What if you made a radical decision and decided to live on 70% of your income for 12 full months?
What would that change in your life? More accurately, what would you have to change in your life? I am going to breakdown what this would look like for the average consumer and also give you some tips on what to do with that remaining 30% of your money.
At the end of 2016, it was estimated that the average median household income was nearly $60,000. Using that figure as well as a 20% tax reduction (moving from gross income to net income), we can assume that the average monthly take home pay will be $4,000/month. Of course, that may vary depending on other monthly deductibles from your pay. So, given the fact that you’re giving up 30% of that figure, you’d have about $2,800/month to live on. Setting aside $1,200 per month or $14,400/year.
That sounds outrageous, right?
Who could set aside $14,000 per year?
There are people all over the country that live on less than you do. Statistically, it doesn’t impact their happiness, their relationships, or their will to live. So what’s stopping you from living on less than you make?
A lot of our money problems come down to an issue with our image. We need to look a certain way, have a certain house, and drive a certain car. But if I were to “tell it to you straight”, the real problem is we buy a lot of perpipheral items that we don’t need. Extra groceries that get wasted, convenience store stops, and crap that we buy that lies around for eternity. But that’s not everyone’s problem, right?
I cannot tell you what you need to cut without seeing what you’re spending, but based on the fact that 70% of Americans don’t budget, you don’t know what you need to cut, either.
That is why Moves #1 and #2 are so important to the financial process. You need to have a plan. Every financial pundit on TV can tell you that you need to stop drinking lattes and stop eating fast food, but that’s not everyone’s problem so why go granular when a broad statement works better?
Why not encourage people to budget and more importantly tell them why they should do it and how they should do it, rather than just telling them stuff to cut?
Motivation is hard to sustain, that’s why we constantly need it. But as I’ve mentioned before, there is a lot of value when we focus on something externally and work for that person or for that goal, rather than only for ourselves. We can work for ourselves, but it should never be 100% about us.
Here’s the reality. Living on 70% of your income isn’t a magic figure or what you ought to do, it’s a thought exercise. Ask yourself:
What could I do with an extra $14,000/year? How much sacrifice would I have to make?
Then, look at your finances in their entirety and make a plan. Stop using credit cards if their a problem for you. Call about your student loans and make arrangements if you can’t make the payment. Call the hospital and ask to start a payment plan.
You only have so much money per month, so don’t pretend that you have more by supplementing with credit. Creditors understand that and they appreciate the call more than they appreciate you dodging them.
The Follow Up
Are you ready to start making progress? I recommend starting with Move #1 and going from there. There are other financial plans out there and it’s your responsibility to find what works for you. As always, any questions, you can hit me up at Rob@RobTalksMoney.com