You Cannot Save Money Until You Earn More

Many finance guru advocate that people save as much as they can in order to retire comfortably. This may be true in some cases but we live in the real world where there are real world limits. Simply put you cannot save money if the amount you earn is less than the amount you need to survive on a Basic Level.

The Sad State of Global Employment

For example I saw a family on television that only squats on a piece of land near the jungle. The father’s job consists only of working as a helper during the farming and harvesting season. Most of the time the family has to eat the wild foods that they find in the jungle. As a result the family including the children are malnourished. They have no savings nor have enough money to eat properly.

Sad to say that although this example might be extreme this is the situation for many people around the world. Do not be lulled into thinking that this will not happen to you or that these are extreme cases only. According to the International Labor Organisation (ILO) there are 1.4 billion workers classified in "Vulnerable Employment".

This means that these workers are working in sub-standard conditions by first world global standards. These means that the employment rights of these workers are not being respected and they work under sub-standard conditions. They are also paid below minimum wages. The list of atrocities goes on and on. They also account for 43% of the global labour force.

People accepting these sort of jobs do not have much bargaining power in terms of employment requirements which are notably education and age. It is hard to think that in this day and age there are still people who cannot read or write. There are underage children working in factories being paid sub-standard wages.

There is also the move by companies to retire ageing and decently paid workers to be replaced by younger but underpaid workers. Many are driven to the black market economy due to the lack of employment prospects in the formal economy. As a result global government spending on economic assistance to the needy is dwindling per individual.

This is why you are lucky if you still have even a bit of money left to save. For many people in the world saving is not much of a concern but surviving is. The only way they would be able to save is to get a job which would afford them to earn money much more than they need to survive on a basic level.

The Basic Level to Survive

This is a very subjective issue. What do people basically need to survive? In the olden days if you can eat properly, own your own dwelling, can afford medical care and have a bit of money to save for emergencies you are considered lucky. But as people became more affluent the standards of Basic Level tended to change as well.

Basic Food
This is the reason why many of the lucky people who do not belong to vulnerable employment cannot seem to save money. For example if employees once drank office coffee and cookies for breakfast but upon a salary increase will decide that they now deserve takeaway coffee and breakfast. Once content with office food they now cannot do without takeaway coffee and breakfast everyday.

This is called the Diderot Effect. According to jamesclear.comthe Diderot Effect states that obtaining a new possession often creates a spiral of consumption which leads you to acquire more new things. As a result, you end up buying things that your previous self never needed to feel happy or fulfilled.

In our previous example the employees gain the possession of “extra prestige” and thinks that they deserve takeaway coffee and breakfast and not the cheaper office coffee and cookies. This happens in real life as people once content with normal coffee cannot do without a Starbucks coffee several times a day upon getting used to the lifestyle.

The “better life” idea which is afforded by the extra income via the salary increase becomes muddled. Instead of the extra money being a source of better life thru savings to gain investments or to start a business the better life idea is wrongly translated to mean better coffee which does not in any way promise a better future for the employees.

The other employees meanwhile who do not buy takeaway coffee and breakfast but continued making their own office coffee and eating office cookies were able to save money and put them on investments. By saving they earn money. Money that would be used to pay takeaway workers stayed in their pockets. They earned takeaway income.

Basic Dwelling
When I went overseas I rented so I can have a regular place to stay in. When I was staying at my parent’s house I never paid rent nor participated in paying the mortgage. When I experienced renting I saw how debilitating it could be especially if you are living in a high rent area. My rent took more than half of my expenses and a great deal of my salary.

When I computed it I was working more than a day’s worth of salary just for my rent expenses on a weekly basis. Clearly this is not a good situation to be in life but a reality for many people like me. The obvious solution would be to save for your own house even though house prices are getting out of reach for many.

However I see a lot of people give up on owning their own house because they simply cannot afford it in their lifetime. These are the same people who instead of saving money for the eventual rental payments they would have to do even though they are already retired spend it on something else.

Instead of saving for their own house they would rent the most expensive rental house that they can afford. Of course rental prices always go up in such places as the cities that is why many of these people end up in debt paying for their expensive rental house. Others find themselves slowly downsizing to the next most expensive rental house that they can afford.

