Episode 080 - You can’t afford to have a job

When Forbes magazine state that 78% of United States workers are living ‘Pay check to pay check’, it should be a wake up call to all of us. What we are doing with our lives and our finances isn’t working. Yet the vast majority blindly go back to the regular 9-5, celebrating that they have employment. On today’s show I’m going to show you just how much money you are probably losing having a job, and maybe it should be a time to rethink what we consider a normal path to success in the 21st century.

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Show Notes

In 2019, Forbes Magazine published an article

https://www.forbes.com/sites/zackfriedman/2019/01/11/live-paycheck-to-paycheck-government-shutdown/?sh=7dac8074f10b

in their personal finance department, citing a study made by CareerBuilder in 2017.  Digging deeper in the findings reveals some very interesting facts:

1.    1 in 10 workers making $100K+ live pay check to pay check 2.    More than 1 in 4 workers do not set aside any savings each month 3.    3 in 4 workers say that they are in debt and more than 50% think they always will be in debt 4.    More than half of minimum wage workers say they have to work more than one job to make ends meet 5.    28% of workers making $50-99K usually or always live pay check to pay check, and 70% are in debt.

Additionally the study found that 32% of those surveyed use a budget with only 56% saving $100 or less each month.

This is in the richest country in the world – The United States.

Now it is easy to consider the homeless problem in the USA.  We see the visuals of this all the time – the homeless camps in the inner city areas of places like Los Angeles and San Francisco.  The same in Chicago, New York, Miami, etc.   Those that are down on their luck who end up on Skid Row didn’t plan to be there.  But if you were to see these numbers of the so-called “Middle Class” it has to be a message that the homeless problem is growing – not shrinking.

Yet everyone is trained to think that the road out of squalor is a good paying job.  The security of a job – a regular pay check, benefits, etc.

I’m going to try and burst this fallacy.  Because it is IMHO, the polar opposite solution.  Like jumping from the fryin’ pan into the fire as they say.

First, let me restate something I have probably said 100x on this podcast and in my teachings….

THE RICH DON’T HAVE JOBS

Given this statement, it is pretty easy to draw the connection…..  If you have a job, you won’t be rich.

Now that might be a shocking thing to hear for most of us.  Because most of us left high school in search of the proverbial job.  Why is it then that the CareerBuilder statistics expose that it isn’t working?  Who lied to us?

Well it wasn’t always like this.  Back 50 years in our past, the world was very different.  Jobs had the backings of unions who ensured that workers were able to make good money.  And there were not anywhere near the same trappings of debt that has ensnared people.  When I entered the business world in my teenage and early 20 years, interest rates for a home mortgage in Australia were often around 18% meaning that the general social consensus was that you didn’t have debt.  Why?  Because you couldn’t afford to pay for it.  

Houses became dynastic.  If parents were to buy a home to provide safe harbor for the family, they would do it on the assumption that they would pay it off.  And super quick.  Because the longer they held debt, the more they gave of their pay check to the banks.  And they didn’t want to make the bankers rich.  And the asset of their freehold home could be passed down to their kids, so they wouldn’t fall into the same debt trap as others.

Cars were fixed and maintained.  When you got your first car, it came with a long lecture from your parents about how to change the oil, replace a tire, understand the basics of an engine, understand the maintenance requirements for belts, hoses, batteries, brakes, etc.  You were prepared to attend to the car and you were rewarded with your knowledge because your car drove longer, cost you less to keep, and stopped you going to the car dealership and getting further enslaved in high interest debt.  As a result, the used car market was more of a “cash” economy than loans, and small business car repair centers flourished due to the social norms of maintaining and caring for what you had, rather than throwing them away for next year’s model.

This all changed towards the end of the 1980s.  Interest rates started to come down.  I remember in 1990 when I bought my first home, I paid 12% interest for that mortgage.  I had to put 20% down as well.  I’m sure there were cheaper mortgages, but I was 25 years old and had little credit history.  So they “higher risk” mortgage came with a higher interest rate.  But considering that today’s 30 year mortgage is 2-3% interest, you can see that the interest component of a mortgage is significantly smaller.

Why is this all important to having a job?  Because it isn’t magic that shows that if you make $75K per year in a job, and yet 3 out of 4 people are living pay check to pay check, it isn’t because they are not making money.  It is because their money is being lost.

Let me repeat yet another saying you will hear me say 100x times….

IT’S NOT WHAT YOU EARN…. IT’S WHAT YOU KEEP

If someone making $75K per year has “more month than money” 12 times a year, then it is because the money is being extracted from them.  They are still working the same to earn it, but they don’t get to keep it.

