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.
” how to earn half a million a year and still be broke.”
There’s one painfully simple answer to this = living above his means.
The balance sheet he drew up pisses me off. At the moment I am on the phone applying for medical credit, wondering if I will be able to afford the monthly payment of several hundred dollars, even though the procedure is recommended, and my husband lost his job last week.
To recap on his balance sheet:
Cars are top of the line. We drive two used cars that are over ten years old, and as long as they still drive, I’m not complaining. They are paid off, so thank God we don’t have monthly payments for them. When our income was good (over 70,000/year) I still wanted to hang onto the used cars, because it was just fiscally smart.
Three vacations a year—is he serious here or is this a joke? Some people are literally so poor that they can’t afford the gas money to drive to a neighboring town, grab a sandwich, buy a souvenir, and blow off some steam. I was there once.
Children’s lessons—the last two, in particular, tell me that they have expensive tastes. My child played a musical instrument, but only what was covered in school. We didn’t have money for private lessons and did not even have the funds for the end of year school field trip. I wanted to get her into a premium high school in the area, but alas we had to go to the public school in our district because finances.
Mortgage—his mortgage is 60k a year; wow! That’s our entire family income. Enough said.
401 retirement contributions—I see that they’re setting themselves up a nice nest egg here. That being said, I have retirement pulled out of my paycheck and it isn’t nearly that much. There are many people who don’t have the means to stuff anything away for retirement and rely only on social security.
If this guy actually feels sorry for himself on this budget he deserves a sound kick in the ass.
Medical is one of those things that can’t be avoided when it happens, unfortunately. Though Obamacare and government regulation have made a mess of an already crappy healthcare system. These days, things cost 5x what they ought to, easily.
But yeah, your central point is right on. The kinds of folks who feel sorry for themselves making this kind of money need to look in the mirror. It ain’t hard, when you make that kind of scratch.
Getting out of the rat race if you make that kind of cash just requires ditching some VERY optional high-end luxuries. That’s it.
Yeah and that’s the thing that’s so tough. The medical procedure is an elective one, but it’s expensive and it has to be decided right now (age sensitive). I could really use an extra 25k, and this dude is literally blowing that on a couple vacations….
Our “healthcare” system was not particularly crappy before the Kremlin started taking direct control over it, circa 2009. I use quotes around “healthcare” because it’s a horrible misnomer. No one else is taking care of anyone’s “health”–instead, they are being paid to provide MEDICAL diagnosis and treatment.
Eh, it’s been crappy for a while. Surely, Obamacare made it much worse, but there is a graph someplace I’ll have to find later that explains the real problem: the rise in administration costs. Medical providers and insurance providers have veritable mountains of government regulatory compliance hoops to jump through, and this has resulted in skyrocketing admin cost. All of that gets tacked on to the bill…
You need a little more context. Sam, the writer at the link, is financially independent but works with and knows a lot of families with very high inclome. He has a few posts like this to show how seemingly reasonable decisions at that income level can consume such high amounts of income. It essentially outlines what lifestyle inflation looks like for those of us that don’t know what $500k per year could possibly be spent on.
Yes, this is correct. The author of the original piece is not, himself, recommending the budget (indeed, he argues against it). He shows us how it happens.
Interest never sleeps nor sickens nor dies; it never goes to the hospital; it works on Sundays and holidays; it never takes a vacation; it never visits nor travels; it takes no pleasure; it is never laid off work nor discharged from employment; it never works on reduced hours; it never has short crops nor droughts; it never pays taxes; it buys no food; it wears no clothes; it is unhoused and without home and so has no repairs, no replacements, no shingling, plumbing, painting, or whitewashing; it has neither wife, children, father, mother, nor kinfolk to watch over and care for; it has no expense of living; it has neither weddings nor births nor deaths; it has no love, no sympathy; it is as hard and soulless as a granite cliff. Once in debt, interest is your companion every minute of the day and night; you cannot shun it or slip away from it; you cannot dismiss it; it yields neither to entreaties, demands, or orders; and whenever you get in its way or cross its course or fail to meet its demands, it crushes you. (in Conference Report, Apr., 1938, p. 103.)
J. Reuben Clark
I always found it easy to live within my means. It’s not an option; it’s something you HAVE to do if you’re a rational, functioning adult.
Example: early on in my career, I was pulling down between $38k and $48k/yr. Over the course of 4 years, while paying rent, grocery shopping, taking judicious care of my paid off car, taking discounted vacations 1x/yr and avoiding credit card debt like the plague, I actually stashed away $40k for a down payment on a rather small but new townhouse.
IN SILICON VALLEY.
Granted – this was 20 years ago. But still: being frugal doesn’t mean being a scrooge or living in misery. It’s just a smart thing to do and has a great payoff.
It sure does. Things have gone very well for me since I started living this way… maybe 6 or 7 years ago, now.
For that, I can partly blame Francis over at Liberty’s Torch. He blogged a much needed wake up call at just the right time.
