Income Versus Expenses
Posted by Gail | Filed under Money Management
One of the comments I get most often about the show comes from the people who are making do on less. They look at couples that make $80,000, $100,000, $130,000 and they can’t understand how those people could possibly be in debt. Raising a family on $40,000 or less, they think it is obscene that these “idiots” and “morons” are being rewarded with $5,000 to get their act together.
First, let me say that if these people didn’t step forward to share their stories, we wouldn’t have a TV show. I think they are remarkably brave and strong to participate, take what-for from me, and turn their circumstances around. For the most part they are lovely people who suffer from the same trials as most people: no financial lessons, flying by the seats of their pants, never really stopping to think about their money. I just try to help.
But there’s a larger issue here. Expenses are like air, expanding to fill our Income Container no matter how big it gets. In an article in USAToday earlier this year, it was clear that those people considered high earners are in just a big a pickle as the folks who make considerably less.
“Eighteen percent of employees earning $100,000 could continue their lifestyle for one month or less if they lost their income, according to a new survey by Discover Financial Services. And 12% of these high earners say they have no money left over after paying debts.”
We’ve seen figures like this reported in Canada too. People are living from one pay to the next with barely any wiggle room. The first unexpected expense that comes along forces them to use credit. Never mind all the enticements to spend. And since the prevalent thought when it comes to credit is, “As long as you make your minimum payment, you’re fine” (courtesy of the credit scoring system), people are only concerned about working the smallest of payments into their cash flows. The debt keeps growing. And they get closer and closer to insolvent.
You’d think someone smart enough to pull in a six-figure income would also be smart enough not to be ensnared by credit card (or line of credit) debt. Not so. Since a high income comes with high expectations – a nice house, a new car, myriad social events – people making more money often default to using credit to keep up with what they think they should be able to afford.
Ah, there’s the rub: what they think they should be able to afford. Since peers are living off credit to achieve higher standards of living – no one seems content to spend only as much as they can actually afford – the pressure to keep up means turning to credit to satisfy lifestyle inflation. Eventually even the best paid will hit the wall.
You know the old saying, “It’s not how much you make, it’s how much you keep.” That could be the mantra for the people I work with. Income is only the issue when people make so little that they can’t keep body and soul together; then they must make more money. But for most – those who work with me on TV and those at home watching – it’s a matter of not spending more money than you make. Income is, after all, only part of the equation. Inflated expenses can go through a big income faster than green grass through a goose.