It is being taken from them in taxes before they see it.  Sure, you say you are making $75K per year, but based on average tax withholding rates, you are probably keeping $58K of that.   Then if you are participating in some employer matched 401K program, more is being taken from you.  If you get $50K per year of that in your pocket (ie. About $4200 per month), that’s what you have to live on.  That’s your month.

Where does that go?  

Rent, food, insurance, fuel, utilities, phone, entertainment, childcare, clothing, student loan payments, etc.  It doesn’t take long before that money is spent.  The costs of living are increasing in urban centers at (according to the Chapwood Index) 8-10% per year, so rents look something like this as I record this episode – these numbers are from SmartAsset.

Average rent for a studio apartment - $1059 Average rent for a 2 bedroom apartment - $1207

In Phoenix, where I live, the average rent for a single family home is between $1800-$2500 per month.

Depending on weather factors, the costs of cooling or heating the dwelling can be $500 a month in extreme cold or hot periods depending on where you live.  

And the rest of the costs…. Well you know the pain there.

That $4200 of spendable money quickly disappears.  Forcing both parents to work, to combine income, and cutting back becomes a norm.

Yet the worst problem here is that should you find yourself with surplus capital, the most common use of it is to rationalize debt to buy a new car, or a vacation, or new furniture, appliances, technologies, phones, etc. so by the time you have committed your future to the banks, you have nothing.  The problem perpetuates, and yet the one day that comes when there is an unexpected disruption to income, you have nothing to fall back on, so the credit card comes to the rescue, and then the 27% interest rates on the rollover balances on the credit card becomes a payment as high as most utility bills (if not higher).

This is a common thing that I’m sure thousands and thousands of others in the personal finance space will talk to.

Many will tell you of small ways to make adjustments around the margins to keep a little more of your money.  Maybe negotiating your insurance rates down, or cutting the cable TV out, or not eating out as much.

That’s not going to work.  Because next year the increases in costs due to the devaluation of the dollar means that the small gains are quickly extinguished.

Maybe you think that Dave Ramsey might have the answer.  Rice & Beans, etc.  Well that works if you can get everyone on board with it, but although you might be able to pay off the debts that you have built up over the years, what is to stop you from just falling back into that trap 2 or 3 years from now?

For anyone in this ¾ majority, it must be like fingernails on a chalkboard to hear all these so called “experts” telling you about budgeting, cutting back, etc.  Exposing the worst case scenario because we love to throw mud at people rather than address the real problems.  This is just disgusting, yet the very same so called “experts” don’t seem to have those problems.  I mean they drive their $100K Mercedes or Teslas to the TV station, where they get in front of the camera and wax philosophically that they all came from nothing and somehow they magically rose up to become millionaires – a lofty goal than anyone suffocated in debt would do.

But we know it rarely works like that.  The very same so called experts are dealing with their own lifestyle inflation, and that Mercedes was leased – not bought.  Their home is financed up to 90% LTV and god forbid there is a drop in the housing market and they can’t refinance their way out of the mess – then you won’t see them on the TV anymore as they enter the “Where are they now” file.

Let’s talk about the truth

Jobs are killing us.  The worst part of this is the concept that you have to move to where the jobs are in order to “make it”.  That means the urban city centers of New York, San Francisco, Los Angeles, Chicago, Boston, etc. become over-crowded while more and more humans migrate to them, being forced to live in multi-storey apartment buildings to be close to where they work.  And the employers know this, so they expect 50-60 hours a week of devotion.  They want you available to come into the office on Saturday if needed.  

Transportation costs are ubers or taxis, the metro train maybe, or god forbid you are willing to spend time stuck in traffic, and pay $50-100 a month for parking just to avoid the discomfort of the commute.

You don’t have the time to make your own lunch, and that would just look weird to your co-workers – like you were not “successful” like they are, so everyone spends $20 a day on meals at the local cafes, etc.   Starbucks becomes the habit, because everyone is expected to be medically induced with energy when they walk into the office building, so you buy your drugs at $6 a day to get you going in the morning.

What is left of you at the end of the day, you spend with the family, if your spouse is not also in the same boat.  And raising kids in an urban apartment isn’t really the answer for most, so you extend to the suburbs to spend $1-2 million on a small house in the Silicon Valley, Los Angeles, etc. just so you can be near your work, yet have a middle class life for the family.

It isn’t working.   It is an artificial reality that doesn’t serve you, your spouse or the kids.  You know this, but you have that “career” and it becomes the justification to do really stupid things in your life.   

I don’t have a job.

