Author Topic: Half a million and worried  (Read 5706 times)

unitsinc

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Half a million and worried
« on: May 23, 2013, 07:18:27 AM »
http://thebillfold.com/2013/05/i-made-570k-last-year-but-i-dont-feel-rich-in-fact-i-feel-worried/


"Most of the money is from workó$320K. I think probably $50K is from our properties, and then $200K from my investments."

I'm your huckleberry.

jrhampt

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Re: Half a million and worried
« Reply #1 on: May 23, 2013, 08:03:09 AM »
A personal chef with a stay at home spouse?  An "entry-level" Lexus??  And he considers himself frugal?

MrsPete

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Re: Half a million and worried
« Reply #2 on: May 23, 2013, 08:06:22 AM »
Couple comments: 

It's been years since I read The Millionaire Next Door, but one of the take-aways for me was that certain "financial personalities" are drawn to certain jobs.  Since reading that, I've paid attention and have noticed it to be true of the people in my own life.  The book says that people who become doctors (and a few other high-paid professions) tend to be rather spendy.  My own take on this is that people might feel that after all those years of education, luxuries are "owed to them", or they might pursue that job because they want to accumulate wealth.  It also said that teachers and engineers tend to be thrifty; I remember that because my husband and I are -- you guessed it -- a teacher and an engineer.  I've also noted in our social group that an unlikely number of teachers and engineers are married to each other -- perhaps in part because our thoughts on finances tend to be similar.  The point, which I've taken my time reaching:  I'm not surprised that this person is earning tons of money, yet doesn't have much to show for it.  It's hardly a unique situation, and it can't be blamed away on "things are tough these days". 

Second comment: 
As evidence of the above, I'll compare myself to the article's author. He describes himself as early-40s; I'm mid-40s.  Although he alone earns 4Xs what my husband and I earn together, we have no debt, two paid-in-full properties, and twice his annual salary in savings/investments.  He does have three children compared to my two, but I also provide for an elderly relative, which balances out.  High salaries are great, but moderate-salary-plus-thrift beats big-earnings-alone in the long run. 

Finally,
One of our daughters is in college working towards becoming a nurse.  She'd investigated the doctor-pathway, but decided that she wanted work to be a part of her life rather than her entire life.  Our take on it is that a person who becomes a doctor tends to spend many, many years in school, comes out with debt, then spends half of his or her salary on malpractice insurance . . . whereas a nurse with a specialty seems to be the most "bang for the buck" in the medical field.  An RN can do well for himself or herself, but an RN with a specialized masters degree or a Physicians Assistant can command a very nice salary -- and that degree is attainable without the monsterous debt that seems necessary to become a doctor. 
« Last Edit: May 23, 2013, 08:07:58 AM by MrsPete »

foobar

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Re: Half a million and worried
« Reply #3 on: May 23, 2013, 08:17:30 AM »
In the guys defense he probably doesn't use that 200k from investments(who knows if that is a good or a bad year) in day to day life.  He is trying to get by on a mere 370k or so. That is barely enough to afford the personal chef.:)  He is a classic high income/low asset (relative. It sounds like he has a million or two between the houses, investments and cash) guy right now because of age. In another 10 years he will be both if you look at how much real estate he owns, is living below (a very high level granted) means, and the fact that he has great job security. Read the article. He isn't worried about his finances. He is worried about the future for his kids. That is more of a personality disorder.

The millionaire next door was a bit deceptive book. An upper middle class family (80-120k) will have ~2 million dollars when they retire but they need pretty much every penny of it to maintain their lifestyle for the next 30 years.   If you make it the decamillionaire next door you will start seeing a lot more of the trappings that we associate with the rich. It was still a fun book.

http://thebillfold.com/2013/05/i-made-570k-last-year-but-i-dont-feel-rich-in-fact-i-feel-worried/


"Most of the money is from workó$320K. I think probably $50K is from our properties, and then $200K from my investments."

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Re: Half a million and worried
« Reply #4 on: May 23, 2013, 10:21:42 AM »
High salaries are great, but moderate-salary-plus-thrift beats big-earnings-alone in the long run. 

this. obviously maximising income/salary helps a lot on the road to fi but for some people simply increasing income just won't help because of lifestyle inflation.
interesting thoughts on doctors and high-pay.

velocistar237

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Re: Half a million and worried
« Reply #5 on: May 23, 2013, 11:27:18 AM »
High salaries are great, but moderate-salary-plus-thrift beats big-earnings-alone in the long run. 

It's all about the savings rate. Considering that his home cost less than twice his salary, his wife is not a spendthrift, and he's not buying cars typical for his salary, I bet his savings rate is pretty high. He just doesn't feel rich because of his anxiety about the future. That's sad. He should stop paying so much attention to the news and the neighbors and realize that money will never be a problem for his family.

foobar

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Re: Half a million and worried
« Reply #6 on: May 24, 2013, 08:14:30 AM »
It depends if you are talking about a percentage or absolute. After all 5% of million is a lot more money than 50% of 50k.

This guy seems like a "moderate". He isn't buying the 80k he could afford or the 1.5 million dollar house. He also isn't driving a 5k car and living in a 200k house. The pay check to paycheck part sounds like it was years ago and a result of a one time investment thing (i.e. he lost a couple hundred thousand in a business. Not buying porsches and diamonds). I get the impression he is saving the 20% or so the he will need to retire in another 10-15 years. His big problem is that he worries about his neighbors.


High salaries are great, but moderate-salary-plus-thrift beats big-earnings-alone in the long run. 