The lack of perspective is breathtaking, but, sadly, to be expected. Whenever I have a bad day with money, I try to think of this: till 1800, every human lived on roughly $3 per day (in 2009 dollars). Literally, no one in the western world is poor. We literally live in a magical age of near unimaginable abundance. Any westerner today, transported to a random time in human history would probably die within a year. A random human taken from a random time in history transported to today wouldn’t believe that you can turn a handle and hot, clean, safe water will come out of a spout for no other reason that to clean yourself and soak yourself in hot water.
That’s a nice way to look at it. When I get frustrated with aspects of my life, I try to reflect on the incredible abundance I’m surrounded by.
This is a good way to practice gratitude. We often forget that we’re living in a country where even the poorest/Medicaid recipients are wealthy in benefits and resources compared to third world countries. We never have to worry (in general) about not having a place to live, medical care, and even food.
Historical perspective might also provide these folks with the idea that Socialism ain’t all it’s cracked up to be, but sadly, it does not. Sometimes, I think the lack of historical perspective is at the heart of most of our problems as a society.
I bring in 3600 a month between VA disability and SS retirement. By the end of this year I will be out of debt and be able to bank almost two thousand dollars. Of course I had the advantage of parents raised during the depression and my stepfather was raised on a farm to boot. The only time I’ve been in debt was when I left someone else handle the money. Since I can bank so much I don’t count my mortgage as debt. I live in a nice five bedroom hundred year old house an five acres in Michigan’s Upper Peninsula. Land is cheap. 100-1500 an acre vacant and even nice homes are relatively in expensive usually under a half mil even on the water.
It’s all a matter of how lavishly you live. I chose less over big city diversions.
I bet it’s pretty country up there. Wouldn’t surprise me if you have deer, moose, elk, bear, wolves and such in the woods nearby.
In today’s “Series O’ Tubez” age, you can’t get anything you want or need delivered to your door (or pretty much anything.) Even though I’m a ‘city boy’ at heart, there are no benefits that outweigh the downsides of living in big cities today.
Truth is, big cities ‘jumped the shark’ about 15 years ago or thereabouts. Many seem to be ‘adult playgrounds’ for singles between 25 and 40 with large, desperately unhappy ghettos right next to the ‘exclusive’ areas. Almost nobody tries to live, work and raise a family in a city anymore; they don’t really support such a lifestyle.
Big american cities used to be so much more vibrant and vital. By comparison, they seem quite hollowed out now.
I’ve had bear right outside my window, My wife works just so she can feed wildlife. Last week she was driving down the road and in the field she saw at least a dozen eagles. About the only thing we don’t have is elk. Those are found below the bridge. Moose can be seen within an hours drive, where I live isn’t swampy enough. Seen just about every other form of critter up here except for cougar, though my wife has seen one. I was raised outside of Detroit but moved away in 87 and I don’t miss it at all. Big cities emptied out, for those who could afford to get out, and the burbs grew. In the Detroit area it used to be twenty miles and you were in the country. Now the burbs stretch out at least thirty and in many cases further.
The biggest drawback to living this far North is winter lasts. I’ve still got snow drifts that are still two feet high, down from six. The good news is in the fields there’s lots of open ground, so spring is here. In the woods mosquito season starts in a month and those are fierce. If you like outdoor sport this is definitely the place to be. We’re always looking for freedom loving neighbors. But the downside is the jobs market.
1) It’s probably good the Moose are not right where you are at. You can see them if you want, but you don’t have to worry about them when you step outside your door. They aren’t really all that friendly.
2) Between mosquitoes, black flies, and deer flies, the Upper Peninsula is its own special Hell in the summer. I admire anyone can endure that, but it isn’t for me.
I worked on Isle Royale N.P. one summer and would wake up to moose outside the door on a regular basis. If you don’t provoke them and it’s not rutting season there’s not much of a problem. Black flies in the spring can be deadly. These are the tiny ones that swarm usually in the evenings at dusk not the larger summer ones. Mosquitoes are bad around swampy wet areas but they don’t usually bother when it’s bright sunshine out and you can see the swarms in the woods. Deer flies are usually a menace around lakes. It’s not really as bad as legend claims and Off works pretty good. NO rats, roaches, or poisonous snakes. And Progressives tend to congregate in the cities. (Most people call them towns our largest is about 20,000). Of course it helps to be an outdoors type who doesn’t like crowds and can get by without the social amenities of large cities. If you need to be around a larger city Michigan still has plenty of rural areas away from Detroit. With any of the other large cities an hours drive will put you well out into the sticks. Even the center of the state is only a couple hours from the only freshwater inland sea in the world. Even decent skiing unless you crave the high mountain slopes.
I haven’t seen snow in over 10 years. But I sympathize with the mosquito issue. After all, they love Florida well enough.
On a side note… I do wish I could get my hands on some good acreage. After the home is paid off, that’s first on the list of things to save up for. It’d be nice to have a retreat somewhere far away from the cities.
