WHEN A CHAMPAGNE INCOME ONLY AFFORDS BEER
Jeff and Brenda, a married couple from Florida, called in for help with their debt problems. The couple had a combined take-home income of $4,500 per month, which should have afforded them a comfortable, financially carefree lifestyle.
They weren’t rich of course, but they shouldn’t need to call up and talk to me. Yet they were struggling like crazy with their debts–a $1,800 mortgage payment, two car payments totaling $900, credit card payments of $300 and a $200 student loan payment, for a grand total of $3,200 in monthly debt payments. And the rest of their necessary living expenses–food, utilities, gasoline, etc., ate up the remaining money easily.
“Before we bought the house, we had fun,” she said. “We haven’t gone out to dinner in five months.”
Really, the house was not the problem. The problem was all those debt payments. If they’d not bought such an expensive house, or they hadn’t run the credit card balances up to $7,000, or not financed two new cars at the same time, they might still be enjoying life and their higher than average income.
“If you had only not taken on one or two of your debt payments, you guys would probably be eating out, getting money saved, and basically living a secure happy life,” I said. “For instance, if you’d gotten a house with a thousand dollar mortgage payment, and only bought one car brand new, you would have over a thousand dollars every month to do whatever you want with. Save it, spend it, you’d have a grand more than you do now. Every month.”
“That would be nice,” she said.
“On four thousand dollars a month you should be able to eat anywhere you want and have enough to leave a thirty percent tip,” I said.
Instead, they were struggling against all those interest rates, and all the hooks their creditors had in them. There definitely was no money to spend on eating out. They seemed to only be able to afford macaroni and cheese, even though they made enough to afford fillet mignon.
Life is about more than money and unexpected expenses. It’s also about enjoying yourself. Why shouldn’t you treat yourself if you can afford it? But if your monthly debt obligations eat up all your income, you won’t have money to spend on yourself, so you can’t, in reality, afford anything extra, just like with Jeff and Brenda. If that’s the case, you better really enjoy all those things you financed.
Together Jeff and Brenda’s gross yearly salary was about $80,000. According to the U.S. census data, the median household income is a little over $52,000. So here Jeff and Brenda were making thirty grand more than most people, and they were living with all the financial stress and struggle of a couple earning minimum wage. I talk to a lot of people with incomes even higher than Jeff and Brenda’s, and yet they go through the same kind of money problems that poor people endure. The same headaches. The same stress. The only difference is their TVs are bigger, and their cars are newer.