There are a plethora of stories in the news media about how Americans are struggling financially. Income inequality is going to be the great economic issue of the next election. Americans aren’t saving as much as they used too, they have a plethora of debt, and some would even say that there spending is out of control. According to one study, 75% of Americans live paycheck to paycheck. Even those people who make a lot of money (e.g. over $100,000) over 1/3 of them are living paycheck to paycheck.
In some respects it is easy to see why people live paycheck to paycheck. Median incomes have not grown as fast as inflation. People are making more, but they are also spending more and have to spend more on things like housing, food, and the like. Moreover, we have more consumer and student loan debt than ever before. So it makes sense.
Mrs. ROB and I also live paycheck to paycheck.
Now before people start raising money for us or having us go down to the local soup kitchen for food we live paycheck to paycheck, in some respects, by choice. Yes, I said that, “by choice.”
The reason that we do this by choice is a few of the choices I have made over my financial lifetime.
First, I made the choice to max out my retirement savings. For the first time ever, I will max out at the allotted IRS amount of $18k a year for 401(k) and 403(b). I am mandated by my employer to save 10% of my income. However, I choose to put extra money toward retirement, which lowers my monthly income.
Second, we chose to put our mortgage on a 15-year fixed rated mortgage. We spend more on our mortgage, interest, taxes, and insurance, then we did on our rent. However, my home will be paid off a bit quicker than other people.
Third, we chose to move 45 minutes away from our work. Mrs. ROB and I work, at least part of the time, at the same university. We commute 4 days a week, at least 45 minutes, which increases the amount of money we spend on gas and time in the car. Prior to that I lived only 1 mile from campus. I could walk to work. However, homes in that particular area were double what we pay here and we didn’t like living in that particular community. So our transportation costs have gone up considerably over the past year.
Fourth, I have a lot of debt. I have, at the time of this writing, at least $80,000 in loan debt, not including our mortgage. I want to have this debt paid off. I pay extra money every month to pay off the one loan in the next year or so. In fact, I put about $400 extra per month on that particular loan. If I don’t do that this loan will be around our necks for the next three years.
Fifth, we decided to buy a new car last year and Mrs. ROB’s student loans also are other debt payments that we have. Those loans, most likely won’t be paid off for a few years (at least the student loans won’t be).
Sixth, I do have a small emergency fund set aside in case we need it. It isn’t much, but I chose to keep just a little money to the side in case something goes wrong.
All six factors, including other spending, contributes to why we live paycheck to paycheck. In some respects, this is by choice. I mean I could, if necessary, free up extra money by refinancing our mortgage to a 30 year, putting less into retirement, and/or paying less on my loans.
But I am trying to get to a better place financially. I am trying to free myself of the shackles of debt. When you have debt, in my opinion, you are chained to someone or something else. I don’t want to be chained anymore. I want to be free. So I will live paycheck to paycheck as long as I need too or some kind of emergency comes up so that I can have greater freedom on the other end.