Scraping By on $150,000 a Year
by Josh Hyatt

January 12, 2007

Why is it that no matter how much you earn, you can't make ends meet? The answer is often right before your eyes.

If she thought it would really fix her family's finances, Amy Schuett would make it her New Year's resolution to squeeze every bit of extra spending from the family budget. But she's already slashed so many little luxuries—the gourmet coffee, the restaurant lunches, the weekly dates with husband Brian—that she's fresh out of ideas. Cable TV? Unplugged. Pool membership? Down the drain. They've even considered giving up their unlisted phone number. At a cost of $3 a month, this move wouldn't save much—even over, say, 150 years—but it shows how desperate the couple feel about easing their financial strain. "We're struggling week to week to get by," says Brian, 42. "Any money that comes in gets chewed up right away."

Digesting that fact becomes harder when you consider that the Schuetts earn a comfortable living, with Amy, 39, pulling in $150,000 a year as a hospital psychiatrist. True, their income did take a big hit last summer when Brian got laid off from his job as a sales rep for a pharmaceutical firm (he'd been making a base salary of $82,000 a year, plus commissions as high as $24,000). And they do have four daughters to raise, ages four to nine. But still. The Schuetts don't have any child-care bills (Brian is now a stay-at-home dad). They don't have credit-card debt. They don't splurge on fancy vacations. And they live in a nice but definitely not luxurious home on a three-acre plot in Elkhorn, Neb., just west of Omaha, where the cost of living is, well, livable. Yet, says Amy, "We live from one paycheck to the next, we're struggling to save and we never seem to have enough money to do anything fun."

It's a statement that an awful lot of Americans can make these days. About two-thirds of families need their next paycheck to meet their living expenses, according to a recent survey by the American Payroll Association. While many claim to be clueless about where all their money is going, it's often easy enough for an objective observer to figure out. After all, easy credit makes blowing bucks at the mall (or anywhere else) painless—at least until you find yourself mired in high-interest debt. And once your lifestyle has been lifted, it becomes utterly unthinkable to live without satellite radio, TiVo, iTunes and Netflix. And is any suburban clan complete without a monstrous SUV in the driveway? (It can't fit in the garage.)

If, like the Schuetts, you're determined to stop living for every payday and start saving, these strategies should help.

Take It Off the Top

There's only one thing that stands between the average person and the discipline needed to save on a regular basis: human nature. When it comes to money, "we tend to spend as much as we have," says Susan Kaplan, a financial planner in Newton, Mass. So take self-discipline out of the equation by enrolling in automatic investing plans through your employer and financial services providers; you tell them how much to deduct from your paycheck or checking account, and the money will be shifted every month into investments of your choice without further ado from you. In effect, you make the discipline of saving your money someone else's job.

Set targets for how much you should be saving for various goals through these automatic investing plans, then slowly work your way up to the goal. Financial planner Bonnie Hughes, for instance, suggests that you aim to have at least 10% of your income directed to a 401(k) or similar retirement account (15% would be ideal); 4% in a savings account or money-market fund designated for emergencies (you can stop once the account is equal to six months' worth of your living expenses); and another $100 a month going into 529 plans for each of your kids. The important thing, though, is just to get started with a different way of thinking about money: From this day forward, you will treat saving like a bill and make it the first one you pay each month. And you will no doubt find yourself automatically adjusting your spending downward as a result. Kaplan notes, "If you never have the money at hand, you can't spend it."

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