I've spent over 15 years working as a Certified Public Accountant helping people. I'll share real world lessons that have helped my clients and myself create wealth, covering topics including your family budget, consumer debt, investing for income and much more.
I had a recurring heated argument with one of my good friends this morning. Liz (not her real name) constantly bitches that the cost of living is sky-rocketing!! She can’t get ahead, how will she pay for college, retirement etc?? My argument… Yes, costs are increasing. However, expectations are also increasing. Growing up in the 70’s and 80’s I don’t remember anyone driving around in massive SUV’s, living in 3,000 square foot houses with great rooms and granite counters, or going on trips every year. In the 80’s none of my friends went to camp, or traveled around for sports, we lived a perfectly middle class life in our 1,800 SQFT ranch, getting dropped off at the mall on weekends (remember those) in moms Datsun.
Liz lives in a large $500K house, her and her husband each drive a vehicle that cost more than $40K, they send their kids to expensive camps and sports programs (when did youth sports become a big line item in the budget?). The argument of course – all of these things are NECESSARY. You have to spend that kind of money to live in a good school district, plus the house is a good investment (no it is not!! read The Mortgage Myth – Your House May be the WORST Investment That You’ll Ever Make.). We NEED big SUV’s to haul the (2) kids, we NEED to spend $10K each year on camps and sports, we NEED to travel for the experiences, we NEED, we NEED….
For contrast, I live in the same area, but paid $290K for my house at roughly the same time that Liz purchased her fancy house. My neighborhood is working class, but quiet and safe, in a great school district. Now granted, if you walk in my front door you won’t be awed by the high ceilings, marble counters or massive square footage. But it’s in a good location that fits my family. I have NEVER paid more than $15K for a vehicle, and I NEVER will. I have two older but well maintained, safe vehicles, and no debt. We take a nice trip every few years. But, honestly prefer to explore the mountain town near my house on day trips. My son is in soccer and martial arts, I do spend a little bit there but nothing like Liz. My boy gets to spend his free time finding ways to entertain himself, just like I had to when I was a kid. I think learning how to use free time is a valuable skill, running from activity to activity doesn’t allow kids to learn this skill… Like Liz I do feel prices raising. However, unlike Liz, on a similar income I save roughly 1/3 of my take-home pay. I purchase one rental properties each year, I put money in a college fund each year, and am quickly moving toward financial independence.
Liz on the other hand, is living paycheck to paycheck because prices just keep going up. But, is it really prices? Or do we just have ever increasing expectations? As I drive around my formerly small town, I see old farm fields being replaced by neighborhoods full of large beautiful houses, each costing well over $500K, I see school busses and luxury vehicles parked in front of each. I see restaurants popping up everywhere, instantly filled with people eager to spend money. People travel more, eat out more, drive bigger vehicles, live in bigger homes, have more stuff – these are all needs? Bottom line, prices are going up, but most people are in financial distress because in our society people just NEED a lot more than they once did. With consumer debt topping new highs, an all time low savings rate growing sub-prime debt levels I think we all know how this goes….
People hate to hear this stuff, I will get nasty comments about how my story doesn’t fit their situation, and that may be true. But, based on what I see in nearly every community I visit, expectations are increasing… A lot of people who bitch about struggling to get by can downsize in nearly every area of their budget.