There has been a lot of talk over the last few years about how many people file bankruptcy in Utah, and how our state is the highest in the nation when it comes to financial irresponsibility.
Then a new report has surfaced this week (04-26-05 Salt Lake Tribune) stating that 16 percent of Utahns are on some type of anti-depressant.
For years this has been a question in my mind, because when I do financial planning for clients and we usually have to do some form of income or wealth protection, I find that almost 50 percent of applicants are taking some form of antidepressants.
In considering this phenomenon you have to ask a few questions, first what causes the depression? And second, does the depression have any correlation to the financial situation of the depressed persons in this state? In my research, and it is only my strong opinion not fact because I am not a psychologist, there is a direct correlation between the amount of bankruptcies, financial irresponsibility and depression in Utah. Let me give you some facts to chew on.
According to the US census Bureau, the 2002 median income for a Utah household was $46,165 (representing only 49 percent of the work force).
If that household is a two adult working household then that averages $23,082.50 per working member. Which averages $11.10 per hour. Keep in mind that this is the average so there are some above these income numbers and there are some income earners below. According to the US Census Bureau Utah is 28th in the nation for income for a four person household.
According to retirmentliving.
com, Utah is ranked ninth highest for cost of living tax burden at a blistering 10.9 percent.
Meaning that Utah is in the top 10 of highest tax burdened states to live in and is the 28th state for income earners. To help this hit home, Utah’s cost of living is almost that of Dallas, Texas, residents, but Dallas residents enjoy about a 25-35 percent increase in median income than that of Utah income earners.
In addition, the 2003 US Census shows the average home payment here in Utah is $1,250.
So just doing some simple math, the average Utahn is paying 32.5 percent of his income just for the home. As a financial advisor I recommend to my clients to be below 20-30 percent of gross income going toward a home payment. Approximately 21 percent goes to the state and federal tax burden, and if you’re a religious person you add another 10 percent for tithing, that’s 63.5 percent of your income, only leaving 46.5 percent for general living, day to day expenses and 28 percent interest furniture store accounts.
Together equals stress So this kind of disparity between the correlation of median income earned (28th in the nation) in Utah and the cost of living (ninth highest in the nation) can have a huge impact on the mental ability of Utah citizens to cope with day to day life trying to keep up with the rising cost to live here and the decreasing wage base. Our governmental representatives tout the fact the we have an available work force here in Utah to get new industry, but what you don’t see or hear is when companies are looking to move they notice that people in Utah will work for far less income than the same position will pay in other higher income and lower cost of living correlation states.
Obviously the stress of life and living could cause mental illness, and also being in a constant financial bind can too cause depression, or can be an impetus to mental illness.
However, being that I am not a psychologist, I am a financial advisor and a life long student of economics. As such, it is my professional opinion that there is definitely a correlation between the increase of mental illness and the amount of people who file bankruptcy here in Utah.
You might be wondering now, “So how do I avoid this trap of depression and bankruptcy?” There are some old fashioned and simple rules to follow.
• First live below your means, meaning if you make $3,000 a month only spend $2,200 (or less) on all of your living expenses including taxes, putting the $800 a month into savings and retirement.
• Keep your home payment below 25 percent of your gross income (20 percent is preferred).
• Pay cash. Don’t finance cars or credit cards. If you can’t pay, cash don’t buy it.
• Most importantly, save at least 10 percent of your gross income every month and invest the savings that is over six months living expenses in a shot term high yield investment. For example: $2,200 x 6 months= $13,200 for emergency savings in a high interest money market account. And anything over $13,200 is invested in a liquid high yield investment).
• There are some other hard fast financial planning rules to keep your life happy, but those are specific to your current financial situations and are too detailed for this general information article.
In conclusion live below your means, save money, because money does buy happiness.