61 What happens if your paycheck stops?
This episode is actually out of the request from a couple of people, having to do with debt and finances. It turns out that in the United States, very few people really are prepared for retirement or getting themselves prepared for retirement. How important is that?\n\nLet me go backwards a little bit, because most people are well before the age of retirement, and they live paycheck to paycheck. Actually, 61% of the American public live paycheck to paycheck. 63% don\u2019t have $500 for an emergency. Given that, what happens if the paycheck stops? This could be retirement; it could be some other emergency, or you were just laid off. You\u2019re working paycheck to paycheck, and all of a sudden it stops.\n\nSome people living paycheck to paycheck are actually doing that because they\u2019re thinking through and thoroughly on a real budget, and they are allocating some money into different pockets. \xa0That\u2019s fine, because they are saving. Those are not the people I\u2019m talking about.\n\nThe problem is almost always on the spending side; not on the income side. It\u2019s not that you don\u2019t have enough income, it\u2019s that you spend too much. What do I mean by that? Think in terms of the last time you got a pay raise, or the last time you got a promotion, or the last time you got a new job with a higher pay. What happened to that increase? Think in terms of what will happen. Over the next two years, almost everybody will have some sort of an emergency, whether it be a car repair that they didn\u2019t count on, or an appliance breakdown, or roof that starts leaking. Something will happen, and it will be an emergency. What has been set aside, and what will people do in preparation or at that time? Too many people are worrying and hoping that they\u2019ll somehow, someday hit that lottery, which is a ridiculous thing to be investing your money into, putting your money into, wasting your money into.\n\nI\u2019ve often heard and I see people that are always out, and there\u2019s actually peer pressure to go out to do things to get the latest car, to get the latest little toy. People will say, and I\u2019m sure you\u2019ve heard this expression: \u201cLive for today.\u201d Or as a couple of people have asked me over time: \u201cWhy are you saving? You might die tomorrow.\u201d My reaction and response to that is: \u201cYes, but what happens if I live?\u201d\n\nRemember that if you don\u2019t retire until 65 or 66 years of age, you\u2019ll have 25+ years in all probability that you\u2019ll be living beyond that. There\u2019s no chance to play catchup when you get close to retirement. There\u2019s actually very little chance when you start hitting your 60s. You have to have and save from as early as you possibly can, and to be putting money aside both for your emergencies and for your future.\n\nThis is partially motivated at this time because somebody had sent me a note, a very nice note, about how the episode on reverse compound interest (see LifeUnsettled.com episode 56) rung home to them, that they had just received a bonus and where they had ordinarily been thinking of they would get something with it, they went and paid off the credit card, and how the elimination of that debt will actually be a large increase over time of their actual income. That\u2019s all explained in that episode, so I won\u2019t go back to it here.\n\nIt\u2019s the same thing right now, because we\u2019re on the verge of a lot of people getting their tax refunds. What are you getting with those tax refunds? Are you getting out of debt, or are you getting the new latest toy? What would happen if instead of getting a new car, you took that car payment and just put it away? Assuming you already have a car that\u2019s maybe a few years old and it\u2019s just at the end of its loan or you own it free and clear \u2013 what happens if you held on to that car for the next three or four years, and instead put money aside every month and just put it into a savings account or a fund so that in your future you would have that much more money? You might have an extra $20,000 or $30,000.