dangerous psychological factor: the Invincibility Complex. It’s a psychological symptom that some of us are born with (the cocky ones) and a lot of us develop when we are on the top, with things going really well in our lives. We get comfortable, we feel invincible and we think that things will only get better. But things do change, like they changed for the couple I met and for my parents.

Despite all the news regarding a depression and the inevitable Bear Market, I still think the economy is doing quite well. Several Personal Finance bloggers I follow have posted about promotions, raises or fat bonuses in the past months. With things going quite well, it’s easy to develop this complex and start thinking that the road ahead of us will be rosy with only some small bumps here and there. We feel good about our lives, our income, our jobs and our future. We get a raise and expect similar raises in the following years. We get a fat bonus, and expect similar or fatter bonuses in the future. It’s totally understandable. We know our value. We know we have talent and do a good job. We feel safe and invincible, and there lies the danger.

How is this complex dangerous?

People get big promotions and right away they want to update their lifestyle accordingly. Recently promoted people almost always immediately update their lifestyles. I know people that got new cars or new houses a couple of weeks within a big promotion. The problem is when we suddenly learn that we’re not invincible anymore. It’s like asking to take a bullet in your chest thinking you’re bullet proof, just to realize that you’re not Superman. But then, it’s just too late (OK, that was a stupid analogy, but you get my point).

Anything can happen. The economy can tank, we can have another terrorist attack or online advertisers might finally realize that paying for clicks and impressions isn’t really worth it (and paying for conversions to be the real deal). We might think it’s not likely to happen, but it’s possible that we might find ourselves in a tough spot.

Take for example this article in a blog I recently found, Dr Housing Bubble, about how a couple making $130,000 still lost their home to foreclosure.
They were on the top. They drove a Mercedes and a Lexus, had a nice home and had $3k of monthly disposable income. Things were going well for them and they felt invincible. But things changed, and they lost their home.

How to deal with this Dangerous Complex?

It’s actually not that hard. Just don’t take things for granted.

Especially your job and your current income. I know you deserve your current salary and probably even a higher one. I know you you deserve your Lead position, your Manager or Director Job. But if anything happens and you find yourself looking for a new job, your new boss might not have the same opinion as your current one and you might have to settle for a much lower paying position.

Keep yourself up to date on what the average salary is in your industry NOT your specific position. That is, if you’re in IT, look at average IT salaries and not at average salaries for your position/experience. Then budget your expenses (at least the critical ones, such as your mortgage and health care) so that you could live on this salary (industry average) instead of your current one.

Also, if you’re married and have two incomes, try to budget your critical expenses so that you can live on just one of the incomes. If you’re the only breadwinner, then it’s going to be crucial to have an emergency fund and an insurance.

I’m not asking you to live as a hobo, but to budget your essential needs so that you can cover them if you temporarily find yourself with a much lower income than you are used to. You don’t have to totally sacrifice your lifestyle for fear of something happening. Just be prepared.

Let’s illustrate this:

Say you’re a Software Developer with several years of experience. You might be in a lead position and making a tad over 6 figures ($105k). Now let’s assume that the average salary for a Software Developer in your city is $85k. What I’m asking you to do, is to budget the essential for your family survival, such as your mortgage and your health care, in a way that they could be covered with a $85k income. Personally, I would try to cap them around 35% of your salary.
You can still enjoy a better lifestyle given your high salary. Go buy new cars. Go dine out in fancy restaurants. Go get premium cable services. Go buy 2 iPhones. Remember to keep contributing to your retirement nest egg. But as long as your critical expenses are budgeted accordingly, if anything would happen to your income, you should be able to easily cut all those expenses and your family would still be able to survive while the economy improves or while you find a better job.

Another important thing is to NOT be ashamed. It’s hard for us to admit defeat or that we’re not doing a good job supporting our family, but if you find yourself in a tough spot, DO NOT be ashamed. If you have to sell your brand new Beemer and drive a used Toyota Tercel, DO IT. Don’t be ashamed to use public transportation or to take your family out to Dennys instead of Sizzler.

If the couple in the example above would’ve sold their luxurious cars and cut a lot of their expenses, it is possible that they might have kept their house.