Recently Quartz published an article about high wage earners who have less than a year’s salary in savings even after working for a substantial period of time.
It made me shake my head a bit and sadly wonder how people can live like that. I sincerely hope that they all are lucky enough to hold their jobs for decades, and/or have very generous pension plans that will tide them over in old age. Otherwise, they are in deep trouble.
But the article did not really surprise me at all.
After all, I know several people of modest means - not high earners at all -- who have managed to save and buy themselves a comfortable retirement -- even an early one.
And, by contrast, I know a couple, who made a combined income of more than $300K fifteen years ago, but faced ruin and homelessness in recent years due to their unwise and indulgent money habits.
The truth is, what a person makes in salary, wages, or earnings often has less to do with financial comfort or security than you’d think.
It made me shake my head a bit and sadly wonder how people can live like that. I sincerely hope that they all are lucky enough to hold their jobs for decades, and/or have very generous pension plans that will tide them over in old age. Otherwise, they are in deep trouble.
But the article did not really surprise me at all.
After all, I know several people of modest means - not high earners at all -- who have managed to save and buy themselves a comfortable retirement -- even an early one.
And, by contrast, I know a couple, who made a combined income of more than $300K fifteen years ago, but faced ruin and homelessness in recent years due to their unwise and indulgent money habits.
The truth is, what a person makes in salary, wages, or earnings often has less to do with financial comfort or security than you’d think.
You Never Know What Life Will Throw Your Way
For example, that high-earning couple I mentioned earlier spent lavishly on weekend trips to Paris and expensive New York restaurants, among other things. They basically lived paycheck to paycheck, despite earning salaries that provided ample opportunity for the kind of savings most of us can only dream about.
Then he got laid off in his early fifties, and she had an accident that left her disabled and unable to work.
He ended up being unemployed for a long, long time, and finally had to settle for a job that paid very little at an office supply store.
They ended up losing everything they owned and relying on food stamps and Medicaid. The stresses led to them getting divorced. Ultimately, only the generosity of loving family members saved them from homelessness.
When Spending Rises to Meet Income, It Can Be Disastrous
This may seem like a drastic scenario, but I assure you it's a very real one, and hardly an isolated case. Job loss and enormous difficulties finding re-employment are genuine challenges facing many folks today, particularly those over 50.
It can and does happen.
We've also all heard of highly paid professional athletes and other famous people who've ended up blowing through their earnings.
In each case, their high salaries provided plenty of discretionary income that could have been allocated to savings and wise investment, ensuring them financial security and the ability to weather just about any economic storm.
Instead, their poor choices led to their financial ruin.
Good Habits Established Early on Can Pay Dividends Later
Now, I'm a worrier, and I think a lot about how much I would like to avoid a state of poverty in my later years. I think back to the early days when my husband and I were just starting out. We did not have the luxury of two incomes, and my income alone was very small.
I honestly view that period of our lives as a blessing in disguise because it forced us into a frugal mindset from the beginning. With no other option available to us, we learned quickly how to get by on little and what it’s like to have to live paycheck to paycheck.
But I don’t want to pretend that they were comfortable times.
I recall vividly the occasions when my husband and I would check under the sofa cushions in our apartment to see if there was any errant, loose change there that would allow us buy the Sunday paper – our only entertainment.
For example, that high-earning couple I mentioned earlier spent lavishly on weekend trips to Paris and expensive New York restaurants, among other things. They basically lived paycheck to paycheck, despite earning salaries that provided ample opportunity for the kind of savings most of us can only dream about.
Then he got laid off in his early fifties, and she had an accident that left her disabled and unable to work.
He ended up being unemployed for a long, long time, and finally had to settle for a job that paid very little at an office supply store.
They ended up losing everything they owned and relying on food stamps and Medicaid. The stresses led to them getting divorced. Ultimately, only the generosity of loving family members saved them from homelessness.
When Spending Rises to Meet Income, It Can Be Disastrous
This may seem like a drastic scenario, but I assure you it's a very real one, and hardly an isolated case. Job loss and enormous difficulties finding re-employment are genuine challenges facing many folks today, particularly those over 50.
It can and does happen.
