How much do you need to live on?

How much each of us needs to live on determines a lot of the choices we make in life. And I would argue that how much we THINK we need to live on determines them even more.

Which brings up an interesting paradox in this economy: the more money you make (and think you need to live on), the more worried you probably are. I'd be terrified if I had a 200K job. Your eggs are all in one basket, so to speak, and you've probably come to believe you NEED that much to survive.

While since I'm used to working freelance, I never know how much I'm going to bring in. My husband does this as well, so the effect has been that we always live on LESS than we usually make, in case both of us aren't bringing in very much. But the irony is that my hodge podge collection of little jobs not only has trained me to live on less, it's actually a better bet in this market not to just rely on one job.

Of course most people still work for one employer at one job, and for most people that's convenient and works out the best for them. And that's great. But I would still argue that even for people who know exactly how much they're bringing in, it would be smart to think about how much you really NEED to live on. If you live below your means, you'll not only save more for retirement and things that are important to you, but you'll be more prepared if you face an unexpected layoff or illness in the family.

The interesting thing is that most people tend to adjust to whatever their income is. So if you make $50,000 and you get a raise to $60,000, you probably won't have $10,000 minus taxes in savings at the end of the year, you'll most likely have spent it.

And whether you make $20,000 or $100,000 or $250,000, my guess is that that's the amount you truly believe you NEED to live on. I live in Los Angeles, and a lot of my friends work in the film industry. It's very common to make six figure salaries, even for trade/craft type jobs. So most people have come to believe they can't possibly live on less than $100,000 a year. If you ask them how they think other people live on the average of $42,000, they'll say it's not possible in Los Angeles. It's true that rents and mortgages are more than you would pay in places like the midwest, but we own our home and I certainly don't believe I HAVE to make at least $100,000 or I'll never survive.

Here's an example of what I'm talking about. If you drive a BMW, and it needs a new tire, that might cost you $450. I drive a Camry, and as far as I'm concerned it's like driving a luxury vehicle, but when I replace the tires all four will cost less than that. So the CHOICE of driving a BMW puts you in the position of needing more money to live on. As do all kinds of other CHOICES about what neighborhood you live in, how big your house needs to be, how often you must eat out, where your children must attend school ($15,000 a year for some preschools, and I'm not exaggerating for effect), and what car you drive.

All of this is pretty obvious. But I think a lot of our choices are unconscious, because a lot of what we do is determined by the culture we live in. And I mean the culture of our friends and neighborhood and the work we do, in addition to the general consumer culture. It's the soup we swim in. If we earn $250,000, we don't have the slightest idea how someone lives on $42,000, and we probably feel sorry for the poor schlub, if we think of them at all.

For me, whenever I've earned the most money, I've been the most unhappy, because I'm working way too hard. I spend too much on everything because I don't have time to cook or make wise purchasing decisions. When I save more and spend less, I feel more free and more in control. I don't have to worry if I get less work, because I don't need as much money in the first place.

I hope you love the work you do. I'm not anti-work. I think work can be an important part of life and something that offers great rewards. But working for the sake of making more money to buy more stuff is a no-win situation that will end up costing you more than you can afford.

A lot of people are waking up to the trap of our consumer culture. If you've never seen The Story of Stuff, check it out. It's a great argument about how STUFF is destroying us- working for stuff, buying stuff, throwing out stuff. It's destroying our neighborhoods, our communities, our health, and our environment.

So what are YOUR assumptions and expectations about how much money you need to live on? Would you like to be able to live on less? Please share your thoughts in the Comments section.