This article just begged for a commentary: Scraping By On $500,000 A Year: Why It’s So Hard For High Income Earners To Escape The Rat Race.
Bask in the glorious title of this piece, and distill it down to its essentials: how to earn half a million a year and still be broke. Now, the author himself is not complaining about the situation, per se. Rather, he is merely documenting how it happens. But the collected financial ignorance in this piece is staggering to contemplate.
Look at the balance sheet:
Let’s point out some obvious ones, shall we? If you make half a million a year, why do you have car payments to the tune of $10,000/year? If you’re complaining about not saving, not feeling “above average” why are you taking $18,000 worth of vacations every year? If your earnings are $500,000/year, what are you doing buying a $1.5 million home? $18,000 to the college alumni? What? And $32,000/yearly in student loan debt (this presumes near to $300k balance)? That’s nuts.
But let’s imagine someone is in this pickle. What do you do to get out of the rat race?
Easy. Sell the home, if you’ve some decent equity (the scenario above presumes $300k equity). Roll down to a cheaper place, rent for a while. Yes, if this is New York, that means Manhattan is off the table. Too bad. Roll the equity straight into the student loans. Now, no more student loans. $32k yearly savings. Stop taking the vacations for a couple years. $18k savings. Pay off the cars, or drive cheaper cars. $10k/savings. Kill donations to the alumni until you’re in a better situation. $18k/savings. That’s +$78k/year straight into the bank, plus whatever this family saved by dropping down a bit in their home (let’s give them 1/3 savings of $20k yearly). Take some smaller slices off of food spending and other smaller stuff, and this family is then easily banking over $100,000 per year.
Do that for around 10 years, and they have over $1 million in the bank, plus accumulated retirement savings. They can move to any less-expensive part of the country, buy a mansion in cash, continue to practice law (at, perhaps, a slightly lower pay scale) and live like kings.
This is one reason why I don’t trust a lot of these so-called experts, because they are so incredibly stupid in very basic life matters. What I posted above is not rocket science, it is not something beyond the reach of a man with pretty average intelligence and education.
Why, then, are so many highly-paid people so financially illiterate?
It boggles the mind. There was a time in my 20s when I was relatively stupid with money. I say relatively because, I think, even at my worst I was less stupid than most. But for a time, I had car payments, and occasionally carried modest credit card balances (never do this, by the way, but it was at least less than $1,500), and I got myself into a mortgage when I shouldn’t have, which ended rather badly due in part to Florida’s ongoing insurance nightmares.
Eventually, I realized all of this was stupid. I got rid of the bad house, sold the nice car and bought a shitbox for a while, paid off all credit card debt, partly by selling off some valuables, and then started working on the one remaining mortgage (the one that didn’t have a flood insurance nightmare chasing after it).
In the meantime, I took a daytime contracting job in addition to my consulting business and my DJ business. I effectively work 2 1/2 jobs these days. I’ve taken exactly one vacation in my entire adult life, and that was on the cheap. My wife’s family had accumulated a boatload of airline miles, and we cashed them in for a free trip to Germany, where my wife had a number of friends we were able to stay with for a little over a week. The whole thing, for both of us, cost less than $2,500.
Don’t get me wrong, I don’t live entirely spartan either. Eventually the shitbox I kept for a few years, while I was paying down debt, became rather unserviceable. That was okay. For a $4,000 crappy car, it gave me three years of life. And I still got $2,500 when I sold the thing. For $500/year, I could get to where I needed to go. Once in a better situation, I allowed myself the modest luxury of a newer Ford Mustang with the 5.0 V8 motor in it. Still an inexpensive vehicle compared to what most folks in my line of work are driving around. But fun.
Have fun and enjoy luxuries now and then. But don’t live beyond your means. I have the title to that Mustang. No payments. No interest. No loans.
In a few years, the last remaining mortgage will be paid off, if things hold true a little longer. And then I can probably relax a little, and go back to working two sources of income, instead of three.
I’m no special genius or anything. It’s not really hard to do. It’s very basic math, and a little bit of self control, nothing more. And it’s really disturbing that so many folks have neither.
Here is some wisdom:
This is the goal: a position of “fuck you.”
If you make half a million dollars a year, this position is absurdly easy to achieve. If you’re like the rest of us working stiffs, it’s not as easy, but with some self discipline and working some multiple streams of income, you can still make it happen. And believe me, every bit of debt that you shed feels better than anything you could buy with that money. Your nice new car? It doesn’t feel as good as not having the payments.
Trust me on that. I’ve been in both places.