In contrast again I see people who rent the cheapest house that they can find even sharing the rent cost with other people. With the savings they make from the reduced rent they pay they put it towards saving for their own house. I have seen people who have done this. What seems impossible for some people is possible for other people who make sacrifices early in life just to be able to afford their own house in the future.

Basic Dwelling means something you own. If you do not own the house you live in then you do not have a basic dwelling. Even if you live in an expensive and beautiful house if you rent it then you are poor in housing terms. The people who live on their own house earn money. The income that was supposed to go to landlords go to them instead increasing their income.

Basic Medical Care
Everybody gets sick. Once they do they spend money and if they are unlucky enough their sickness could put them in debt. However many people pay other people to get them sick. One good example would be smokers. Cigarettes are getting more and more expensive as governments try to restrict their use.

However many smokers despite the clear health concerns and high cost of cigarettes continue to smoke them. Many would try to defend their habit by stating that they are already addicted to it and cannot stop smoking and others would claim that it is the only way they cope with the stresses of life.

These people are paying cigarette companies to make them sick. Think of this analogy. Would you pay someone to punch your lungs? But this is what is really going on. Meanwhile people who do not smoke are earning money by not paying medical costs associated with smoking. How much is a pack of cigarettes In Australia for example?

The cost is $A 22 or twenty-two Australian dollars. This is like the cost of 3 (three) McDonalds meal in Australia. This means that a packet of cigarettes in Australia can feed you for an entire day. If you have a child it means that you can feed your child a full meal for one day for the cost of one packet of cigarettes.

Australia has now even doubled the price of cigarettes in 2020. This means that if you are a smoker in Australia you can feed two (2) people for an entire day with the cost of your one packet of cigarettes. This issue is not only for smokers but also for those who have unhealthy habits. These include heavy drinkers of alcohol, overeaters, addicts and so on.

The message is clear. You are paying other people to make you sick and even kill you in the end. Can these people live without these unhealthy products or habits? Of course they can but refuse to do so for one reason or another. These unhealthy products are not the basic things people need to survive and people who have healthy habits save money.

Emergency Fund
According to bankrate.com nearly 28 percent of all US adults have no emergency savings. 1 in 4 do not have enough savings to cover 3 months worth of living expenses. This is saddening news that many people once confronted with financial difficulties will not be able to handle it and might even fall prey to loan sharks which is even a sadder news.

I myself experienced this situation. I got sick which forced me to lose my job. I was able to save a small amount of money which tided me over but the greater factor which saved me was my mother who supported me in my time of need. She always saved money even though people were advising her to spend her money and enjoy her retirement age.

She did not follow this advise but continued to save money whenever she can and lived beneath her means. She is always aware that financial difficulties can happen anytime and she was right. She was able to help me financially while I was sick and without a job on a pensioners income.

Many people save money in order to buy a dream purchase. This may be a brand new car, a luxury handbag, a dream vacation and so on. These people do not save money for saving’s sake. If the children of these people who purchased these items suddenly develop a serious sickness do they have enough money to pay for their children’s medical bills? I hope they also do for their children’s sake.

Conclusion

Though many financial experts teach that you need to save money in order to have financial security it is not applicable if you do not have enough earnings to save money in the first place. Though the answer is simple which is to make more money by working more it is easier said than done. Many simply do not have the economic skills and/or opportunities to earn more money by working more.

To those lucky enough to earn more money than they need to survive on a basic level they need to control their spending habits in order to fully take advantage of the excess money that they need to survive. Be warned of the Diderot Effect which has led many people to live more expensive lives but with no increase in savings and even none.

Once you start to think that you need more than the basic level of needs to live then you lock yourself into a situation where your lot in life will never improve. You may look well off in your expensive possessions but if you have no savings to continue to afford your lifestyle once your income is gone you are living an insecure life where you can never be financially free or independent.

By keeping a simple lifestyle which requires only for you to spend on the basic level you need to survive every increase in income takes you closer and closer to financial freedom.