Can You Afford To Smoke In The Future?

Well big deal, you say. So he pays a little extra in his cigarette costs each year. But let's pretend this increase in wages and cigarette prices continues until John is 70 (and John continues working and smoking). Now John's wage is $129,367 but his cigarettes cost him $230.42 a pack. Now he is paying a total of 65.01% of his wage. And remember this is prior him paying taxes.

Well how can John pay for his one packs a day when he still has all his other living costs? And every 65 cents in every before tax dollar he earns is going out in cigarettes. The answer is, he can't.

Again you think, big deal. You're reading this thinking, I'm nothing like John. But what we are trying to illustrate here is if you have two things growing at two set percentage rates, the smaller amount, given enough time, will eventually catch up to the bigger amount. In fact if we followed this out a further 15 years we would find that Johnny's cigarettes cost him more than 100% of his wage! Please just think about this for a moment. Johnny's cigarettes must have seemed very cheap when he first started smoking.

This is true for electricity, gas, shopping, electronic appliances, mobile phone costs and the list is endless. The cautionary tale in this example is clear. Let's pretend you get your insurance renewal notice and fees have gone up 10%. Your wage for that same year has gone up 4%. Regardless of how much money you earn (whether you're Johnny or Bill Gates), a higher percentage of your wage has to go out in insurance.

Two things you must do:

1. You must fight to keep down your cost at below or the same level as your yearly increases in wages.

2. You must fight for higher wages each year if you have done everything in your power to enact step number one.

Regardless if you are earning minimum wage or a high wage or even in the middle, costs which increase at a rate higher than your increase in salary will eventually erode your buying power! Track your costs, year to year and do your best to keep them below your wage rises.