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'When income increases debt also increases' concept?

it is said that when more revenue comes lifestyle increases, then debt also and so forth..

is this cliche or close to real in western world..

i am thinking of scenarios like this: 2 family who earn differently, one more than the other, but they drive the same kind of cars (6 year old minivan) as the other family and own the same kind of home(150k range townhouses);

is this what the above phrase means.. because either one family is living above their means or one living below their capacity, one might save and one might go paycheck to paycheck?

what may be practical things in modern western world that makes it hard to cap in on credit card or other debt, in spite of occasional increments in salary?
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25112
Asked:
25112
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9 Solutions
 
John HurstBusiness Consultant (Owner)Commented:
Income turns into cash and losses turn into debt. This accounting law has never been broken. So if debt is increasing in your scenario above, people are overspending. This is not because of increased revenue, but because people (by and large) do not understand the implications of continued debt. ... Thinkpads_User
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Neil RussellTechnical Development LeadCommented:
Ask my wife!!!

If we jointly earn 50k, she will spend 55k per year
If we jointly earn 75k per year she will spend 85k per year
If we jointly earn 100k per year she will spend 120k per year!

Go Figure! But thats what it means
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John HurstBusiness Consultant (Owner)Commented:
That's just people. It is not the way things must work.  .... Thinkpads_User
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Dave BaldwinFixer of ProblemsCommented:
"occasional increments in salary" are usually accompanied by increases in the cost of living so they don't change a person's situation.  If someone is living "paycheck to paycheck", they have to reduce their cost of living to make a change and pay down their debt.  Unfortunately, many people seem to think they "deserve" what they see on TV and in their neighbor's driveways instead of living within their own income.
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25112Author Commented:

Thinkpads_User, I think you are referring to the person who is content on driving the 6 year old minivan and 150k house inspite of them earning more than their neighbour who also has the same items in their lifestyle.., right?
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25112Author Commented:


>>people are overspending
>>If we jointly earn 50k, she will spend 55k per year
If we jointly earn 75k per year she will spend 85k per year
If we jointly earn 100k per year she will spend 120k per year!

I am trying to see how it has and is working in usa.. is the overspending the $50 here and $60 there in grocery and walmarts.. is it more the $1000 carpets or $3000 dining suite..

Neilsr, could you see what is the difference you saw between the different times of spending.. from 50k to 75k (for example) was it just the same items, but bigger brans and hence bigger costs.. or were totally new items being got that was not got the first time around..
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25112Author Commented:
>>accompanied by increases in the cost of living

how? if they live in the same house and drive the same car, it should not make a difference, right?
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John HurstBusiness Consultant (Owner)Commented:
>>> I think you are referring to the person who is content on driving the 6 year old minivan and 150k house inspite of them earning more than their neighbour who also has the same items in their lifestyle

That is one way to say. What I was saying was that people in general do not understand the implications of debt. At the very end, debt leads to bankruptcy.  ... Thinkpads_User
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Neil RussellTechnical Development LeadCommented:
It is a fact that 90% of the planets population live on borrowed money. It is also a fact that almost all people live disproportionately above their means.

Its the "I earn more so I can afford to borrow more" syndrome.
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John HurstBusiness Consultant (Owner)Commented:
>>> It is a fact that 90% of the planets population live on borrowed money

I am not at all certain this is a "fact" . Half (roughly) of credit card holders pay off their bills monthly. This would not happen if they were all living on borrowed money.

Lots of people live beyond their means, but not 90% of us.  .... Thinkpads_User
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Anthony RussoCommented:
>>...is the overspending the $50 here and $60 there in grocery and walmarts.. is it more the $1000 carpets or $3000 dining suite..

The $50 or $60 in grocery and walmart gets a lot of people because they don't realize it adding up fast. People tend to think hard before dropping $1000.
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Dave BaldwinFixer of ProblemsCommented:
You must not be doing the grocery shopping for your household.  Prices are always going up, little by little, and they negate small increases in income.
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speed_54Commented:
I'd agree with the concept that the cost of living always increases while the increases in salaries come at a far slower rate. It is hard to compare two families with similar incomes/homes/vehicles as every families situation is different.
Consider the scenario: Family 1 has a wife who is struggling to control her weight, while her husband enjoys the odd flutter at the tables. They have 2 teenage boys, the older is in college, with the younger at junior high. Family 2 has a wife who is happy with her appearance, a husband who doesn't drink, smoke or gamble, and 2 teenage daughters, both about to graduate.
In family 1, the wife decides to go on a Jenny Craig diet. She then need to buy special food for the diet, and needs to buy new clothes as her old ones don't fit any more. meanwhile eldest son has a trip to Europe as part of his architecture course.  Family 2 meanwhile has the husband diagnosed with cancer and he needs chemotherapy.
So my question to you with regard to this hypothetical situation is how do you compare the costs of living between the 2 families? Even if one has a higher income that the other, this doesn't change much. Debt comes in different ways to different people so you can't really generalize.

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GirardAndrewCommented:
Hi 25112,

Even with the same car and house, people with extra cash/credit will tend to spend for the unnecessary things. Have you seen the movie "Everything Must Go" with Will Ferrell? The guy had too much junk in his life.

If only people realize that you don't have to change your lifestyle and complicate things just because of the extra cash/credit. Try living a simple life and keep your consumption level flat. You will surely have a great life. One example would be Warren Buffet.

I hope this makes sense to you.

Thanks,
GirardAndrew
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25112Author Commented:
thanks for your thought out answerss
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John HurstBusiness Consultant (Owner)Commented:
Thank you. I was happy to help out. .... Thinkpads_User
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25112Author Commented:
yes, it is nice tech experts can apply in windows 7,for example,and logic applies to real life too, and perhaps much more.. once again, you made a difference..
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