Is Your Money Life in the Critical Zone?

Taking stock of where we stand is the first step to any corrective course of action, money included. To help people quickly get a handle on this, I developed a simple two-variable self-assessment. The two variables are:

  1. Is the household spending more than it is earning?
  2. Is consumer debt present (for example, high-interest credit cards, consolidation loans, personal lines of credit)?

Individuals and households that answer “yes” to both questions fall into what I call the Critical Zone. The word critical is defined as having extreme importance, happening at a time of special difficulty, trouble, or danger, when matters could quickly get either worse or better


The definition says it all – when in the Critical Zone we are at a turning point. Things could get better or things could get worse. Life in the Critical Zone is uncomfortable and unsustainable. Still, people can get stuck here for years or even decades. To get an idea if the Critical Zone applies to you, see if any of these apply:

Continual tapping into consumer credit – Credit permits the illusion of maintaining lifestyle while diverting us from facing deeper problems. Prolonged reliance on debt can become such an accepted part of our lives that it becomes a normal financial condition.

Looking to debt as a solution – People in the Critical Zone often believe debt is the solution to their problems which usually serves to extend their stay in the Critical Zone.

No money available for needs and wants – With much of income required to pay basic expenses and overhead, spending on needs and wants either doesn’t happen or is funded through debt. Needs and wants include:

  • Clothes
  • Vacations
  • Hobbies/recreation
  • Car repair
  • Home repair and upgrade
  • Health and dental needs
  • Children’s education savings
  • Retirement savings

It may or may not come as a surprise that a substantial number of households exist in the Critical Zone. In some cases, it’s obvious, in other cases appearances hide the underlying reality. Whichever the case, Critical Zoners typically know who they are. Moreover, they are usually stressed, struggling and without a plan to right their financial ship.

So how do they right the ship? First, understand the key challenges:

Willingness to Face the Situation

People of any age, income, education level and profession can find themselves in the Critical Zone. They arrive here when spending habitually exceeds income. This earning/spending mismatch is the primary problem. If this condition persists, eventually debt starts to accumulate which is a secondary problem i.e. a symptom of the primary problem.

It is common to try exiting the Critical Zone by directing attention to the secondary problem i.e. debt accumulation. This may involve things like home refinancing, debt consolidation, credit card juggling and borrowing from friends and family. While these actions may bring short term relief, they don’t address the primary problem i.e. spending that exceeds income.

Deciding on Which of Two Paths to Follow

Passive Path – Not to take action is a choice. Since we are already at a turning point, inaction leaves us more vulnerable to shocks like job loss, death of partner, injury or illness. All these events will worsen our situation. In short, doing nothing doesn’t usually work out well.

Active Path- Making the choice to leave the Critical Zone is, more than anything else, an act of courage. It is also highly liberating. Voluntary exit from the Critical Zone may seem intimidating because it can require us to make changes in spending and lifestyle, but it is usually the most direct and dignified option.

The Search for Deeper Answers

Critical Zone problems are structural in nature, meaning that expenses/spending relate to things which easily cannot be avoided, reduced or eliminated without major lifestyle changes (debt is the prime example). This is what makes escaping the Critical Zone so vexing i.e. the most obvious expense saving measures (for example, cheaper cell phone plans, shopping, car insurance, etc.) aren’t sufficient to produce a meaningful improvement.

As long as outflows exceed inflows every month, debt will continue to rack up. Eliminating this must be the first priority. Providing a detailed prescription for those who are ready to take action is unique to each household and goes beyond the scope of this article. For all the Critical Zoners that I coach, we eventually brainstorm the following question: What would have to happen in my/our household to eliminate the negative monthly cash flow?

Our financial lives won’t turn on a dime, so it’s important to set realistic expectations. Still, it’s important to know this – with time, patience and creativity almost every aspect of household spending can be altered, lowered or eliminated!