Acreage we’ve got. My place is five hrs. from Green Bay which is the nearest large city. The nearest Wal Mart is thirty miles. The next nearest is seventy. If you don’t mind some repairs you can get a place like mine on five acres for around seventy thousand. The only repairs on my house is some new shingles and since I have plaster and lathing I have cracks. My place is 100 yrs old and I got lucky to have a hand pumped well in the basement as a backup. If I was to go with wood heat 10 full cords in eight foot lengths cost 900 dollars and would heat the house for the winter. My electric with three adults and their electronics cost last month $124. Of course I don’t think there’s not much in the way of DJ gigs up here but there’s always Green Bay on the weekends. If you should ever decide to make the move this way come in the spring so you can acclimate for winter.
One downside for you in my area is I live at the very end of the DSL line so my download speed is crap compared to any but dial up. The have promised fiber to the end of my rd next year with 15 Mb/s. Closer to the towns service is better though.
A large part of their expenditures are for social status. Date night? Twice a month to some expensive nothing of a restaurant? Why? Who are they trying to impress. Lessons for kids. Again why? Are they Tchaikovsky or something. My kids did not like that stuff and preferred to spend time with me doing almost anything like hunting (mostly nature watching and a little target practice), going to the beach, or library, etc. The house, charities, expensive cars, are for social status and to egg up their serotonin. The multiple vacations (expensive) are because they are trying to escape and entitled asses. The academic coaching is because their kids are average or dumb and these two don’t want to parent regarding school. Their college debt is ridiculous and shows they went to schools they nor their own parents could afford. Note: There is now the underground and whispered by all topic of student debt stratification of social class among young people. The indebted are not really marriageable to the non-indebted. They don’t want to marry their debt. Heck they don’t even want to date it because they are broke-ass. This couple married because BOTH of them were in the same boat financially which doubled their problem which tracks back to how both of them view money. 32 thousand a year and I bet they have been “reminded” they have to pay ti back plenty of times.
That’s an interesting observation… and you’re right, the indebted aren’t marriageable to those without. Unless, of course, one is really hot, perhaps ;).
There is plenty of room for cutting there without pain (the clothing and vacation budgets are nuts), but in many places, 1.5 million for a house big enough to hold 4 people is modest, you won’t do much better without your savings eaten up by increased commuting costs. Childcare costs are pretty readonable too.
One thing stories like this overlook is the differing value of money in different places. If you live in Tennessee, you might think 500K is a king’s ransom, why don’t they move to Tennessee? It’s because these jibs that pay 500K in certain big cities aren’t going to pay that elsewhere. Moving to a less expensive place almost always means making less money. A dollar here is not a dollar there.
It depends. If they tacked on an hour commute through public transportation, they could easily cut the cost down considerably by buying or renting a comparable place further away.
I don’t overlook this. I used to live in SoCal, and I make around 20% less here in Tampa than I would there. But it’s worth it, because the tax rate is more favorable, and cost of living is far less. These folks may be assuming they have to live in NYC, because it pays the highest, but high pay is not the sole metric to look at.
So let me get this right, people who have never worked in careers that pay multi $100K’s, or lived in the areas where these jobs are, can’t under stand why people whose combined income is $500K have to worry about money. Well to someone who has done both the numbers look pretty reasonable. Nothing too profligate about them.
There is the 40% effective tax rate for starters. In my experience that is too low. In states where most of the high paying jobs are. Like Ca. Think closer to 50% (before sales tax on everything you buy) with a marginal rate of around 60% if your are self employed. So that $500k is now closer to $250K. May sound a lot to you, its very comfortable when its just a childless couple, but once you have kids just watch the money cushion disappear very quickly.
A $1.5M house might sound luxurious to you but in places like Ca, in the parts where all the high paying jobs are, it might buy you a 50 / 70 year old small two / three bedroom house in a so so area. Renting? Expect to pay $35K/$40K p.a plus to rent the same house. You would have to commute an extra hour / hour and half each way per day to half those numbers. So actually the $85K p.a cost to own a house within reasonable commute distance may actually on the low side. Until the next property crash.
Then there are the kids. Those are current big city child care costs. Once the kids start school unless you are very very lucky and the local public schools are not completely terrible you will be paying $10k/$20k per kid / per year to send them to private school. Its not snobbery, its just basic child welfare. Big city urban public school districts range from the very bad to the its basically child abuse to send them to public school. So the choice is, private school for the kids, or move to one of the wealthier outer suburbs where the public schools are not terrible.
As for the rest of the expenses, I suspect a lot of those are actually lifestyle / career costs. In a lot of professions advancement is very dependent on acting like your peers and a large part of that is conforming to the expected lifestyle. You might be able to shave a few $k here and there but if you’re in an upper middle class profession you have to conform to social expectations to survive and advance. That just the way the world works.
On the whole I dont see a lot of splurging on stupid stuff in that balance sheet. I can see the what and the why for pretty much everything in it. There is a long term rational for pretty much all of it. Funnily enough all the really stupid financial spending stories I’ve heard over the years are always with people making far far less money, above average but nothing very spectacular, who spend money with less care and forethought than the above $500K balance sheet. Those who are the people who have me shaking my head at their lack of frugality.
