Does income matter?

In a post I created last week, a follower of my blog brought up the topic of income effecting how someone can pay off debt.  I thought it might be fun to give my opinion on this:  For the most part I disagree, let me explain why I think this…

People need to live within their means (don’t spend more money than you can afford to).  Unless your income is literally less than what it is possible to live off of, you should be able to pay down your debt.  Just like comparing the financials of companies of different industries, you need to look at budgets in a percentage aspect.  The general percentages of bills from your income tend to look something like this:

  • Savings: 9%
  • Housing: 33%
  • Utilities: 10%
  • Food: 10%
  • Transportation: 12%
  • Clothing: 3%
  • Medical/Health: 5%
  • Personal: 8%
  • Recreation: 7%
  • Debts: 3%

So let’s use this example and apply it to a few different income levels and look at these figures on a monthly basis (the budget is after estimated taxes have been removed).

$30,000 Income:

  • Savings: $169
  • Housing: $618
  • Utilities: $187
  • Food: $187
  • Transportation: $225
  • Clothing: $56
  • Medical/Health: $94
  • Personal: $150
  • Recreation: $131
  • Debts: $56

$60,000 Income

  • Savings: $338
  • Housing: $1238
  • Utilities: $375
  • Food: $375
  • Transportation: $450
  • Clothing: $113
  • Medical/Health: $188
  • Personal: $300
  • Recreation: $263
  • Debts: $113

$75,000 Income

  • Savings: $422
  • Housing: $1547
  • Utilities: $469
  • Food: $469
  • Transportation: $563
  • Clothing: $141
  • Medical/Health: $234
  • Personal: $375
  • Recreation: $328
  • Debts: $141

$100,000 Income

  • Savings: $563
  • Housing: $2063
  • Utilities: $625
  • Food: $625
  • Transportation: $750
  • Clothing: $188
  • Medical/Health: $313
  • Personal: $500
  • Recreation: $438
  • Debts: $188

Obviously there is a big difference in housing budget of someone making $30k/year compared to someone bringing in $100k/year – almost $1400 per month, actually.  But that doesn’t mean they should be living the same lifestyle.  A person making $30k could buy a house for nearly $75,000 (and there are plenty of nice homes in this price range for sale in my area) while someone making $100k could buy a house costing nearly $250k, all while using up the same percentage of their income.  See what happened there?  The problem is this: Too many people with an income of $30k try buying a house that costs $100k+.

What are your thoughts?

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