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What if Everyone only got Paid once a Year?
I have no idea what I was thinking about the other day…but this thought popped into my mind:
"Would people take better care or worse care of their finances if everyone only got paid once per year?"
I like to come up with these strange questions to try to get myself and others thinking – I feel like it stretches my brain somehow (not literally) (I guess this is why I ended up having to answer most of my own questions in that Bible study we used to host in Arizona) (I should really stop talking to myself). I know it isn’t practical and it would never work and all of that – but practicality is not the point of this exercise.
Payday
So, on January 2nd (the 1st is still a holiday) (ok, the first weekday after January 1st – how’s that?), everyone got their single paycheck for the entire year. What happens next?
At first, I thought this would be a complete train-wreck. A number of people would have that money blown by Groundhog day. On the other hand, for fiscally responsible people, this would actually be somewhat of a boon. If you had all your entire year’s salary up-front instead of accumulating it little by little throughout the year, you’d be able to earn significantly more interest during the year.
Taking into account how much credit card debt the average American has, I think it is obvious that some people have a problem delaying immediate gratification to focus on the long term. Therefore, would people flush with cash at the beginning of the year run out and satisfy their every whim? I would say "probably." (you might say, "at least they’re not using a credit card," and this is true…but come the end of the year all expenses would end up on the CC)
But maybe, just maybe, if people knew that they only got this one paycheck and they were not getting any more, maybe they would be inspired to be more careful about their planning and living. Yeah, you’re right, that’s unlikely and it would probably end up being worse than now. Now that I think about it, that large lump sum would probably distract some normally fiscally responsible people and cause them to overspend early in the year as well.
So, I would answer the question like this: for some people it would work out a lot better. For some others, they would be inspired to get more serious about saving and planning. Unfortunately, I’d guess that some people would get distracted by the money, lose sight of the long-term, and end up being worse off. And, of course, I still believe that a number of people would have it all spent by MLK, Jr Day. The bottom line is it would be a lot better for some and a lot worse for others.
What do you think? Better? Worse? Why am I even wondering about this?
This Week in the Blogosphere
- This is just a great post discussing the different stages of how we view the purpose of money (@ The Happy Rock )
- Here’s a post discussing debt, debt myths, acceptable debt, and reasons to avoid debt . There are some really good reasons in his list of why to avoid debt. (@ Bible Money Matters )
- Frugality sometimes gets a bad rap – but I agree with Bob that there is a difference between being frugal and being cheap (@ ChristianPF )
- Tithing! Anyone still here? Here’s a story about someone going through the process of tithing for the first time (Guest post for Gather Little by Little written by Capital Couples Finance )
Have a great weekend and God bless…
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9 Responses to “What if Everyone only got Paid once a Year?”
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Thanks a bunch for the link. I’ve never been here before, and what do I find, but a very interesting and thought-provoking question. What do I think? I think we’d be seeing the biggest gov’t bailout in history financed by the people who managed their money responsibly. Is that too cynical?
James – welcome and thanks so much for stopping by. Let’s see here…
cynical? probably.
accurate: definitely.
Why does it seem that the responsible people always end up bailing out the irresponsible ones? I guess the easy answer is because irresponsible people vote too. That is probably definitely too cynical
(can you say probably and definitely in the same sentence?)
Great Question!
I agree that the first year would be a disaster. But I think things would improve in the future years.
But I think it would eventually work out to about the same number of people having issues with debt and fiscal responsibility as we have now with multiple pay days.
Interesting question… I think there are nations in the world that could handle it just fine, but I don’t think most of the US would be able to… I think it would be a mess..
ChristianPF’s latest blog post…Does your bag have holes? – Giveaway
Thanks for the link John.
In the short term it would be utter failure, although I suspect longer term things would settle more into a similar pattern as we have now.
Also it is interesting to think how negative this would be for companies.
I’m in medical school, and we get “paid” twice a year when loans come out. Some end up looking for more loans before the next disbursement. Others have money left over and therefore borrow less the next year. It’s not quite like only getting it once a year, but it is interesting how some people can’t make it even 6 months on what they have. It’s really only hard when unexpected medical bills or car repairs come up.
Ashley, thanks for the comment. That’s a good point – I hadn’t thought of someone living on student loans as only getting paid twice a year. I think it’s as close as we’ll get to a good real-world example. As you mention, some do great with it while others struggle – that’s probably the consensus of the other comments.
Good luck in medical school! (My wife is a physician so I know it’s a hard road but it obviously can be accomplished)
I think James is correct, but that’s a big part of where we have gone wrong.
Think of a traditional cattle farmer; not in the sense of today’s government-subsidized factory farm but the way it used to be, all the way back to biblical times: the farmer either inherited his land or homesteaded it, scrimped and saved to build a herd (nowadays we would have to do the same to get and pay off some land), and thenceforth took some calves to the sale every year. Meanwhile his herd grew year by year, because he kept the female calves and managed his herd.
The bottom line though, is that the cattle farmer did actually get paid only once per year, and it behove him then to manage his assets wisely. He certainly didn’t borrow more than he received, and if he was wise, he tried to save enough to recover from a bad year. He didn’t over-extend himself, because he knew there was no possibility of a government bailout, nor had he ever heard of such a thing.
So what should we do? I contend that we should start working towards becoming more like that farmer, because the government that is bailing people out of their own poor decisions is headed for collapse, and with it all those who rely on it.
For a practical example of where to start, I would much rather have a cheap old single-wide mobile home on 5 acres of unrestricted land out in the country, than a typical 2000 square foot home on a half acre lot in a subdivision. The former can be had for $15,000 total, paid off in 5 or 10 years, and all the family’s food can be grown there. One could even make a small living on it, once it is paid off.
The latter probably costs $150,000 minimum, and can never produce a net profit.
@Tracy – very insightful comments and I agree with you about most of it. Though I agree our government is currently in a pretty bad state, I do not think it will ultimately lead to collapse. I feel that we do have a lot of smart people around and eventually one or more will step up and right the ship before it sinks. Now, if you ask if either of the current candidates running for President will be the man to do it, I doubt it. But eventually I think we will get it righted. Just my opinion and I only disagree with that one statement from your excellent comment.