Me, I drive a 25 year old car, with dents, and luckily work in a area that does pay the multi $100K income but does not have the associated social conformity / pressure baggage of most professions. I decided long ago to only works about 4/5 months a year. Max. Just to pay basic living expenses. So I dont have to work the rest of the year mostly just pay the very high marginal tax rates. I am the poster boy for the Laffer Curve. I’m very lucky. Most people dont have that choice. Its usually all or nothing.
Its the families whose income is in the $150k/$250k range who are really screwed. They dont have a lot of the options the $500K family has, but still have most of the very high family expenses. Those are the people whose life has been going backwards over the last 20 / 25 years. A $75K family income could buy a family a pretty comfortable life back then. A $150K family income now just buys you a precarious life, full of anxiety about the future for you and your family.
I made $157k last year before taxes. This year I will probably break $200k. I’m fast approaching the “precarious” life you speak of. I’ve also lived in high cost areas like Orange County, California (almost as expensive as Frisco). So let’s talk about some of your points.
Yes, the tax rate sucks for them (it sucks for me, also). It behooves our lawyers here to analyze their situation. If they are paying a high tax rate, and a high mortgage, they may consider taking a pay cut and going somewhere cheaper. See if that math is favorable. I make approximately 20% less than I would if I were working in Frisco or SoCal. My living expenses and taxes are far less here in Florida. The math was favorable to leaving California.
I fully understand about the $1.5 house thing. In a lot of places, they are not particularly impressive homes. But they are still luxuries. In OC, $700k bought you a porta potty in a bad part of town. OTOH, go north of LA, to Victorville or something, and you could be twice the house at half the price… in exchange for a commute from Hell. The thing is, the family is paying extra to avoid said commute from Hell. But if that Hell commute will save you a boatload of money… So the luxury is in avoiding the commute. If you want out of the rat race, you’re going to have to deal with some bullshit. I’ll take commuting through the shit for a while to get out for good in the end.
Now the kids… you will notice that I said nothing about cutting their expenses. Public schools are shit in the city. We all know that. I saw that as an uncuttable expense, or at best, the *LAST* thing that should be cut. No snobbery. Indeed, even “good” public schools are full of propagandists and Lefties. I’ll find the cash to send my kids to private school… even if I have to eat ramen noodles myself to make it happen.
The problem with your post is this: “You might be able to shave a few $k here and there but if you’re in an upper middle class profession you have to conform to social expectations to survive and advance. That just the way the world works.” No, you don’t. This was a hard life lesson for me, because I, too, believed this once. I may write more on this in a future post, because it’s a topic all on its own, but this keeping up of appearances is what sinks people. It doesn’t raise your boat, it pokes holes in it. There’s another comment below of a guy who makes a great amount of money and has a nice net worth and didn’t do this social conformity you speak of. How did he do it?
Indeed, how do I do it? My wife makes very little in comparison to me, so our family income is right in that $150-250k range you speak of as being really screwed. I am NOT screwed. Take that $157k I made last year, right? I saved $40k of it, even after the taxman bent me over. And my house? I accepted a Hell commute in order to get a place on the cheap. I have $180k left on the mortgage note. At the rate of savings, plus regular mortgage payment, I will be able to afford to pay it off entirely in 4 years.
In 4 more years, I will be at a position of “fuck you”, as John Goodman’s character said. People have the wrong mentality in all this. Personal debt is kind of like slavery in the old Roman model. You have to buy your freedom. And the easiest way to do that is to add as little to the tab as possible.
Dude…if you make 150k a commute from from Victorville is a terrible use of your time. And as a proud owner of a $700k “outhouse” in OC, IMO it’s not so bad. 1500 square feet is plenty of house when it’s always perfect weather outside. Of course I bought 17 years ago so I’m not feeling the monthly pinch.
I wouldn’t actually recommend a commute from Victorville. We’re talking theory, not practice. In practice, I made my choice by leaving the state altogether. I took a substantial pay cut, but came out way ahead when factoring in cost of living. I spent some time in Aliso Viejo, and the cramped nature of the “single family” houses with walls 3 feet from another wall, and houses stacked entirely on top of garages, each “lot” basically the garage with 3 feet of clearance around it… while (at the time) much of OC was new development, or even empty (especially around ex-El Toro)… was just bizarre.
There are things I do miss about OC, though. The climate was wonderful. In my opinion, no better weather exists on planet Earth.
I know SoCal very well. Since the mid ’80’s. Lived in Santa Barbara in the ’80’s. Then moved to NorCal. Mostly SF. With a detour to Seattle for a while. So up and down the Left Coast. Originally from Europe. Immediate family spread over 4 countries. So I’ve got to do quiet a bit of cost/lifestyle comparisons over a range of countries and areas over quiet a few decades by this stage. So I’ve got to see up close how people live in both Montecito and Merced. From old money to no money. And I mean no money.
Guess what. What works for you personally does not work for everyone else. Yes, debt entered casually equals basically a form of indentured slavery. But for the vast majority it has always been the only way to gain some kind of long term security and chattels. Its just the form has changed over the generations. In generations past the debt was what you could raise in your immediate family, friends network. Or money lenders.
