Let me ask you… who is better off… The young couple who makes $85,000 a year or the family of four who bring in about $50,000 a year?
Well..with such little information..one would conclude that the couple making $85,000 would be the one’s better off, after all.. they MAKE more money! But perhaps more information might paint a different picture.
What if.. the family of four was living well below their means. Spending $2000 of their $3000 net monthly income on bills and food..giving $300 to their church and saving $700 each and every month and has no debt. And what if the young couple spent $4000 of their $5000 net monthly income on debt payments, bills and food, didn’t save, and spent the other $1000 on buying stuff and eating out and having parties.
Maybe on the surface.. it might STILL appear that the young couple is better off (i.e. they have more stuff, and more FUN) But what happens if BOTH families continue doing what they are CURRENTLY doing for the next 10 years?
Lets assume that both couple still live in the same house, and both households’ income increased by 50%.
In 10 years time.. the young couple will STILL be spending 100% of their net income on Debt Payments, Bills, Food, Eating Out, buying STUFF, and entertaining. They’ll have no savings, and their debt balances and expenses are higher (not lower) than they were 10 years ago. The family of four on the other hand, STILL have no debt, STILL tithe 10% to their church, and STILL invest a good portion of their income. In fact.. their expenses didn’t increase at all.. since they have no debt.. all they are paying for is their monthly necessities, which hasn’t changed much at all in the last 10 years. The only thing that changed for them was the GAP between their INCOME and their EXPENSES. With a wide gap, this allows the family of four to put away more than $1000 a month for a rainy day and for their future. The young couple has no increase in their gap.
Then a layoff hits… The young couple and the family of four lose their jobs. Who is better off now?
The family of four, who was prepared to weather out the storm, is much better off than the young couple, because they can live off their savings and investments for at least 6 months while he looks for another job. The young couple..who have been living paycheck to paycheck despite their high income.. will soon be having collectors calling them at best.. and at worst.. having to face bankruptcy.
So the lesson for you is… Do you know what your GAP is? What is the difference between your INCOME and your EXPENSES? Do you need to take steps to WIDEN the GAP?
