Nothing, and I mean nothing can create discomfort quite like calculating your career earnings.
If you’re not dissatisfied with how much you’ve earned, you’ll certainly be dissatisfied with how much you’ve kept. The practice gets even hairier when you decide to project your income forward, and calculate your total future earnings. Will you keep and invest what you need to survive? Or will your future earnings fall prey to the same ills which consumed your current total career earnings?
It’s easy to get caught up in viewing your career earnings as anything other than your lifetime of financial resources, but it is, in fact, your lifetime of financial resources. Yet somehow, every time you receive a paycheck, it feels like the money is meant for the next two weeks, not the next 60 years.
My family grocery shops on Sundays. We always have. As we unload the groceries into the refrigerator and pantry upon arriving home, I know that we can’t consume all of our food that day while we sit around and watch football games. The food needs to last us until the next planned trip to the store. This is why your mom used to yell at you for opening a new bag of chips within minutes of her arriving home from the grocery store. Your demand for the food will wipe out the supply.
Once you get the hang of it, making one trip to the grocery store last seven days, isn’t tremendously challenging. You gather one pool of resources, and then whittle it down over the course of the week.
Now, try to imagine that same process, except you need to set aside food for potentially a forty-year period in which you can no longer go to the grocery store. If food didn’t spoil and you had a place to store it, all you would have to do is save a can or two of food per week, and your problem would be solved. Seems impossible, right? It’s because our culture is currently one of consumption, not retention. Consume, they’ll always be more, you tell yourself.
Have more than one conversation with someone who survived the Great Depression, and you’ll hear how different life was when people understood the finite nature of resources. I used to dismiss these tales, but now I can’t hear enough of them. I always come back to one essential question – how do people think they will financially survive once they stop working, given the current rate of income consumption?
I know it may seem like I harp on the decline of people covered by defined benefit plans (pensions) quite a bit. But the United States personal savings rate has declined in-line with the number of people covered by pensions. In other words, people are now doing the exact opposite of what is needed to successfully retire. When your earning periods ends, no one is going to hand you another paycheck.
Absent Social Security, which your career earnings also happens to fund, your career earnings truly are your entire pool of financial resources for your lifetime. It certainly doesn’t feel that way. Each time you get paid, you think about what you need right now. There are the basics like food and shelter, but the other obligations are created by you and your lifestyle choices. These choices become habits, and these habits become the reason why you’re disturbed when you calculated your career earnings.
I’d be remiss if I didn’t mention the impact of taxes on what you’ve kept of your career earnings. If you’re wise, you can legally defer or avoid taxes while at the same time retaining and even growing your earnings. Your qualified retirement plan contributions (e.g. 401(k), IRA, Roth IRA, etc.) can do just that. You can keep what you earn and do so in tax-sensitive manner.
You may be tempted to raise the “no regrets” flag, like so many people do, but that’s hard to do when you look back on a lifetime of earnings with no means to provide for the future. Calculate your career earnings today, and then ask yourself “am I creating a path to victory or am I eating all of the chips on Sunday?”
Peter Dunn is an author, speaker and radio host, and he has a free podcast: Million Dollar Plan. Have a question about money for Pete the Planner? Email him atAskPete@petetheplanner.com