by Matt Smith, International Man:
As an entrepreneur, my income has always been feast or famine. For years at the start of a new company, I would earn literally nothing. Now sure, employees had to be paid, and all the business had to move forward, but I took no compensation.
I survived on savings. Luckily I had some. Made from the years of feast. If there’s one thing that makes it hard for most people to be entrepreneurs, it’s this “feast or famine” income volatility. (Still worth it.)
During the COVID hysteria and seeing what’s coming, I decided to totally upend my life. For the first four years and up until fairly recently, I was in a period of personal income famine.
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Encouraged by Doug, we launched a few new businesses, including our paid investment newsletter at CrisisInvesting.com. Things have improved. I wouldn’t call it a feast, but it’s enough to cover three hots and a cot.
What Is a Livable Income Today?
How much do you really need to make to live a reasonably prosperous life?
In our trips back to the U.S., I would often comment to my wife: “I don’t know how people can afford any of this.” Prices had gone up so much on virtually everything you can imagine, from food to housing, car insurance, health insurance. It’s insane. Insane enough that I started saying no to travel or new purchases I never would’ve given two seconds’ thought to before.
Admittedly, I’m in a position where these prices are much more of an irritant than a real impediment to my life. But I have eyes and a heart. I look around, I see what’s happening, and I’m worried. I’m worried not for myself, but for the fabric of society itself and all the individuals that are trapped. These individuals include not just random strangers, but friends and family, people I love. From my mom and dad who are retired and in poor health but who worked hard their whole lives. To my siblings whose careers are at risk of the shaky economy and who are being slowly subsumed by the steadily rising prices of all things.
Two years ago, while in the US, I thought, “how are people earning less than $100,000 a year making ends meet.”
A hundred grand is, or at least was, a lot of money. You were in a privileged status to have that kind of earnings power. And yet today, you can earn a hundred grand and be on the cusp of legitimate poverty.
Macro strategist Michael Green made this clear in his recent essay, “Part One: My Life as a Lie — How a Broken Benchmark Quietly Broke America.” I strongly encourage you to read it.
Michael wanted to know more about Americans’ poverty statistics. Perhaps he’d been asking himself many of the questions I had. How are people making it? What he discovered is shocking and disturbing, but totally believable.
According to Uncle Sam, if you’re a family of four earning $30,000 a year, you are living below the poverty line. If you’re above that line, theoretically, you’re doing okay. Not great, but you can survive. As Michael demonstrates, that simply is not true. In fact, it takes a lot more income to stay out of poverty in America today.
As a general rule, when you see a statistic, figure out how it’s calculated. That’s what Michael Green did here, and he learned that the official poverty line is calculated based upon a 1963 formula developed by Mollie Orshansky, an economist at the Social Security Administration.
The government estimated the cost of basic food diet for a family. In 1963 households spent 1/3 of their income on food. From there, the formula multiplied that amount by three to account for other living expenses. The formula looks like this: (Food cost in 1963) * 3 + CPI = Poverty line.
For 2024 that number is $31,200.
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