Same goes for professional careers, especially the well paid ones. You want to become a high paid professionally successful lawyer. You wont do that if you stay in Bend, OR in Sioux Falls, SD. Got to go to NYC or DC. Want to become a high flying advertising art director. Not going to happen if you stay in Amarillo, Tx. Its NYC or London. A career in fashion. Its NYC, Paris or Milan. This geographical centralization of opportunity is common to all industries and to all countries. In the bigger scheme of things whether you consider this right, or these type of peoples work having any intrinsic worth, is neither here nor there. Thats the way it is. And part of that is the debt game. How you play is very much depends on what you’re comfortable with. The fact its not fair and is very much stacked against you is, again, thats just the way the world has always worked. If you wanted to get on in the world in 18’th century Paris, 14’th century Bologna or 3’rd century Rome, you would have been the same kind of game. Different terminology, same rat race.
Most people are happy and most comfortable in dealing with the vagaries of life when they conform to what others are doing. To social norms. It gives them comfort. The fact that a lot of these social norms are stupid and can be self defeating is irrelevant. The fact that I dont adhere to a lot of them is also irrelevant. Its up to each person to decide what they want to do. Which in most cases will be social conformity. Which includes stupid loose credit political policies, voting for high tax politicians that support legions of incompetent parasites, etc. etc. Basically Cal politics for the last 25 years.
Sooner or later it will self correct. It always does. In the meantime work out what is going on, what the lay of the land is, what the actual mechanics of power and money is, and work out what works best for you and those you love. How best to tip toe through the swamp without getting sucked into the mire. Those people on the $500k are essentially playing the same game you are. But are far more comfortable dealing with all the ancillary bullshit that is part and parcel of playing the game called Modern Life – This Generations Version. So best to recognize that fact and not try to play the judgement game on them. Its a waste of your time and energy and wont change their behavior one iota.
If its any consolation I recognized the $500K family type immediately. In SF they would be Marina People. In my experience complete assholes in person and exceptionally easy to dislike. You’ll see herds of them lumbering around north of Lombard every weekend. So I just stay clear of them as much as I can and let them live their own vacuous pointless lives as they have so decided to.
P.S. I know you’re not originally from Cal because no one, and I mean no one, from Cal calls SF ‘Frisco. There is a very funny story from the ’80’s of a bunch of fugitives (robbed a bank) stopped by the CHP speeding on I-5 in the ‘Valley who were caught because one of them said he was from ‘Frisco. Once he said that the CHP officer knew immediately the guy was lying so they ran an ID check and bingo..
Guess what. What works for you personally does not work for everyone else.
Be careful with this kind of snark. This is my podium, and while I’m fine with polite disagreement, I’m under no particular obligation to tolerate Ad Homs. I’m well aware that what works for me doesn’t necessarily work for another simply because it works for me. Consider this a friendly warning.
This geographical centralization of opportunity is common to all industries and to all countries.
No, it is not. For instance, I am a UX Designer & Developer. I can do this job well enough from any place in the world with a suitably speedy internet connection. Geographical centralization is not required for all industries. Indeed, it is not even required for the industries you’ve listed. Or, rather, not for the industry in general. Note your choice of words “high flying advertising art director”. The high-flying bit is telling. You can be an advertising art director anywhere. Many companies have them, all over the world. What you’re specifically talking about is social status, not occupation.
And part of that is the debt game. How you play is very much depends on what you’re comfortable with. The fact its not fair and is very much stacked against you is, again, thats just the way the world has always worked.
If a game is stacked against you, and there is no one holding a gun to your head, why play?
Its up to each person to decide what they want to do. Which in most cases will be social conformity. Which includes stupid loose credit political policies, voting for high tax politicians that support legions of incompetent parasites, etc. etc. Basically Cal politics for the last 25 years.
All reasons I don’t currently live in California.
Those people on the $500k are essentially playing the same game you are. But are far more comfortable dealing with all the ancillary bullshit that is part and parcel of playing the game called Modern Life – This Generations Version. So best to recognize that fact and not try to play the judgement game on them. Its a waste of your time and energy and wont change their behavior one iota.
They are far more comfortable dealing with these problems? They are unnecessary problems in the first place. This is the equivalent of shooting yourself in the foot and saying “I’m better at dealing with foot pain than you.” Said family is free to do as they wish. Indeed, I doubt they would read my screed and, supposing they did, I further doubt I would change their minds. Though it can, does, and has happened (I’ve a rather longer story on this matter than I have time for in this already long reply — suffice it to say, I was one who had my mind changed on this issue many years ago).
If its any consolation I recognized the $500K family type immediately. In SF they would be Marina People… So I just stay clear of them as much as I can and let them live their own vacuous pointless lives as they have so decided to.
It’s not a matter of personal dislike. I don’t know if said family is snobby and uptight, or if they are pleasant and kind people. I know nothing about them save this balance sheet (or, as one person decided to correct me on earlier, a PNL statement).
P.S. I know you’re not originally from Cal because no one, and I mean no one, from Cal calls SF ‘Frisco.
