fredx: Income vs. Expenses

Fred Ecks (

fredx) wrote,
@ 2007-01-19 12:02:00

Income vs. Expenses
I've run across a couple of items in the past few days which relate income and expenses. One was an article discussing car expenses, saying that folks shouldn't spend more than about 20% of their income on their cars. Another was a piece on retirement, estimating post-retirement expenses as some percentage of pre-retirement income.

I don't get it. Why would someone earning $60k/year spend twice as much as someone earning $30k? I've never quite understood that. Do high-income people eat more? Wear more clothing? Need bigger beds and cushier cars?

I used to make a good corporate wage as a software engineer. But even then, a bicycle was fine transportation, and a burrito was a plenty-big meal. All the estimates I see out there in the popular press tell me that I "need" thousands of dollars a month to live now, yet my baseline expenses total not much over $500/month.

I just think it's weird the way a person's expenses are expected to be related to their income. I mean, why?

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pay for quality and service...

mwetmore
2007-01-19 08:52 pm UTC (link)

I pay a premium for quality and service - that's about the only extras related to income.

I haven't found any cheap shoes that don't make my feet ache. I could just lump it, but instead I'll pay for some that feel good, and hopefully hold up better (less trash, and possibly lower expense in the long run after a higher initial investment.)

And I shop a bit more at Nordstrom because I can call in ahead of time, and have someone else scour their multiple stores and order in a bunch of stuff that actually fits. It's that, or visit multiple times and maybe have a 1-choose 1 experience.

And I eat some things now that I didn't eat before - I've discovered tasty cheeses and more healthful things than I used to eat cheaply (often the cheap was frozen whatever from CostCo from some other country). I'm also willing to pay a premium for local-organics that have an overall lower environmental cost. (There's a book that describes the impact of shipping water around the world in the form of food.)

But that's about it. I definitely get your point.

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Re: pay for quality and service...

fredx
2007-01-23 06:29 pm UTC (link)

If your income were to double, would you spend more than you do now? From what you've said, it sounds like you're comfortable with your current level of expense. So sure, if you didn't earn enough to cover your expenses, you'd probably spend less (although many don't!). But barring that, are your expenses related to your income? If you earned more, would you spend more? Why?

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Re: pay for quality and service...

mwetmore
2007-01-23 06:56 pm UTC (link)

Indirectly... If I made wildly more, one of a couple things would happen:

I'd probably buy more into the toys - but I'm still frugal enough that I'd only mainly buy/rent toys I'd actually play with, but there are some expensive ones I'd enjoy if money went so far up that it were really no object. (Love to rent time in a submarine... put up Christmas lights on a 60 foot tree with a cherry-picker... go to Burningman in a bit more comfortable style... have a piece of land someplace where I can build my giant trebuchet and fling things...)

Of course, I also know a number of things would happen before I got to that point...

I'd pay off my mortgage (only outstanding debt,) and the mortgages for the family - starting with my sister-in-law and husband (+2 new kids) that are in social work and don't have the tech salaries. And fund a couple arts groups... and the red cross... and... Oh yeah, and retire.

And while retired, yeah some expenses would go up when dealing with hotels and food and such... Of course we're happy relatively cheap when travelling, but you still can't beat the economy of your own refrigerator and stove - renting a place with those amenities knocks down the efficiency...

So net/net - yeah, my lifestyle would change if my income went dramatically up. Incremental changes, however, would have diminishing increases. My salary went up about 15% last year, but my cost of living stayed about the same (savings went up.)

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karenbynight
2007-01-19 09:50 pm UTC (link)

Some things are proportional to income in very fuzzy ways. Most career paths require you to dress somewhat more nicely as you go up the ladder, though rarely does anyone say explicitly that you got passed up for that promotion because your boss thinks that t-shirt, jeans, and birks are too slobby for senior staff.

And some of it is reasonable pent-up need. I'd advise everyone to sleep in a good bed at night, because you can avoid a lot of health and back problems by getting comfortable good night's sleep every night. But I couldn't really afford one as a broke student. So my bedding costs went up with income not because I had more expensive needs when I had more money, but because I had unfilled needs when I had less money.

But I'm with you. Most of it is just peer pressure. I get a bit of ribbing at work about my car occasionally. Apparently, people who can afford them are supposed to drive BMWs, Mercedes, or Lexus. Who knew? :-) Think I'll stick with the Toyota Echo; it only has 130,000 miles on it yet.

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	fredx 2007-01-23 06:33 pm UTC (link)
	Actually, clothing can cost surprisingly little. Checking out the thrift stores, I find little in the way of t-shirts and jeans. Rather, I find nice button-up shirts and slacks. And hey, birks are bloody expensive! :-p Anyway, I'll ask the same question of you that I did of Matt: if your income were to increase, would your expenses increase? Why? (Reply to this)(Parent)(Thread)

karenbynight
2007-01-23 07:49 pm UTC (link)

Spoken like a guy. I thrift shop extensively, but have some serious challenges finding work clothes that fit there. Women's bodies just come in so many more shapes than guys, and mine an odder shape than most, that sometimes I have to suck it up and buy retail. Shoes I absolutely suck it up and buy retail; my feet are wide beyond even most specialty wide shoe stores' ability to accommodate, and one compression injury due to too tight of shoes in my lifetime is enough.

