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it's human nature to have your cost of living expand along with your salary. We racked up quite a bit of debt when I took an early trial retirement that was probably not well managed, but now that I'm working and all the debts are paid off (mortgage is being accelerated), I'm just hiding all the extra money so I'm less likely to spend it on vacations and stuff.
leveraging to make money is something I see lots of people doing but I'm not sure it's for me.
There is no pat, universal solution. But overall it seems to me, that preferable is the situation with the most elasticity. The debt-ridden high-income person could conceivably have an epiphany and adopt a more frugal lifestyle. The debt-free but low-earning person cannot reorient his/her life merely by attitude-adjustment; a different job (different career?) becomes necessary. The high-earning person enjoys good accumulation for Social Security. The low-earner does not. Cynically, but truthfully, the high-earner is in modern society more eligible to partner with a likewise high-earner. For the low-earner, such coupling would require, to say the least, a more creative approach.
Higher income accords one more options, even if one lacks the character-traits to take good advantage of these options. Lower-income imposes more constraints.
Even my accountant laughed that he shares a similar psychological feeling to me with debt. I know that it’s way smarter to have a $400K mortgage at 4.5% than to have no mortgage when I have investments returning well above that level, but somehow I still just like the idea of a lower cost of living even though I know the math is wrong and it’s illogical. I’m trying to get over that thinking but maybe it’s also the idea that if things went sideways you know you’re staring at no debt. Maybe that’s it. I don’t think it’s a bad idea if you already have a lot of investments to own your home free and clear, for instance. It may be worth the peace of mind.
I don’t know how you’d assume though on a separate note that $60K pre-tax income should have you rolling in dough with tons left over?! In LA ten years ago I had a 920 square foot condo. It was borderline impossible to live on under $5,500/month after tax income. My mortgage, HOA dues, and property taxes were easily over $3,000 and adding insurance into that was $400 more. So let’s say $3,700 roughly and that didn’t give me gas for my car, electricity, food, clothing (minimal but have to budget something), emergency fund (my fridge broke the second year, $450 repair!), cable Internet, cell phone, etc. It just wasn’t happening below $5K any way you cut it. I ate cereal, frozen dinners, and eating out was Subway for $5. That was my life. It wasn’t glamorous, in fact it was very very meager.
Imo, both options have two independent factors. I'd rather have the high income, pay off the debt, and maintain no to low debt (I love my CC points and paying off my balance every month) than stuck with low income. I mean hell, I got out with student loans and paid them off in a year with high income.
Really, I wouldn't focus on someone else's life. Great, you're debt free, great you're employed. Now work towards increasing you income. You have skills someone values, find someone who values them more.
I can't change who I am, so I'll take the high income and I'd get my finances organized and get the debt paid off.
There are only a couple of ways I would be high income/ high debt. One would be college debt for a lucrative field of work. Work as a doctor, or whatever, and gets those loans paid off. Or maybe taking on mortgages to buy real estate that could operate at a profit.
General rule, though, if I can't pay cash for it, I figure I can't afford it and I don't borrow money to get it.
In defense of the woman in post one, she has a child and a husband and not all that much income for three people to live on. Children are expensive and occasionally, a husband is really expensive to keep, if he won't manage money. I had one of those once, who believed that his fun was paid for first and bills got paid with whatever was left over. Debt didn't bother him at all. If he was able to borrow, he had more money to play with for a short while.
I tried convincing my sister who is single and has no dependents that she shouldn't rush to pay off her mortgage. She has a guaranteed pension from a state government and the interest rate on her fifteen year mortgage was only about 3%. There was just no convincing her that the mortgage was the cheapest money she would ever borrow and that it made more sense for her to try and invest her money and pay off her mortgage on schedule. Later, when she inherited some money I could not persuade her to invest that either. By doing so, she gave up considerable opportunities that would have doubled her principal even with the recent turmoil in the markets.
She is not a dumb person. She is highly educated. What she is is "risk adverse". Psychologically she cannot stand any sort of risk at all. She seldom drives. When she does it is only to go to the store, the hospital, church, occasionally out for food, or to the animal clinic. She hasn't driven more than a hundred miles at a time in the last four years. I have great difficulty understanding this sort of mindset. My life has been all about traveling, sight-seeing, and what I will describe as calculated risk-taking which I think that I do pretty well. I cannot imagine living such a limited restricted life, but she is quite happy with it.
The world is full of different types of people and sometimes they are even in the same family. I am glad this world allows us different choices when it comes to education, employment, security, money, and investments because one size does not fit all.
The great thing about saving and investing all these years is now i have both high income and no debt. One of the few times i listened to my Dad about interest, debt and saving a buck on every paycheck paid off.
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