You’d be wrong, at least in part. I was born in Cali, and spent much of my life there. Ridgecrest, Bakersfield, Los Angeles, Orange County, and some time up north around Crescent City. But I also spent half my life in the South, and my family (before they moved to Cali) was Southern. So I’ve a very unusual mix of word choice, picking up bits of lingo and accent from both places. I may be one of an exceptionally small group of people who would actually say something like “dude, y’all like need to…” in a half-Southern accent. For a very long time, it was difficult to determine which was going to become capital-H Home for me. Cali’s shitty politics (which you touched on yourself) convinced me that my proper home was in the South. Take that as you will.
P.S. I know you’re not originally from Cal because no one, and I mean no one, from Cal calls SF ‘Frisco.
I just wanted to chime in on this idiotic statement. Several people I know here in Texas have moved here from California in the last 5-7 years, and every single one of them refers to San Francisco as “‘Frisco”. Every. Single. One. In fact, there is a suburb of Dallas called Frisco, and every time I’ve mentioned it around them they assumed at first that I was talking about San Francisco. Maybe you should take your own advice about not generalizing based on personal experience.
Me, I’ve only lived in SF for most of the last 30 years, almost 35 years for Cal total. Apart from Ten Year Tourists who are being “ironic”, it was big during the Slacker Years back in the ’90’s, no one, and I’m mean no one, from Cal (a native that is) both NorCal or SoCal, in my experience has ever referred to SF as “‘Frisco”. Its SF, San Fran’ or The City. “‘Frisco” sounds about as jarring to locals as Americans using the term “England” for the UK / Britain. Wrong at so many levels.
A term only outsiders use. People from Cal may respond when they hear it used, but there will always be that inner wince. So about as current among locals as “can you dig it, daddy o?” .
And if you I think its some figment of my imagination the whole ‘Frisco business has been a running joke in the SF / Cal media for many many decades. I’d start with Herb Caen. Who died back in the 90’s. That’s how long its being going on. I first read about it in the LA Times when I lived in SoCal. Back when dinosaurs ruled the earth – during the Reagan administration. So yes, I got to see the old California before it had been completely ruined by the Dems. A pretty amazing place back then.
You sort of remind me of the old joke “You can tell a Texan, but you cannot tell them much…”. Which I first heard from the mother of my best friend when I was a kid. A wonderful lady who was from a small ranching town just outside Dallas. Texans, unlike Californians, do seem to have a sense of humor about themselves. Self deprecating humor, much like sarcasm and irony, is something which seems to have not made it successfully across the Rockies and the Great Basin to the West Coast.
In my experience. Of six decades. And counting.
Well, yeah, they aren’t being exceptionally stupid with money.
That’s kind of the problem: their stupidity isn’t exceptional. It’s what everyone does.
The point is this is held up as *proof* (PROOF!) that you can make $500k/year and still be “unable” to save very much.
When the reality is, there are plenty of opportunities for savings that they are unable or unwilling to see.
They are doing what everyone else is doing, and surprised that they don’t have any money left over, when pretty much no one has any money left over. People expand their quality of life expenditures to meet their income, and often beyond.
Yes, the amounts they are paying are “mostly reasonable” compared to what everyone else does, but what is their goal? To live right at their means just like everyone else, or save money? If they *want* to save money, they’re doing it wrong. If they want to live just like everyone else, they shouldn’t complain about not being able to save money.
They want their cake and eat it, too: they want to live a comfortable life in one of the nation’s most expensive cities, and want sympathy for their heroic “struggles” in such an expensive place to live.
It’s pretty nauseating, when you think it through.
This is life: if you want to save, you prioritize saving. If you want to spend, you prioritize spending. They chose, and are enjoying the consequences of those choices. There are zero costless choices, and I’m really sick of the “Have it All” mentality Progressives push that if you don’t have leisure, savings, early retirement, free shit from the government *and* the undying adoration of the lower classes, that you have a grievance that deserves restitution.
End Rant.
“They want their cake and eat it, too: they want to live a comfortable life in one of the nation’s most expensive cities, and want sympathy for their heroic “struggles” in such an expensive place to live.
It’s pretty nauseating, when you think it through.”
Excellent point. You want to hear something truly nauseating? I spoke with the wife of a working family by phone the other day. Her husband, who is a disabled veteran, is struggling with cancer, and his HMO literally capped out his benefits (will not pay anymore). She said this is often why people quietly die from cancer/other ailments, because the insurance just will not cover the treatments once they hit their lifetime limit.
I steered them towards VA healthcare in the hopes that they could access some unlimited/lifesaving measures. Still, this guy is literally fighting for his life and might have to give it up because of lack of money. Scary.
Why did you even need to point them to the VA? Was he not using that resource out of pride or something?
The only thing is, the VA rations care, too, but by delaying access, so it might not help much. But I think he’s earned the chance via his military service.
Health care is a thorny issue. Everyone dies. It is possible to spend an unlimited amount of money to extend life by just 1 minute. To that person and their family, it is worth it. But we obviously can’t do that for everyone.