We've also all heard of highly paid professional athletes and other famous people who've ended up blowing through their earnings.
In each case, their high salaries provided plenty of discretionary income that could have been allocated to savings and wise investment, ensuring them financial security and the ability to weather just about any economic storm.
Instead, their poor choices led to their financial ruin.
Good Habits Established Early on Can Pay Dividends Later
Now, I'm a worrier, and I think a lot about how much I would like to avoid a state of poverty in my later years. I think back to the early days when my husband and I were just starting out. We did not have the luxury of two incomes, and my income alone was very small.
I honestly view that period of our lives as a blessing in disguise because it forced us into a frugal mindset from the beginning. With no other option available to us, we learned quickly how to get by on little and what it’s like to have to live paycheck to paycheck.
But I don’t want to pretend that they were comfortable times.
I recall vividly the occasions when my husband and I would check under the sofa cushions in our apartment to see if there was any errant, loose change there that would allow us buy the Sunday paper – our only entertainment.
I remember signing my entire first paycheck over to the apartment rental company in NYC as a deposit so that we wouldn't lose out on the tiny place we finally found an hour's subway commute from my job.
I remember having precisely $2.50 left over as discretionary income after all our bills were paid.
So, fun it was not.
But we were young and optimistic and had a goal in mind, so it was not as hard as it would be at this stage of my life. We survived that period and eventually thrived because we tightened our belts as much as we possibly could until I got some raises; we put some savings aside; and we eventually had a little breathing room.
So, yes, those were valuable lessons in frugality that stick with me even today.
But I sure as heck know I’d like to avoid going through that kind of close-to-the-bone budgeting again at my age or in the years ahead because I am broke and out of other options.
Follow the Lead of Frugal Old Timers for Peace of Mind
I'd much prefer to follow the example of my childhood neighbors and friends who earned only a modest income, but budgeted carefully, kept their needs simple, saved for a rainy day, and lived well beneath their means.
That's quite a litany of cliches and adages, I know. But they're all meaningful -- every single one.
Such an approach to living and money matters may seem hopelessly boring and uncool in today’s consumer-driven culture, but it sure paid off for our neighbors. He was able to retire at 55, and they enjoyed many years of stress-free retirement.
My life experience and observations have taught me to appreciate and share their old school outlook.
I’ll take their habit of simple living any day over a more lavish lifestyle that leaves me on a treadmill to nowhere in terms of ever achieving financial independence and, quite possibly, also feeling chronically poor and stressed about money.
That situation just doesn't strike me as much fun at all.
So I encourage you to go ahead and commit to spending less and saving more.
I'm willing to bet that you just might find you like the peace of mind.
I remember having precisely $2.50 left over as discretionary income after all our bills were paid.
So, fun it was not.
But we were young and optimistic and had a goal in mind, so it was not as hard as it would be at this stage of my life. We survived that period and eventually thrived because we tightened our belts as much as we possibly could until I got some raises; we put some savings aside; and we eventually had a little breathing room.
So, yes, those were valuable lessons in frugality that stick with me even today.
But I sure as heck know I’d like to avoid going through that kind of close-to-the-bone budgeting again at my age or in the years ahead because I am broke and out of other options.
Follow the Lead of Frugal Old Timers for Peace of Mind
I'd much prefer to follow the example of my childhood neighbors and friends who earned only a modest income, but budgeted carefully, kept their needs simple, saved for a rainy day, and lived well beneath their means.
That's quite a litany of cliches and adages, I know. But they're all meaningful -- every single one.
Such an approach to living and money matters may seem hopelessly boring and uncool in today’s consumer-driven culture, but it sure paid off for our neighbors. He was able to retire at 55, and they enjoyed many years of stress-free retirement.
My life experience and observations have taught me to appreciate and share their old school outlook.
I’ll take their habit of simple living any day over a more lavish lifestyle that leaves me on a treadmill to nowhere in terms of ever achieving financial independence and, quite possibly, also feeling chronically poor and stressed about money.
That situation just doesn't strike me as much fun at all.
So I encourage you to go ahead and commit to spending less and saving more.
I'm willing to bet that you just might find you like the peace of mind.
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