What’s Your Income Reality?

by Bill on March 14, 2012

Does Your Income Involve Too Much Expected Income and Not Enough Current Reality

Is Your Reality Based Upon Expected Income or Current Income?
This is a common argument I have with people. Someone tells me “well I have X amount coming so I know I can spend that”; I tend to point out that no, the money isn’t actually there yet because it isn’t in your hands. If it isn’t in your hands yet, then it actually isn’t yours yet. The money is expected income not money on hand.

Why? You honestly don’t know what will happen between now and that next wad of cash in hand. Stories are all over since 2009 of companies suddenly closing leaving employees without income at all. You could have an accident and there goes the paycheck. Is it ever expected? No, nor should it be. But it should be planned for as best possible.

At one point in time, people could expect some kind of raise in pay in reasonable time. Not so anymore. Many people are stuck working the same rate at the same jobs for years; and if they do get a raise, it’s nearly taken out by taxes or its because of a minimum wage increase.

How do you refocus your income reality in this situation?

  • Do not plan payments on future income. In other words, don’t incur debt unless you are sure your income is sufficient enough to pay basic needs first right now.
  • Don’t plan on raises or cost of living increases until they are seen in your checks.
  • Don’t plan on spending. Plan on saving up for current needs. Prioritize the needs and keep working on the list.
  • Cut back enough to have some sort of savings plan in place; it doesn’t matter how much it is, but you should have some way to pay into future savings for emergencies and goals.

Is Your Income Based Upon Someone Else?

  • Here’s another spending habit I see much of in the world around me. People use the two-income household to plan spending, often spending all of it. Here’s some things to consider:
  • What if one of the people isn’t there? Then what? Can the family survive on that income?
  • What if the income is cut in half due to unemployment? Can you keep the house?
  • What if a serious illness strikes? You not only may have cut the income but also doubled the spending.

I know that many people will tell me I’m crazy for suggesting families plan on living on one person’s income, but let’s go with this.

  • Plan on one income for all basic needs – housing, food, utilities, clothing and insurance. (yes I put insurance in there as a basic need, hospitals are too damn expensive) Budget as close as possible to that amount; no you may not get right down there, but you won’t be so far to fall either should something happen.
  • Use the second income for secondary needs – an emergency savings fund, the car and related items, replacement items such as things that wear out and maybe some fun money if there is any left over. Notice this income is full of things that can be replaced later should it vanish.

Does Your Income Reflect Your Spending?
Before you tell me this looks backwards, I did that on purpose. Yes, spending should reflect income. But in many cases income reflects spending. This is true for people who have so much debt they need to take second jobs to pay it; or for the person who finds a job in their field yet has a student loan to pay off. Income starts to reflect spending. You find yourself in the trap of needing more money to pay for what you need to pay for.

This is where I would tell people to re-evaluate where they are in their life. Then consider if the stress of the amount they owe is worth the stress of existence. Can they cover basic needs without the payments. Can they reasonably make the payments with a slight modification in budget or income. This is what happened in 2009 when so many people realized their homes were not worth saving. If the situation is going to cause more stress and strain regardless of how you attempt to improve it, the best thing to do may be to walk away. Sanity, physical and mental health cannot be replaced by income of any level.

So what is your income reality? Are you living it?

William Swan, writer

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Crystal March 15, 2012 at 3:50 pm

Especially when money is tight, I always work on needing less rather than making more. After all, if you don’t have money going out, you don’t need to have money coming in. Living below your means is the only way to have financial peace.
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Bill March 15, 2012 at 11:42 pm

The big problem is that people, and more often families, fail to realize that one event could slam them into a financial wall before they ever see the wall. Having some plan in place creates some kind of cushion if that should happen.

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