That’s where “rationing” comes in. Or “budgeting”. The difference being in whether it is you deciding how much to spend and when (budgeting) or an authority deciding how much to spend on any single individual in the system (rationing). Rationing sucks, but it doesn’t rise to the level of evil until the govt starts making the decisions based on politics or productivity, cuz that’s when it gets soulless, and people with illnesses that can be treated relatively cheaply get left to die.
“Why did you even need to point them to the VA? Was he not using that resource out of pride or something?”
Surprisingly, many people are unaware of their VA benefits, even when they are disabled vets. Like in this instance, I might mention that they qualify for healthcare, and they’ll be stunned, as though it’s the first time they’re ever hearing it and they’ve just been given a great gift.
“The only thing is, the VA rations care, too, but by delaying access, so it might not help much.”
I have no doubt that they stall, complicate, and obfuscate the shit out of things. That’s why I don’t use them. Still, if this is the last card the guy has to play, I’d jump right on it. At least with VA cancer benefits and a Congressman in his pocket to keep the process moving he’d have a fighting chance.
“On the whole I dont see a lot of splurging on stupid stuff in that balance sheet.”
I see what you’re saying about the need to conform to societal expectations for advancement. I’m sure there are some donations that need made, some balls that need to be attended, and some designer clothes that must be worn (and I’m not being sarcastic here). Still, it’s glaringly obvious that this family’s lifestyle is elevated far above the common person, who cannot just take a family of four on three vacations per year (and they’re probably nice vacations to places like Disneyland with full amenities, not the “poor person” vacation of a daily road trip to see a different place).
I would be interested in how you view the children’s expenditures for private lessons, etc….do you see this as a societal expectation expression? If so, it’s very Keeping up with the Jones’ of them. I’m sure the same thing–or close to it–could be accomplished if they just helped their kids with their homework or had them utilize YouTube tutorials/For Dummies books to improve their skill set, for instance.
Paging Dave Ramsey. Dave Ramsey to the white courtesy phone.
I am in the almost same tax bracket as this lawyer couple (but a bit less than half the income). This is what I did differently:
these people have a house 3 times their yearly gross income. Mine is 1.5 times. I have 10 year old Hondas and Toyotas that I keep in good condition and intend to keep at least another 5. Cheaper houses and cars means less money spent on taxes, insurance and upkeep.
I have no student debts, because I did not spend money on fancy education, just good education. And I paid it off fast, without starting a fancy lifestyle first.
I spend a small fraction on clothes etc compared to these guys. One vacation to some nearby place per year, costing no more than 1000 bucks. Couldn’t escape childcare expenses when kids were small, but paid much less. Date night means take out Chipotle and a glass of wine afte kids have gone to bed.
If your kids are daycase age, you shouldn’t be spending 1k per month on piano lessons. This is stupidity.
I spend $2k on charities, instead of an eye popping 18k.
The only thing I match them on is life insurance.
They save less than 9% of gross income. I manage to save 32%. It will take these guys 15+ years to accumulate a million (assuming that when childcare expenses trail off, they save that money). I already have 1.2 million in assets, not counting home equity. And I came to US 16 years ago (legally) with $800. And I haven’t been earning this good money forever, just last few years.
These guys are some educated idiots!
Right on the money, sir. You’re doing it right.
People say this can’t be done, or act like it’s incredibly hard. It isn’t. The tough part is just getting the right mindset – to get out of the “keeping up with the Joneses mentality.” Sometimes, I suspect immigrants have an easier time of this than those born here. But that’s no excuse. I dropped that social status bullshit too, it’s not hard, it just takes a little willpower.
Bravo on a well-executed plan, sir.
Dystopic, I come from a much poorer country (hint, look at my Avatar). Although we were middle class and never deprived, it was a modest life. Now I live in the land of opportunity, and earn well. But I just don’t have it in me to spend foolishly and have a extravagant lifestyle. Also, I won’t mind providing a bit more to my children so they can start life on a firmer footing than me, and soar even higher.
Hey, great article. And if you want to hear about frugality, consider that I’m the guy that bought your used up car from you for $2500, and it’s still running a year later. Yabba dabba doo!!!
They are putting $36,000/year into 401ks . That is significant savings.
It’s one of two wise things they are doing. The second being, not sending their kids to urban public schools. But remember, the original post is talking about escaping the rat race. If that’s the goal, they’re doing it wrong. If the goal is to be in debt until retirement age, and then maybe do okay after retirement, by all means, they can keep doing that.
“Why, then, are so many highly-paid people so financially illiterate?”
Probably because their parents were. Someone did a study and found people tend to manage money the way their parents did. If your parents were careful with money, you are likely to be whether you are a high earner or not. If you parents were careless with money, you are like to be also whether you are a high earner or not. Not sure where I read that, maybe “The Wealthy Barber” or “The Millionaire Next Door”?
I am that guy with nearly $500K a year, but way ahead. My depression era parents saved and didn’t want to be foreclosed upon by the evil bankers selling debt.
Learned it from kindergarten. 51 years old and nearing retirement because I delay gratification. Do the annual vacation more than author, because I love my kids and we have had great trips together.
