The Edge of Finances

Here’s a fun exercise for you to consider: What is the least amount of money you need to get by — and by “get by” I mean, not have to move from your current place, can pay bills without having to forgo food, and not have to file for government assistance in some form. Basically, the bare-bones version of your life as you know it today — the knife edge below which lies the abyss. What do you need to barely scrape by?

The question popped into my head recently as we (and by we I mean Krissy) ran some numbers to help our accountant prepare our taxes, and for the first time I got a clear sense of what we made for 2004. Our overall household income was up, which was good, but my own income was down slightly; I was doing more book writing and less corporate writing last year, and irony of ironies, full-sized books don’t pay as well as shilling for The Man (to give you an idea: I was paid exactly the same for a one-month corporate project, in which I ended up writing about 1500 words total, as I got paid for Old Man’s War).

This next year I am likely to give over even more of my time to book writing, and consequently, my income is likely to recede a bit again as well. This is not the start of a screed in which I gripe about book-writing being financially underappreciated in our time, and I should note the diminutions of my fortunes are a strictly relative thing; overall I’m doing fine, thanks, and well enough that I can choose to devote more time to book-writing without getting twitchy about whether it means I can feed the family. But even so, noting the possible cut in income does make me wonder how low I could theoretically go.

What I’ve discovered is that in fact we can go pretty low, primarily because we have some basic economic advantages, which are thus:

1. We have almost no commercial (i.e., credit card) debt; Krissy and I decided long ago that if we couldn’t pay cash for things, then that was God’s way of telling us we couldn’t have those things yet. We use an American Express, which is a charge card (meaning you pay it off at the end of the month) for most card-based purchases, and we have a Visa card for when we can’t use the Amex (we also generally pay off the Visa at the end of the month). Now, as it happens we use the Amex a lot: I use it to keep track of business purchases, and we collect membership points so we can make a couple free flights a year for places we want to go. But we use it as a matter of choice, not necessity.

1a. Our other debt is also reasonably reined in. Our mortgage (reasonably low monthly outlay) and one car payment (also reasonably low) are our only true debt, and they are fixed costs — inflation works for us, not against us, with these. I’ve paid off my student loans; Krissy’s work is paying for her college education. Our other bills — phone, gas, electricity — are not extravagant.

2. We live in an area with a low cost of living. $31,000 buys you that same general standard of living in Piqua (one town over from us) that would cost you $100,000 in Manhattan (according to this calculator), and it’s slightly cheaper to live in my town than in Piqua. Even noting that this is truly an “apple & oranges” comparison — as I’ve mentioned before, it takes me an hour to get to the closest Thai joint near me, whereas in Manhattan there’s usually Thai food no less than 50 feet from anywhere you would choose to stand — it illustrates the basic point a dollar goes further here than in other places.

2a. An intangible here, but one worth noting: Living in a blue-collar, rural town as we do, there’s no need to “keep up with the Joneses.” Everyone around here shops at places like Wal-Mart and K-Mart because that’s what out here; nobody worries about whether the neighbors are looking at your crappy car because they often have crappy cars too. Not needing to keep up appearances is a genuine money-saver.

3. Our family is physically healthy, with no disabilities or medical restrictions of any sort. We have health and dental through Krissy’s work.

4. Our “physical plant” is in fine shape: Our house is less than ten years old, our cars also, and most of our electronic/mechanical possessions are also in good shape. This means that by and large we don’t have to worry about our house or our cars falling apart on us.

5. I work from home, which means no child care costs, and also trims down other expenses (gas & wear and tear on car, eating out, business wardrobe, etc).

6. Unlike the vast majority of Americans, we have several months’ income worth of savings (not including retirement accounts/401(k)s, etc) to tide of over in case of employment emergency (note to self: thank Krissy).

When all is said and done, I suspect that if we had to, we could get by on about $40K a year. This would not be fun, or even particularly comfortable, but it would be doable. I would additionally note that since I strongly suspect that if a time ever came when Krissy and I could not jointly make $40,000 a year, if we got to that point we wouldn’t be the only ones in a world of pain and misery, and indeed the entire US economy would probably be flushed and swirly. And then we could pick up extra money renting out space on lawn for a tent city. We can’t lose!

While it’s a generally depressing exercise to try to determine the least amount you could get on with without entirely crashing and burning, it is useful, as it gives you an idea how close to the edge you are at the moment, and given the fact that Chapter 7 bankruptcy is about to get a whole lot harder to pull off, folks who are near the edge and (probably not coincidentally) have a stagger-load of credit card debt will suddenly have a whole lot to think about.

We are indeed fortunate that we don’t live close to our financial edge, and that we know how far we need to fall to get to it. And alternately and more positively, how much space we have to work on work that genuinely interests us before we have to worry about how much it impacts the true bottom line. I’m glad I can focus on books a bit more, and having that knowledge is a good thing.

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