Gails Blog

Some of the people who watch the show who don’t make a ton of money are often dumb-struck that a couple can be making $100,000 a year or more and still be in debt. “Where’s the money going?” they ask. “How can you make that much money and still need to use credit?” they wonder. “How much would they have to make to not go into debt?”

There a couple of problems with the way people look at their money. The first is that many people think of the money they earn in GROSS dollars – that’s before taxes. But if you make $100K and pay 30% in tax, you’re left with $70K. “That’s more than enough,” you say. Maybe. But if all your thinking is based on $100,000, then you’ll be in the hole $30K every year and you’ll never understand why.

So we think of our incomes in GROSS dollars. But we think of our expenses in NET dollars. Yup. And that adds to the problem. Can you see why?

The other thing that adds to the problem is that $100,000 doesn’t buy what it used to. According to the U.S. Federal Reserve, between 1960 and 1990, money lost a whopping 77% of its buying power. That means if you paid a buck for something in 1960, you’d have to come up with about $4.40 to buy it in 1990.

So did incomes rise four-and-a-half times over the same period? Not on your life. Which means a $100,000 income doesn’t buy all the bread and butter it used to. But it still sounds like a lot of money, right? So we still THINK it should buy everything we need. There ya go: another gap between perception and reality.

If $100,000 doesn’t buy all it used to, how come we have more stuff than ever before? That’s easy. We’re using credit. Gobs and gobs of the stuff. We’re borrowing against the equity in our homes. We’re using lines of credit in record numbers. And we’re carrying more plastic than ever before. And we’re giving no thought to how we’re ever going to pay back the principal.

Sure, we’re careful to make our minimum payments. We don’t want to ruin our credit histories, after all, and limit our access to even more credit. But a suggestion that someone pay more than the minimum is met with a laugh… ha ha.. it must be a joke. Who’d be silly enough to do that?

The media has also been lying to us. They’ve been telling us we’re rich. We’ve lots of money in terms of home equity, after all. And that’s money in the bank.

Well, it’s not. It can evaporate – as it has in the U.S. – even more quickly than it grew. And since you have to sell your home to use your equity as money, you better have a nice rock picked out that you can crawl under when the caca hits the fan and you HAVE to sell your home to pay for all those toys you put on your credit card.

It’s time for us to grow up and act like adults. We can’t keep operating under the delusion that just because the amount of money we make sounds like a lot, that we can buy whatever we want whenever we want. And we can’t keep talking about our income in gross dollars while we spend in net? We have to come to terms with the reality of our money and our lives. If we put only $100 in the bank, then we can spend only $100 – at the most. (We should save $10.) And we can’t put $100 on a credit card if we don’t have $100 in the bank to pay it off IN FULL when the bill arrives.

People who aren’t aware of how much they make, how much they spend, and how much their debt is costing them in terms of money and life’s energy expended are not heading anywhere good. It really doesn’t matter how much we make. What matters at the end of the day is what we do with it and how truthful we are with ourselves.

Have you ever thought about how much money it would take to make you happy? Is that net or gross?

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