Told them early that I won’t delay my retirement on their account. Doubt the initial $500K guy will do the same.
My son is 2, so I’ve some time yet. But if our home is paid off in a few years, as it will be if all continues to be well a little longer, then I will be free to take as many vacations with my kid(s) (we’re working on another) as I like. Like you say, delayed gratification is the way to do it. And to be honest, it feels much better than I thought it would at first. You get used to living within your means, just like you get used to any other regular situation in life. Then it just becomes normal, not spartan.
Remembering that an average middle class life is like a millionaire 30 years ago makes it easier. And your kids will appreciate what they have more.
I told my kids I wasn’t going to delay my retirement to make their lives cushy as adults. Every advantage of a stable home, a great mom, lots of love and stimulation.
A great life ensues. Without debt or spoiled, entitled kids or spouse.
If this dope is paying 40% on his income he’s too dumb to be making $500000. Somebody grab him by his collar and shake him until he understands itemized deductions and marginal tax rates. In real life I’d be shocked if his taxes are more than $100K.
Good points by all; this balance sheet reflects their budget and therefore their priorities. There’s a couple of things that appear to be odd with this. One, there’s really no ‘savings’ (aside from the 401(k), which I HOPE they both have some company matching policy). But no money allocated to a savings account, nor to any stock market Ameritrade type account or any other long term investments. Given they have kids going to private schools and extra curricular activities, I’m sort of surprised that they’re donating to their college alumni but not putting anything into a 529 plan, they’re basically teaching their kids to take on their own college debt when it’s their turn.
But the one oddball item on here is the cars. They have two vehicles (BMW 5 series and a Land Cruiser). Both are relatively expensive vehicles, combined car payments totals about $800/mo. They could have driven that cost down if the basically saved a bit more and put more down on their purchases. But what’s odd is the car insurance. These two vehicles are relatively expensive cars, and they have high figure loans on them, but their car insurance bill for BOTH vehicles totals $166 a month in New York? Any lender worth their salt who issued them a car loan would insist on proof of insurance with a minimum standard of coverage that would be far more expensive that what they’re paying. Something seems off here.
You’re right the insurance is off. I live in rural Upper Michigan. Two vehicles, 2005 Kia Sedona minivan and 2008 Saturn Aura. Comp Insurance coverage and $500 deductible, cost $400 a month. They should be paying way more than they are considering their location.
That insurance is very high! For me, with both cars, my wife’s ’14 Jetta sportwagen and my ’15 Mustang GT, it is only $1400 per 6 months, or the equivalent of $233/month. And the coverage is pretty maxed out, too.
That’s the problem of living in the woods. Insurance companies think car deer collisions are more frequent than accidents in big cities. There’s still no way I’m believing insurance for expensive cars is cheaper in NYC than the junkers I drive.
Original poster could probably shed more light on that specific number. But damn… they really bend you over on the insurance out there.
Hate to be too much of a pedant but you might be careful denigrating someone’s financial acumen (in the headline, no less) when you apparently have a wee bit to learn your ownself. The data from the linked piece is an “income statement” not a “balance sheet.” It might sound a bit of a nit to pick but the distinction is an extremely important one and unfortunately one all too often entirely misunderstood by the financially illiterate.
You were beaten to the punch by many other commenters. But you are correct. Balance sheet is the wrong term. For that, I can only claim that I generally write my posts in less than half an hour, and errors of grammar and jargon are not uncommon.
However, the way you did this is a nit pick and an Ad Hom. Did it make you feel smart? As I said, others pointed out the error and still managed to get the point of the post, which is that these people are living beyond their means when they really don’t have to. You, on the other hand, used this as a personal attack to disqualify the rest of the post. “You used balance sheet when you should have called it an income statement or PNL statement, therefore I can call you financially illiterate in defense of people none of us know personally, who make half a million a year and still manage to be broke! Haha, I’m so smart!”
See what I mean? If you catch a grammar or jargon error, you may point it out, and if you are right, I will acknowledge and either correct it, or just acknowledge the mistake, if it’s not worth updating the post. But if you use such as an Ad Hom in an attempt to sidestep the thrust of the post, and invalidate the post without even making a real argument, you will find your comments moderated away.
Your choice.
Nah, did not really mean it as a swipe. I really just found your faux pas humorous and was busting chops a little. I actually think your point is an excellent one and find it pretty astounding that people who earn that much money can be broke. Crazy. And I’m hardly trying to sound smart as no one knows me and, therefore, not trying to impress. Lastly, I highlighted the distinction hoping to help you inform your readers and particularly the financially illiterate among them.
BTW, can’t decide on the Oxford comma? Come on, man!
Then all is well :). Bust away! I get a lot of snarky Leftists here who do the nitpicking thing, and it can be difficult to tell the chops busting from the sarcastic, passive-aggressive Ad Homs.
Yeah, it really threw me for a loop when I read the original piece. But then, I know a guy who financed his yard. Yeah. Spent $20k or something doing all this custom stamped concrete stuff, high-dollar plants, landscaping, trees… All on credit. The guy has a *yard* payment.
So I started thinking, folks like this may be more common than we think.