I was like you.  I did those things when I first came to the USA.  I spent about 6 years doing those things, wondering why people did these things.  It didn’t really end well for me, but while I was on the treadmill, everything felt ok.  Sure, I had my own pay check to pay check months, but I was here to learn.  I was here to grow.  I was getting access to opportunities I couldn’t get from my home country.  I’d enter this dysfunctional world to get exposed to those things.  I guess if given the choice to do it again, I probably would.  I mean ambition and desire to learn trumped rational thought.  But when I compared my own unbridled goals with many of my co-workers, I saw a different side to this.

I saw people that didn’t have massive ambition.  They just wanted to have a peaceful life for themselves and their families.  Yet someone told them they had to live in the urban city.  Many migrated there from far away, but after a while they didn’t know why they did it.  The day to day costs of it were killing them and they all wanted out.  Yet they found themselves there – helpless.

When I left and returned back with more money than I needed, I learned the hard way that retirement at the age of 32 wasn’t the answer.  But while I was trying to work out what the answer to life was, I realized that certainly didn’t work.  All that urban living costs of the house, cars, etc. were meaningless when I left the urban sprawl.  My technologies became obsolete a year or so later and had to be re-purchased all over again.  What fit well in one house, didn’t in the next.  Furniture was sold at 10c on the dollar to its retail prices.  Even things like a bedding set was cheaper to firesale than it was to ship it across the ocean.  Things started to show their true value – and the value was meaningless when they had left the urban sprawl.

The question was, “Did I have value when I left the urban sprawl?”.  The answer, as I learned 5 years later was, “Hell yeh!”.  It was just that my perceptions of what I thought were valuable needed to change.

That meant finding a balance between the individual need to grow and achieve things, to feel that you are adding value and to support your ego.  But this has to be countered by seeing through the illusion that where you are helps define that.  It only does if you can’t find your true purpose and value outside of that target geography.  But I think in a world of interconnectedness, Zoom, VoIP phone calls, messaging and phones, we don’t need to fall for the “I gotta be THERE” mystique.

If you are not keeping what you are earning, then why do you need a job in the first place?

This is where it gets interesting.  Let’s say you moved to a country town or to a cheaper part of the world to live.  Let’s say you could drop your monthly base costs of living from $5K to $2K.  Now to be in the same financial position as you were in an urban city, you only need to make $24K per year.

That’s minimum wage money.  But if you could make it online in some form, or better still….  You had assets that made you that money, would you not be in the same situation?  And if you had assets making you the money, you could easily grow that to a point where you could double it.  Sure, people would see you making $48K per year and think you were a loser or something.  But you get to keep $24K of that money.  Do those making $100K per year get that?

Nope, because they have 25% of it extracted from their pay checks by the govt before they see it.  That’s your entire annual profit.  But they lose that to the government.

Then because they are big income earners (in their minds), they don’t get subsidized anything.  Their kids have to pay full tuition for college because they earn too much to get government assistance.  They can’t get the subsidized health care insurance, but they don’t care because they get their health insurance from their jobs.  What they neglect to realize is that the $20K per year that the employer is paying for them could have been money they could have kept, and is almost all of the annual profit you keep.  If they invested $20K per year in a rental property downpayment, they could have been making millions letting the tenants pay off their mortgages and the property values increasing.  But no, they didn’t consider it.

And the costs of them having that job are enormous.  Most of us think of those costs as cars, parking, nice clothes, eating out food costs, the odd Starbucks, etc.  But it is MUCH, MUCH more than that.

If you have time at home, you can really get on top of things.  I’ve done some amazing things with our home by using technologies to tell me exactly where my power was being consumed, for example.  Would I have had the time to install all of the technologies to do this if I had a 50-60 hour per week job?  No, because I’d be exhausted at the end of it, and I’d likely slump into the couch and want to relax with an endless supply of TV sports games, or something else to take my mind off the work.

But what I found was a few hacks I could do that resulted in a $100 per month saving in power.  That’s money I don’t need to earn.  I have done the same with water usage, and again another $100 I don’t have to earn.  I’m finding that because I need to replace the odd thing in the house that breaks or reaches the end of its natural life, I have the time to either extend the life of it, or find ways to research and plan things out.  Also by having the time to take things that I no longer need and eBay sell them, I can take the income from that and use it to purchase the things I will need in the future.

I don’t need to put more than 5,000 miles a year on my car, so I keep my cars for 20 years.  I can afford to buy a high end luxury car knowing that I’ll get 20 years out of it, rather than purchase a cheap car every 5 years because I’m going to abuse it everyday I work, sitting in traffic to and from the home to the job.  

I can fix things myself rather than being forced to pay contractors to do it.  And when there are things I can’t do, I learn. By using free YouTube videos and having time to learn, I expand my mind and realize I have more to offer than I thought.  When I need an expert to do things I can’t do, I have the time to learn from them and hopefully don’t need them the next time.

