Adapting to Income
It’s always been a source of amazement for me that our family has always made money ‘work’ regardless of how much of it there was. Just like any young family, we’ve had our share of changes through the years. We’ve gone from one income and one of us in college, to two incomes, and back to one when our daughter was born. The interesting thing to me is how we never wanted for anything in any of those situations.
Different lifestyles
I’ve read the posts of several other bloggers about how lifestyle inflation can happen and how to avoid it. I’m not necessarily talking about lifestyle inflation. People’s lifestyles adjust, and not always just up. When we lost my wife’s income, we made do. And it wasn’t a hardship.
The point I’m trying to make is that we lived just fine regardless of how much money we had. We can all see the same phenomenon by looking up and down our street. People of widely different incomes live side by side.
Putting it to work for you
We will find a way to ‘consume’ all the money earned by us. I use the term consume purposely. That consumption can mean saving, spending, or retiring debt. But in the end, all of the money will be accounted for.
You can make that fact work for you.
A great technique I’ve found (and it’s not original) both for getting out of debt or saving is doing it automatically. In blunt terms, hide the money from yourself. Don’t even give yourself the chance to spend it. Have an EFT come out of your checking account into your IRA, set up your paycheck so a portion goes to a separate savings account, whatever. Anyone with a 401(k) knows this technique works, because they make their budget work without the money that’s deducted from their paycheck for the 401(k) being available to spend.
I think knowing this can provide encouragement to people trying to get out of debt. It’s hard walking that path and it can be discouraging. I know. We did it. But you can have a great life living on less than you make (and putting the rest toward debt or savings or whatever).
August 24th, 2007 at 11:58 am
Better yet, deposit your entire paycheck, bonuses, SPP money, everything directly to your savings account. Then transfer what you need every month from that to your checking account.
That way you *never* see the money pass through your checking account. You can give yourself a raise when you need it, but otherwise the money goes directly into a higher yielding account.
Set that up at Vanguard (because, after all, they’ve got the best mutual funds). Pick something like the Prime MMF for the account you deposit into. That’s your “emergency fund”. Once it grows to a suitable size which, if you follow this method, won’t take long then add in a monthly transfer from that account into a TR account.
Voila. A drop-dead easy way to hide your money from yourself and save for the future, requiring only only two mutual funds (the MMF and TR fund).
August 24th, 2007 at 4:59 pm
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