What I Make vs. What I Live On

It took me until today to realize this, but my great fallacy about money was that what I made should be the money I live on.

So, if I take home $2,000/per month – I would live on $2,000/month.

Now, this seems logical, right?

Well. It is COMPLETELY wrong.

With this logic, each time I get a pay increase, the amount of money I live on goes up. Sure. But what I have neglected to include in this is that, as my income goes up – so should my responsibility for the future!

Let me try to explain this another way. I think that I should really be living on 70% of my income. 10% of it should go to retirement. 10% to savings. 10% to giving. Now, because of my past mistakes, I currently do none of this.

And the main reason for this is because I PLANNED my life for living on what I make. I should have planned my life to live WITHIN 70% OF WHAT I MAKE!

My apartment I picked assuming a $37,000/year salary. I choose cable assuming a $37,000/year salary. I got my dog assuming a $37,000/year salary. I’ve even plan for my vacations and shop for my food assuming a $37,000/year salary.

When, really, all of this time. I should have been planning my life around a $26,000/year salary.

I should be able to pay all my debt, pay for my apartment, pay for my food, EVERYTHING within 70% of my salary.

I’m not sure why this never occurred to me before – it just DIDN’T. I’ve been trying to live within my means, and forgot that part of that is saving for my future.

Currently my budget looks like this:

Rent: $695
Debt payments: $611
Dining/Food: $360
Pets: $230
Utilities: $160
Gas: $80
Miscellaneous: $100
Savings: $100
——————-
Total: $2,337

That is 100% of my salary, nothing let over. I mean, this doesn’t include Tutor.com money, but that is because I see that as my “buffer” money.

So, how could I live on 70% of this? Could I live on $1650/month? Lets be generous and say that until the debt goes away I only have to live on 80%. Could I live on $1870/month?

Okay, first off, the savings gets counted as part of the 10% that goes to savings, so that doesn’t count towards the 80% that I have to live on. That takes my expenses down to $2,237.

I’m leased into my apartment until 2011, so the $695 for rent is pretty stable. My utilities are all set with the exception of cable and cell phone. While I see a cell phone as indispensible, I don’t see my cable that way… So, I could get rid of that… and lower my monthly “total” another $35. Now I’m down to $2,202. I still need to shed $400/month!

Okay, lets say that I can get my food budget down to $200/month rather than $360. I’m down to $2,042.

Now, lets say that I cut out Jack’s daycare completely – which would be unfair to him on days that I have to work late, but lets just put it in for the sake of doing it. I’d still have to pay for food and meds for the animals, I think I could lower this total to make $100/month. Alright, now we’re down to $1,942/month. Still $72 away from living off of 80% of my income.

And I’m stuck. I am not sure where the extra $72 would come out of. Debt repayment? Surely not! Miscellaneous expenses? I can’t cut these out completely, I still have to be able to budget for expenses like dentist co-pays, oil changes, and toiletries.

I think the lesson to learn from this, is that when I get my next job, which I will surely make at least $20,000 more than what I’m currently making (the jump from a post-doc to an assistant professor is quite substantial – going from ~$40k to $60-70/year) – I need to remember that I should plan my life around 70% of this salary. Housing that stays within that budget, expenses that fall within that budget.

For now… I think that living on 90% of my salary and saving 5% and putting 5% towards retirement is a goal that I should try to approach. Living on $2,100 should be completely obtainable by lowering my food budget $100/month and lowering my pet expenses another $100. Alternatively, I could cut cable and only cut $70 off my pet expenses.

These seem like things that I should do. I’ll look into changing my retirement benefits when I get back from my trip to Europe!

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2 Responses to What I Make vs. What I Live On

  1. FB @ FabulouslyBroke.com says:

    I hear that. I think in the past, i used to think of that net income as my regular income for the week or two.. living cheque to cheque

    Now, I focus on my expenses (the fixed ones like rent, cellphone etc), and the rest goes into savings.

    I don't really follow many savings rules except to just be practical.

  2. hustler says:

    I also used to live paycheck to paycheck with the thinking that if I had the money for something I wanted I should get it. Now, savings is my first priority. I try not to think "what if.." but if I had saved even 5% of all my paychecks, I would have a large chunk of cash right now.

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