The Cost of Living

Recently one of my friends has come into some money and she is conflicted over what to do with it. She sees the money as a problem because she is afraid she’ll make a mistake in how she spends it and cause issues for herself later on by not being responsible with it now. Her solution is to use the entire sum to pay off her mortgage just so that she and her husband can’t waste it on frivolous items, even though they also need money to repair some things around their house and she is recently unemployed. I suppose if she knows she has no impulse control, or the ability to say no to her husband, spending the money to fully pay off the mortgage is a smart move but it got me thinking about what people do with the money they see go through their accounts.

I totaled up the money I’ve made since I became a legal adult and realized that despite my rather low wages I’ve still managed to see over a million dollars flow through my bank accounts since I turned 18. That doesn’t include any of the money my husband has earned since we got married. Just for me to live a moderate life and pay off the student loans on my BA it’s cost about 1.1 million so far. If I add up the money my husband has brought in the sum increases by a couple hundred thousand. Even counting for the fact that this needs to be spread out over 14 years, if I look at the money I have left over after bills are paid, it leaves me with a COL of roughly 72k a year. That totals out to a wage of about $35 an hour. I have never made $35 an hour yet that is apparently what I spend at.

I do not eat out very often, I do not buy a lot of alcohol or things of that nature, I only travel about once a year and keep those vacation costs to around $1000 each time. I shop consignment stores and rarely pay full price for anything. I drive a fuel-efficient car that I paid off years ago. I do not own the latest electronic anything. Entertainment totaled less than 5% of the budget. Yet despite my frugal nature I still have a COL of $35hr. Makes me wonder how they think anyone can actually live off a minimum wage that’s almost $30 less than what my COL sits at.

I shudder to think what the numbers would look like if I totaled up husband’s income to expenditure numbers. I suspect he’s earned and spent way more than me considering he was earning over $16 an hour when he was 18 and  making close to $80k a year by the time he was 22. Somehow he never saved a cent of his money though, I imagine his entertainment budget was pretty high. Together we’ve made and spent at least 2.5 million.

Have you ever taken the time to total up your income over the years and compare it to what you have left over? What do you think your COL is? I can’t even imagine how expensive things will get when we add kids to the mix. How can people afford to live nowadays jeez.

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9 thoughts on “The Cost of Living

  1. No. I have my head in the sand. But then we have 3 kids sucking us dry. When we sold our last house, we received an extra $40K (long story). Instead of saving it, we finished our basement in our new home, thinking my parents would come live with us. That didn’t happen.

    If we had saved all the bonuses my husband has received in the last 29 years, we wouldn’t be paying any parent plus loans. Now, we are looking at retirement–well we have a way to go,but it’s approaching. We have a 401K but very little savings. My husband has some stock which has been growing, but one never knows what will happen with that stock. Will it tank?

    I do know that the amount of money we made together when we were first married, we were able to live comfortably. When I quit working to raise the kids, we continued to live comfortably. My husband makes so much more now, and we are still living comfortably. Nothing fancy, no fancy cars, modest furniture, I buy cheap t-shirts as that is one of my staples, and my husband wears clothes until they are threadbare.

    Now I feel sick even thinking about it, and I’m going to have to look at what we are really doing with the money. One thing is for certain, however much my husband made, that was what we spent.

    • I just thought it’s funny how many people think they’ll never be millionaires or even see a million dollars but if they really totaled things up they’d see that they may have already blown through that much in just over a decade or so. I’m just going to use this exercise to remind myself I’m far richer than I thought I was.

  2. You friend has a challenge, albeit a good one. The fast answer to her question is that she should pay down the loans with the highest interest rate first – that is not usually her mortgage, but it may be depending on her financing. Credit cards are usually the highest, then unsecured loans, then lines of credit, then mortgage. However, that being said, her current unemployment is a factor. Is this a short term situation or long term? Can she live on spousal income until she finds another job? If she thinks that she may end up putting living costs (food, clothing, car costs, etc) on credit cards, then she should keep the cash and use it to get her through to her next job. Cash flow is critical (or as they teach MBA’s – cash is king) and it offers options. It is possible to have a healthy net worth and have to declare bankruptcy because of cash flow issues. Or it is possible to have a net negative income and have a healthy cash position and hence options to restructure. She may have short term/ high interest loans with large payments that would be best addressed before her mortgage.

    Yes, I have owned my own businesses (successfully) and I have calculated cost of living. I was in transportation so a lot of my personal expenses were tax write offs. That is also a partial option (at least here in Canada) if you have a job that requires any work from home. Partial costs for home office space and supplies can be written off – but keep it real, the tax man loves to focus on deductions. When I was working for myself there are times that I calculated that I was working for a dollar an hour. However, that being said, I was building net worth in equipment and business value.

    On the flip side, any gains I made were eaten up by life threatening illnesses (plural). Although health care is covered here in Canada – bills pile up fast when you can’t work, payments continue even when income stops. Between the cancer and kidney failure (due to radiation treatment for cancer) i have spent all that I have ever earned and I figure about $1million + dollars of government health care money as well. Dialysis alone costs about $60,000 per year. I have been on it for 8 years so that alone is close to a half a million.

    Long story short – cash is king, and your friend should keep that in mind when she is decision making.

    • I suggested paying a large portion of her mortgage off but keeping around 30k in the bank to cover things till she gets another job. I know if I was the one being given that much money I’d strategize before a single cent was spent but I don’t have any issues telling my husband “no” regarding impulse purchases nor am I incapable of earmarking money for specific purposes and leaving it alone. I’m quite grateful that I don’t have any high interest loans or carried over credit card debt, I’d freak the fuck out if that ever happened.

      • You are the rare one in having no short term debt. Given that is the case, your strategy is sound.

  3. I use mint (mint.com or their app) to create budgets for each category of expenditure. It alerts me when I get close to my max budget for that category, and again if I go over. It also sends weekly emails about where my money went over the last 7 days. I have found it indispensable in keeping me honest about how much I spend.

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