If my income increased, my expenses would probably increase, but mostly in the area of gifts to others and charity. I think that sharing the wealth should be, well, proportionate to the wealth.

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fredx
2007-01-26 07:13 pm UTC (link)

Good point on the clothing. Ann has the same trouble finding jeans that fit. Women have more unique curves. Guys are built like, well, guys. Ann went to a store one day a few months back, tried on a zillion different pairs of jeans, and found one brand & style that fit. She then phoned me up to have me search online for a better price. I didn't find a bargain (they were already on sale where she was), so she bought five pairs. Now she's good on jeans for some time to come. :-)

Regarding gifts, I've struggled. I've spent too much time in the non-profit world, seeing too high of a percentage of charitable contributions being squandered. Now I give time. I give lots and lots of time, but not money. It's hard for someone to waste my time for long before I find another recipient of my time.

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income vs. expense
(Anonymous)
2007-01-19 09:57 pm UTC (link)

I think that what we are reading,"that you need hundreds of thousands of dollars socked away before you retire" is coming from those with vested interests in selling financial tools. Certainly, funds etc. are a part of retirment, but they are scaring us into freaking out about money after a person no longer has the steady job or career. From talking to average people all around me- I have yet to come across very many who have a good grip on what they are going to actually need for retirement and why, and a plan to make it happen. Most people are running around with their heads cut-off, trying to save frantically while paying off their credit cards, yet stopping by the mall, weekly, in their new cars. Hmmmm... I think I better turn them onto blogs like yours. Knock a little sense into them. I know it has helped open my eyes. Thank you- and keep up the inspiring work.

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Re: income vs. expense

fredx
2007-01-23 06:36 pm UTC (link)

Heh, thanks! Every now and then, I hit upon a topic which generates some discussion. :-)

I agree; most of us are pretty psychotic in our financial lives. Money is powerful in our minds, yet it's the "elephant in the room" we don't want to talk about. People are far more likely to discuss their sex lives than their finances!

I'm not putting myself on a pedestal here. Believe me, I have plenty of my own issues surrounding the green stuff. Just ask my sweetie!

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	damiri 2007-01-19 10:36 pm UTC (link)
	i do notice a direct correlation between how much I work and how much I eat out. So, yeah, my food related expenses go up when I work more (earn more). (Reply to this)(Thread)

fredx
2007-01-23 06:41 pm UTC (link)

Here's something to get your brain churning: Watch a restaurant go shopping for food, and see what they buy. While many of us try to buy relatively healthy ingredients for our home meals (organic produce, low-fat foods, lean meats, low levels of hormones & pesticides, etc.), very few restaurants do. They'll typically buy the cheapest ingredients available which won't impact the flavor and texture of the finished product too noticeably. Therefore, as you trade home meals for restaurant meals, might your long-term health care expenses also go up? Hmmm...

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	kalima62 2007-01-19 11:55 pm UTC (link)
	Consumerism for one. Although it does cost more to work more, in ways that are not always monetary. (Reply to this)(Thread)

	fredx 2007-01-23 06:42 pm UTC (link)
	Hear hear! (Reply to this)(Parent)

(Anonymous)
2007-01-20 08:44 pm UTC (link)

I see people who make way more than me spending big on housing, furniture, and vehicles. One person in particular "had" to buy a large house and furnish it as an "investment," mainly I believe because any extra cash burns a hole in her pocket. Now she's wanting to sell the "investment" in a lousy market. Just about everyone I know is absolutely sold on owning a house. On the contrary, I often see an opportunity cost in the downpayment and the dollar amount of the mortgage. bethers

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	fredx 2007-01-23 06:44 pm UTC (link)
	Yup, the "cost of funds" in homeownership can be huge. That's why I sold. The opportunity cost on the market value of my place was so far out of whack that I couldn't make any sense of continuing to own it. (Reply to this)(Parent)

cat_herder
2007-01-22 11:41 pm UTC (link)

On the one hand, financial institutions are trying to pump their funds. On the other, consider how your lifestyle will change once you start having age related (or bad luck related) health problems.

Health insurance goes up like a rocket as you age. The cost of nursing home care is astounding. Its very expensive. I have visited a number of such facilities as an entertainer and there are Nice Places and Slit Your Wrists Places.

So, when you do your calculations, look at your family medical history, ask yourself if you really will be living in that same situation when you slow down.

I'm sold on owning a house (in response to Anon). I bought one 14 years ago and own 80% equity in it now. If there's a downturn of 10% in the market, I will have still made a hearty profit. If I don't sell it, I will be rent free by retirement age. My sole expenses would be property taxes, insurance and the occasional repair job. If I clock out turning the compost at 90, someone gets the house. If I break my hip, I can sell the house and use the proceeds to go to a rest home with cabana boys and not the rest home with peeling paint.

