Is Money all that Really Matters?

23 06 2015

money

Disclaimer: This is purely a metaphoric article asking you to think about money differently. Everyone’s situation is different, and there are no cookie cutter solutions.

Today’s day and age is a dynamic playing field filled with struggles that earlier generations have not had to deal with. The lower paying job markets, the coupon culture and the “give me” generation has all culminated to create a disastrous world for young professionals, newly married couples and early 30’s persons trying to build a future.

Our grandparents had it right. They focused on two things: Work and Family. The majority of the families from 1940-1980 were based upon single income households. Single persons oftentimes worked to build self-sufficient lifestyles, then trading in, even promising, careers for the dream of raising of healthy and wholesome family. Families were raised by stay at home parents that were able to provide the necessities for raising children as well as caring for a household. Everyday people did not have maids, they did not eat at restaurants or trade in their cars as often as we do today. Some would say that the lives that our grandparents experienced is impossible in the present day and age; but let’s look at the environmental factors that may be to blame, and can possibly be remedied.

In today’s modern age, the majority of households are comprised of dual, if not even three or four, incomes. The roller coaster housing market, and the growing cost of the production of houses has continued to create ebbs and flows in the desire for families to jump into home ownership, and with good reasoning. From 2000-2005, families were seeing heightened incomes and low tax rates, allowing even more money to be spent on homes, cars and investments. Upon the market crash, we saw people lose everything. It’s only fair for the generations that either saw these situations occur, or experienced them for themselves, to be weary of investing. For those families willing to take the plunge into property ownership, most rely on multiple incomes to make ends meet. Homes come with a lot of additional costs, and many feel that two sources of income provide the additional funds and security necessary for them to make the gamble.

The dual income culture has also been inflated due to the increase in single parent households. Divorced families, and parents that have never been married, are forced to provide for their children by any means necessary. A great salary can quickly become negligent due to child support or alimony payments, and those payments still do not provide enough funding for most recipients to pay for housing, food, transportation and clothing for their children.

This acceptance of the idea that “everyone needs to be working,” has caused a paradigm shift within even married families. The social stigma that “every needs to work,” places within people the idea that not working is, thus, to not provide for your family. However, generations before us continued to raise healthy families and provide for their households, all with single incomes.

Let’s look at some facts: The average home size in 1950 was 983 square feet. In today’s market, the average cost of that home (@ $110/sq ft in most markets) would be roughly $108,130. A monthly mortgage (with insurance and taxes) would be around $705. The average home in 2015 is around 2500 square feet, costing approximately $275,000 with a monthly mortgage of approximately $1,795 per month. Essentially, we have created a culture that demands larger homes, thus causing a larger percentage of incomes to be spent on them. In 1950, housing accounted for 22% of household incomes. Today, it accounts for 33%. Take into account that household incomes are now made up of multiple sources, and the numbers are even more staggering.

But what about cars? In the early 2000s, a shift began during the economic boom that encouraged people to spend more on automobiles. The increased popularity of luxury vehicles, and the increased expectance of “top of the line” automobiles increased the average household spend from 11% (in 1950) to 22% (today) doubling the amount that families now spend to simply drive their cars. Yes, cars are more expensive than ever, but perhaps we are driving the wrong cars for our budget.

The fact of the matter is, that we have cultured a generation of people that believe that we need a $275,000 home and a $52,000 car in order to be happy. Of course, with dual incomes, these numbers seem very doable, but at what cost to the livelihood of a family unit? Based on divorce rate data, the percentage of people breaking their family ties has risen from approximately 11% in 1950 to around 19% today (with a peak hitting 24% in 1980). So perhaps we are not building stronger families simply by having more money to purchase nicer things?

The average income for a 25-34 year old professional with a college degree is now rooughly $48K/per year. Recent studies have shown that people feel “underpaid” until they receive $70-75 in yearly earnings from their company. But why do we all feel that we need to be making more money?

If you look at a $48K salary and break it down into housing and automotive costs (AVG), that means the average 30 year old is spending $15,840 per year on housing and $10,560 per year on automotive costs. Take out roughly 26% for taxes ($12,480), and the remaining balance of the average yearly income for young professionals is $9,120. Say there is a child or two in the mix and that leaves very little money after insurance, day care, school supplies clothing and entertainment. No wonder why every family needs two incomes these days!

For a second, though, think what would happen if we simply lowered the expectations we have on the amount we spend on housing and automotive costs?  If we follow the 1950s model, the costs associated with our $48K income would look more like $10,560 for housing, $5,280 for cars, and  $12,480 taxes; leaving nearly $20,000 for additional costs. So simply by lowering our costs of living, we can essentially double our income?

So if you are still wondering how our grandparents lived amazing lives off single income households, ask yourself of one thing: “What really mattered to them?”

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