Over at Grumpy Rumblings of the Half-Tenured, NicoleandMaggie pose what, at first blush, seems like a good problem to have. The one with kids writes that her family lives on her income as an economics professor. Her husband has also been working, but they’ve set their spending level to do fine on one income. They’ve been banking the rest. Now he’s transitioning out of his job. Because of their wise financial planning, they don’t really need to change their standard of living, and they have a fat emergency fund. All is good, right? This is how personal finance is supposed to work!
And yet there’s an issue, which NicoleandMaggie write about in The push-pull of spending/saving/not-working. “The problem is that when you spend XK/year and you make exactly XK/year, you’re living on the edge. Even when that XK/year is actual money spent including emergencies and not some dream budget, there’s still the worry that some month you’re going to get hit with too big an emergency and you’re not going to make it.” Of course, that’s what the fat emergency fund is for, right? Well, maybe. “Emotionally I’m probably going to end up cutting spending because I hate not having that monthly (flow) cushion no matter how much we have in an (stock) emergency fund. I just can’t handle it.”
Welcome to the dilemma of attempting to trade income for time. In theory, money and time should be easily traded. Work more, earn more, have less time off. Or take more time off, work less and earn less.
But first, there are the logistical problems. Much of the labor market is sticky, and you can only trade time for money in discrete chunks. A job must be done 40 hours a week…or not at all.
And second, and more important for this post, there’s this psychological issue: people who manage to build up big chunks of wealth by saving big chunks of their income actually like saving big chunks of their income. They want to see their pile grow, not shrink. Even if the goal of building up that pile is to buy leisure (often in the form of retirement) there’s always that little voice saying, well, what if it runs out? And so, despite the pile, the person risks turning miserly in their new leisure time, or decides not to buy the leisure time at all. The goal posts move. Once, $1 million seemed enough to buy you the ability to do whatever you wanted. Then, $1 million starts to seem insufficient when you consider that college is expensive, and runaway inflation could always return, and health care costs aren’t going down, and well, if I worked a few more years, I’d have $2 million…or $3 million…
I’m not sure what the solution to this dilemma is. What’s always striking to me is how the world is divided into savers and spenders. Or maybe “spenders” isn’t the word, but more happy-go-lucky types. I’m firmly in the former camp. I can’t really imagine feeling comfortable drawing down rather than building up. My kids will be getting this from both sides; my mother-in-law, who can have a perfectly comfortable retirement, decided to try living on Social Security for a while, just as an experiment. But then I see stories on TV, or in personal finance columns, of people who blithely quit their gigs with nothing lined up and nothing in the bank, who have worked for years at real jobs and yet have no savings, who base their spending on two incomes and then decide well, it would really be better to have one party stay home. How does this work? I don’t know. I don’t envy the people who wind up in personal finance columns, of course, but as we have conversations in the car about wow, we paid 16 cents too much per gallon for gas, and if we’d driven half a mile farther, we could have saved $3, I kind of envy the mindset. It will all be fine!
True story: my 3-year-old, the other night, said to my husband “I don’t think it’s a good idea for mommy to put your quarters down the toilet.” Much head-scratching ensued. Then we realized that, in the gas incident described above, the phrase my husband had used is “You just flushed $3 away!” I’m impressed that my 3-year-old picked up on that, but also used an appropriate unit of money, and one that could be flushable.
Photo courtesy flickr user wisemandarine