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fredx
2007-01-23 06:51 pm UTC (link)

If I were to have more money, would I spend more on health care? I'm comfortable with the way things are right now. I have a high-deductible health plan paired with a Health Savings Account (HSA). I fund the HSA with the maximum contribution each year. I can't imagine how I would spend more if my income were higher.

I count diet and exercise into my health plan. It costs more in cash now to eat better and be fit, and I anticipate a good return on this investment in the future. In the mean time, I hugely enjoy the benefits of feeling great, being happy, and being able to charge down trails like a nutcase.

Again, if you were to have a higher income, would your health expenses increase? Why?

Regarding home ownership, I'd like to pull back to the topic at hand: if you were to have more money, would you spend more on your home? Why?

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cat_herder
2007-01-23 11:25 pm UTC (link)

First, the comment in your post - You mention your diet and exercise are your health plan. Lots of healthy people say that :). Read spinningtumor.blogspot.com, a blog by a female bodybuilder who follows great diet and exercise habits and got Stage IV lymphoma anyway.

Your health expenses do increase when you have a higher income. This is because you are getting a better outcome in many cases. There was an article in the NY Times about this recently. The surviveability of breast cancer increases for women of higher income. Read my friend's blog to see some of the choices they make with poor patients in Central Louisiana.

So, that is my point about medical expenses. Plan for them. Please. I think you are still pretty young, but just for the hell of it, go visit rest homes and find out what different ones cost. I am saving up for the good ones, not the skanky ones. I know I will be in one for my last year. It runs in the family.

Now, I see you are asking people if they spend more on "X" if they have more.

For my house? Yes. I do have more. I do spend more.

I keep a budget. I spend twice as much maintaining my house now as I did in 1993 and I make twice as much. Interestingly enough, the cost of labor has more than doubled in the same time. If I did not have as much money to spend on the house, it would come out of other places (like my 401K savings) or be funded by bank loans. I don't have a new kitchen, however. That's like spray painting a junk pile. I live next to a bus stop. The house is not going to increase in value with Corian. It will, however, not leak anymore now that I have a spiffy roof.

I don't view home maintenance as frivolous.

I *do* view incessant shoe buying as frivolous.

I think we all have our priorities!

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(Anonymous)
2007-01-24 02:49 am UTC (link)

"Read spinningtumor.blogspot.com, a blog by a female bodybuilder who follows great diet and exercise habits and got Stage IV lymphoma anyway."

Wow, this is very sad. I remember this gal from another blog she used to write. She was practicing CRON (calorie restriction optimal nutrition) at the time and was extremely health conscious. Thank you for the link. It's so true, we really can't be smug about our good health. bethers

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	fredx 2007-01-26 07:29 pm UTC (link)
	Absolutely. Our good health is fleeting, and will fail. It's only a matter of time. Enjoy it -- it won't last! (Reply to this)(Parent)

fredx
2007-01-26 07:28 pm UTC (link)

Living a healthy lifestyle improves our likelihood of healthy longevity, but it certainly does not guarantee it. Plenty of very fit and healthy folks end up with major troubles. Still, it's clear that smoking, obesity, bad nutrition, and a sedentary lifestyle are linked to a higher risk of a variety of ailments. There's a big difference between improving one's odds and guaranteeing good health. I'm sorry to hear about the gal with lymphoma, and I wish her the best. Yes, I know this sort of thing can happen to anyone. We're all going to go someday...

I do plan for increasing health expenses as I age. However, I don't want to spend five or ten years of the prime of my life to provide for a better bed in the last year of my life. Besides, if I were to spend those five or ten years in a sedentary, stressful work environment, there's the potential of bringing on that last year even sooner!

It's a balance, like anything. Yes, I plan to remain responsible and be able to afford quality health care. No, I don't plan to afford Botox and the rest home with cabana boys on the golf course. I'm not into golf, anyway. :-)

Regarding your house, if you earned more money, would you move to a bigger house? If so, why?

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cat_herder
2007-01-28 08:23 pm UTC (link)

I do earn more money. I have not moved to a bigger house.

I have thought of selling the house I am in and moving. The primary reason is that I live in a very foggy microclimate. It is cold and windy and damp in the summer where I live. Just a few miles down, it is warm and sunny.

If I buy a house, it would probably be bigger, mostly because of how the developers laid things out all those years ago. I live in a bungalow. The houses in the Banana Belt that I am looking at tend to be about 200 sq. feet larger. It would also allow me to have a roommate. I am tired of living alone.

It looks like your priority is to minimize how much time you spend working. I don't mind working. I like the cameraderie and structure. (See "living alone" above.) Ever since I was a child, my priority was to have a nice place to live. I never imagined not working.

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fredx
2007-01-30 03:32 am UTC (link)

It's not so much that my priority is to minimize the amount of time I spend working; it's to minimize the need to work for money. If I can live a life with low financial expenses, I find freedom to do whatever turns my crank. If you didn't have to work for money, what would you do? Would your choice of career be affected?

For me, I spent a number of years working half-time in a major environmental organization. Now I've been working in other ways. This blog is one of those other ways. Another is the Simple Living Network newsletter.

I'm definitely not a "sit on the couch all day" sorta guy. :-)

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