I hear you. It is inconceivable that someone except the wealthy could actually live on 20% of their income.
When GC goes on to say live on the 20%, he scribbles on a white board the following:
Income – 100%
Subtract Taxes – 40%
Pay Yourself – 40%
Live on – 20%
He then says that if you can afford to pay the government 40% for the in-the-present services they provide, you should be willing to invest in your future for no less!
And if you are taking 40% of your gross income for investing, that leaves you 20%!
Understanding that 85% of (American) households are spending 110% of their income (hopefully the stat is take-home income and not gross income) one can imagine the frustration at being told you should be living on 20% and not 66% of gross. The immediate reaction is “there is no way to reduce my expenses to live on 20%”.
I am right here with you. That was my initial reaction too.
But then something magical happened. GC said, “Ok, you can’t live on 20% if you are making minimum wage. So make more than minimum wage. Take your current expenses. That becomes your 20%. Now, how much do you have to earn to have the 100% to live on the 20?”
Now, the magical part wasn’t my being insulted about my middle class income. I expect you reacted the same way to that statement I did initially. But then I had a mindset shift that said work the problem from the opposite direction. And this is what GC was getting at.
As an aside, the Canadian Government lets you save 18% of your income tax-deferred in an RRSP so that you will have retirement income.
This is not an overnight fix. This may not be a quick fix. It may take months to years. But the first step is mindset.
Once you shift mindset, you need to determine how to increase your income. Some jobs have capacity for extra income (pay raise, overtime, bonuses, commission). This that don’t would require either education/training for a promotion or transfer, or a new job, or as a last resort a side hustle.
GC says a side hustle should be the last resort because it takes away from your focus on your main job to the detriment of both. But this is a post for another day.
As always, if you want to discuss this post, or anything else, give me a shout!
Once you are ready to set aside some (or all) of that 40%, let me know and we can discuss how I can help you out. There are multiple avenues to apply step 4!