Living on Two Paychecks or Too Many Expectations?

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In a discussion with a good friend, he asked me, "How come in the 1950s, you could support a family on a single paycheck, but my wife and I both have to work to make ends meet?" I've heard this question so many times, and people give innumerable reasons, from the Fed's inflationary policies to the lack of decent-paying manufacturing jobs. Usually, the explanations suggest macroeconomic shifts and major policy changes. And sure, some of those explanations are a part of it, but what's often not considered is the expense side of the equation.

If we're going to compare ourselves to a 1950s standard, we have to ask whether our spending is similar to the 1950s. If we strip out all of our unnecessary modern expenditures and make an apples-to-apples comparison, most of us probably could live on a single paycheck. The problem is not that our standard of living has gotten worse - it's that our expectations have far outgrown the reality of most paychecks.

Let's first start with some modern inventions which are ultimately conveniences. For example, there's your cellphone bill and monthly high-speed Internet connection. These are important tools in the modern age, but you could live without them. Then, think of the innumerable gadgets which occupy most of our homes, from iPads and iPods to laptops to flat-screen TVs to Xbox game consoles, and so on. Unless you really need these devices for your work, it's hard to argue that one couldn't live without them. People in the 1950s survived without them - and so could you.

Let's move it up a step to some bigger expenditures. According to the Department of Energy, in 1950 there were 323 vehicles per thousand people in the US. In 2010, there were 811 vehicles per thousand people. Today, every member of the family has a car, if not one to spare - and we're not talking old junkers, but pretty nice cars. I often ask myself, "How come I earn more than the US median, yet it seems like 75% of people around me are driving nicer cars?"

Now let's take it one step further to the really big expenses. Take a drive down to a middle-class neighborhood built in the 1940s and '50s. What you'll see are very modest homes - one-story buildings with a small bedroom for the parents and two to three closet-sized bedrooms for the kids, a living room, a kitchen, and a dining room. Depending on how lucky you were, there may have been two bathrooms instead of one. This cookie-cutter formula spanned the country. The houses weren't that pretty or incredible, but they got the job of raising a family done.

After your drive to that part of town, cruise into a middle-class subdivision built in the last ten or twenty years - it's a completely different picture. Every house is either a McMansion or made to resemble a smaller version of a McMansion. The kids' bedrooms in these things are bigger than my whole first apartment. Let's not even mention the size of the master bedroom; and of course nearly every bedroom has its own bath. Don't forget the additional rooms, such as "the playroom."

What's considered a middle-class lifestyle today isn't even close to the middle class of the 1950s. Add up all of these things: the gadgets, the cellphone and Internet bills, the brand-new cars for the whole family, and the mini-mansions - it's a ton of money that the last generation wasn't spending. When someone lives this sort of lifestyle and wonders, "Jeez, why do my wife and I both have to work?," my answer is, "Well duh, genius. Of course both of you have to work. Look at your lifestyle." If you lived more modestly and within your means, the necessity of two paychecks will not seem so set in stone.

Now, I'm not suggesting that everyone should live a miserly, monastic life. I'm sure that if we could send cellphones back into the past, people in the 1950s would buy them too. What I'm suggesting is simply to take a second and reconsider what really makes us happy and fulfills our needs. Did people in the 1950s live unfulfilled lives without three iPads and a McMansion?

This reevaluation of our spending priorities is especially important for retirement planning. Recently, I helped my dad crunch the numbers for his retirement plan. I have to commend him for working extra hard lately to play catch-up with his retirement. After crunching the numbers, I told my dad, "I have some really good news. If you were willing to live modestly, you could retire next year. If you moved back to Croatia, you could even live very well over there. But to reach the sort of retirement income that you have in mind, you'll have to work at least ten more years." He said, "Well, I guess I'll have to work ten more years."

There's nothing truly wrong with his answer. If he wants to work longer to earn more, that's up to him. However, at some point this sort of perspective makes you a prisoner of your own expectations. With an investment-newsletter subscription, we can recommend investments to strengthen your portfolio. While managing your investments is important, what doesn't cost a penny is adjusting expectations. It's a lot harder to earn 30% returns than to downsize to a lifestyle that might require only 8% returns. However, if your expectations are through the roof, then 40% returns and another 20 working years won't be enough to satisfy your desires.

When it comes to retirement, if you don't limit your expectations and put them into check, one of two things will happen. Either you will have to keep slaving away to bring in more income to fulfill your desires, or you'll fail to earn enough, and you'll always feel jilted and empty. Even if the first option works out, someone will always have a bigger yacht or house. At retirement, it's time to stop keeping up with Joneses (and stopping well before then can help you hold on to more of your hard-earned money). The combination of a fixed income and endless desires is a guaranteed route to misery and unhappiness.

Maybe you don't need to retire in a McMansion or have three houses in retirement or drive the newest Corvette. People have lived very well on more modest incomes long before the current era of unlimited spending and endless expectations. Maybe - just maybe - the problem in our modern society is not a paycheck which is too small, but rather expectations which are too big.

Source: Casey Daily Dispatch

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About Vedran Vuk