Rather than having no time to shop around and get deals on food, etc. I can plan out the eating for a week or so ahead.  I can purchase bulk meat, and then cut it into daily portions so that I can then freeze them rather than paying 10x as much for the supermarket to sell me pre-packaged versions of what I can package myself.

I don’t need to pay cable TV costs, etc. because I have a decent Internet connection and I can build my own set top boxes and get my entertainment from the thousands of free sources out on the Internet.  

I have the time to pick up a cheap used Android phone, gut it and install more privacy respecting open source software on it.  I can use 3rd party phone providers that are 1/3rd of the cost of the big providers like T-Mobile, Verizon, AT&T, etc. because I have the time to do it right.

I have the time to visit Thrift stores and find the things that others who are working 50 hours a week throw out, and I can repurpose them – whether it be clothing, furniture, electronics, etc.  Rather than paying $300 for a new computer monitor, I can buy a $10 one at my local Thrift store and use it.

And the most important thing I have is the option to say NO.  Everytime I have the need for something (whether that is a real need or a perceived need), I can stop myself.  I have a habit of making sure I never decide to make a purchase of anything more than $20 without giving it 1 week to contemplate.  That’s because I am spending a lot of my time selling off things that I bought without giving the purchase the appropriate due diligence, and that just means lost money.  Money that I would have had to earn in the past, but if I never needed to spend it, then I don’t need to earn it.

These are just habits after a while.  But there’s a sense of stress that just goes.  You are not beholdent to a job.  Your boss doesn’t dictate your life experience – you do.  Your purchases don’t define you – what you DO NOT purchase defines you.  

I don’t eat out much, but when I do it is something special.  And experience that means something – not something I did because of some biological imperative.  It is because it was intentional – and I get to share it with people I care about.

One might think of this as some frugality, but it isn’t.  It is living an intentional life where you take control of it, and you direct your time at things that are important to you.  Not important to someone else, where you sold yourself into submission to their needs without taking care of your own.

If you only need to earn a small fraction of what you had been earning because your costs are low, then you remove stress.  And with the time that you get back, you can take advantage of the world.  Travel where and when you want, get real experiences that expand your mind, learn other languages and customs, etc.  Make friends that help you adapt and better yourself.  This is how things should be.

And what is really interesting is when you find yourself in other countries with new friends that don’t have a massive burn rate, then you find more in common with them than you had with your neighbors in your urban town.  They have the time to go out out with you.  The costs of entertainment are probably 1/10th of your normal costs, so those events become more active.  You find yourself invested more in a community that wants your participation rather than one that is looking to fleece you because they are all under the same stress and pressure that you are, and are part of that ¾ population living pay check to pay check.

I am sure that we all don’t want to be in a world where we are all up against the wall trying to just get by.  It turns good people into hustlers and it removes the charity from life.  You can’t afford to help someone else out because all you are doing is helping yourself out of a bad situation.

Summary

Our perception of what we think is important (a job, career, etc.) is something that was told to us by others than may have had these things at a time when there was a real middle class.

Today the costs of participation, particularly when the job or career takes you to a mega-city with the costs associated with being in the urban jungle means that you give up all your ability to focus on keeping your burn rate low.  It isn’t ever going to be fixed by saving a penny here or there, because the cost of living are rising faster than you could save money to offset them.

The truth is that leaving the urban sprawl for cheaper places, living a simpler life and focusing on what is really important, will let you grow faster than some super career in the urban world.  And yet our media doesn’t tell this to us.  We are told to work hard, get a good job, grow with the company, etc. and yet the statistics don’t end well for those that think that the finish line is some fictitious retirement or going off into the sunset.  If you think the pay check to pay check statistics are shocking, try looking at the percentage of people who can afford to exit the workforce in their latter years.

There is some hope with remote working technologies like Zoom, the Internet, etc. but the reality is that when the boss wants everyone back in the office so his or her own insecurities can be supported, then you lose it all.  Your freedoms are shortlived and life returns to a “normal” that I’m sure none of us want to return to.

What you need to do is to take stock of the real cost of your job, and whether in a post-pandemic world, maybe looking for cheaper and greener pastures might just work for you.  This won’t work for everyone, so I’m not suggesting it.  But those that are struggling to have more money than month might do well to consider that, for example, if you had a $5-6K per month cost of living in Phoenix, the same cost of living for the same benefits in Mexico are closer to $1-2K per month.  That’s just one example.  Change Mexico for Ohio, Canada, New Zealand, etc. and then re-do the math.  But don’t just assume that those places have to be city centers.  They are there for job seekers – not life seekers.  There are plenty of beautiful places in the world and most of them are more supportive of life seekers than job seekers to be honest.