It's all about the savings rate. Considering that his home cost less than twice his salary, his wife is not a spendthrift, and he's not buying cars typical for his salary, I bet his savings rate is pretty high. He just doesn't feel rich because of his anxiety about the future. That's sad. He should stop paying so much attention to the news and the neighbors and realize that money will never be a problem for his family.

velocistar237

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Re: Half a million and worried
« Reply #7 on: May 24, 2013, 08:21:17 AM »
In ERE/MMM, savings rate is a percentage, usually of net income.

chucklesmcgee

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Re: Half a million and worried
« Reply #8 on: May 24, 2013, 05:37:37 PM »
certain "financial personalities" are drawn to certain jobs.  Since reading that, I've paid attention and have noticed it to be true of the people in my own life.  The book says that people who become doctors (and a few other high-paid professions) tend to be rather spendy.  My own take on this is that people might feel that after all those years of education, luxuries are "owed to them", or they might pursue that job because they want to accumulate wealth.  It also said that teachers and engineers tend to be thrifty...

My theory as to why spendy professions are spendy (less true for doctors. I never considered doctors especially high spenders relative to their incomes:)

1. Spendy professions have extremely long hours- doctors, lawyers, CEOs, ibankers pull ridiculous hours and are at work all the time. A typical big law firm will require an associate have 2100+ billable hours per year, which can be charged to a client (so not counting lunch breaks, department meetings, conferences, reading general emails). Generally only 60%-75% or so of an associate's time in the office is actually billable. That means associates have to work an average of 8 hours a day, 365 days a year to reach their billable hours targets. Being that couped up gives one very little leisure time, so people try to maximize the value of this by buying as much as possible to enjoy themselves and escape the drudgery of work.

2. Spendy professions tend to work with richer peers- Biglaw associates are around partner's making 7-8 figures, handle multibillion dollar mergers and settling the disputes and divorces of rich people. You really have to be loaded to afford $600+/hr for issues that can take months of work and associates spend their days dealing with these clients. That has to rub off. And when associates making $160k try to live like partners making $5 million, trouble ensues.

3. Spendy professions tend to rely heavily on appearance to judge competence, success and to attract clients- People choose executives, ibankers and lawyers based on appearance and demeanor. If you want a lawyer, you want the slickest shark in the room to go to town for you. You don't know anything about law, but if people play the part, you'll probably go with them. Things like an incredible suit, shoes and such are basically required and putting extra money into these things is seen as a sort of "investment" in one's career. CEOs typically need an aggressive, commanding style, and conspicuous consumption in wardrobe or in watches, cars, houses, etc. gives them a display of power and success.

Engineers and teachers however, are judged mostly on the basis of actual work product. They aren't required to attract or oftentimes even interact with clients. They can easily be tested for competence in an interview or through a standardized test. When livelihood or competence isn't tied to appearance, engineers and teachers have little incentive to spend so much


BlueMR2

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Re: Half a million and worried
« Reply #9 on: May 25, 2013, 06:41:40 AM »
My theory as to why spendy professions are spendy (less true for doctors. I never considered doctors especially high spenders relative to their incomes:)

1. Spendy professions have extremely long hours- doctors, lawyers, CEOs, ibankers pull ridiculous hours and are at work all the time.

3. Spendy professions tend to rely heavily on appearance to judge competence, success and to attract clients-

Indeed, those spendy professions have insane work hours.  I make much less total than the doctors I know.  However, I live just as well as them.  Why?  I work less hours, so I can do stuff myself that they spend enormous sums to have others do for them.  It's like they do all that extra work for nothing.  Our $ per hour of income is roughly the same, and all the excess money they make due to extra hours is lost...

Based on some watching some lawyers in the family, the appearance factor is a killer for them.  The full partners (who make the bulk of the money) expect even the newbs to look just like them.  So, these fresh out of school kids are informed that they are required to buy the latest high-end Lexus, have all the expensive suits, etc. in order to keep a job that barely pays better than flipping burgers.  All with the promise that they'll make big $$$ some day.  Well, some certainly will, but most won't.  There's a lot less room at the top than there is at the bottom.  If you don't make it to the top, well, you're in a world of hurt...

Both are very abusive environments as well and I recommend that everyone steer clear of them.  In my experience the percentage of happy lawyers/doctors is very near 0.

chesebert

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Re: Half a million and worried
« Reply #10 on: May 25, 2013, 06:47:24 AM »
My response in brackets.

\
certain "financial personalities" are drawn to certain jobs.  Since reading that, I've paid attention and have noticed it to be true of the people in my own life.  The book says that people who become doctors (and a few other high-paid professions) tend to be rather spendy.  My own take on this is that people might feel that after all those years of education, luxuries are "owed to them", or they might pursue that job because they want to accumulate wealth.  It also said that teachers and engineers tend to be thrifty...

My theory as to why spendy professions are spendy (less true for doctors. I never considered doctors especially high spenders relative to their incomes:)

1. Spendy professions have extremely long hours- doctors, lawyers, CEOs, ibankers pull ridiculous hours and are at work all the time. A typical big law firm will require an associate have 2100+ billable hours per year, which can be charged to a client (so not counting lunch breaks, department meetings, conferences, reading general emails). Generally only 60%-75% or so of an associate's time in the office is actually billable. That means associates have to work an average of 8 hours a day, 365 days a year to reach their billable hours targets. Being that couped up gives one very little leisure time, so people try to maximize the value of this by buying as much as possible to enjoy themselves and escape the drudgery of work.

[True, the hours are extremely long and irregular, but the work is anything but drudgery (once you have some experience). But as MMM reader, the opposite tend to happen - that is, trying to save as much as possible to reach FI in as short of a time period as possible. I would even say if there is a way to do Biglaw half time for half the pay, it's a great job: all the mental stimulation one would ever want and a decent paycheck, and you are appreciated once in a while by your clients :)]

2. Spendy professions tend to work with richer peers- Biglaw associates are around partner's making 7-8 figures, handle multibillion dollar mergers and settling the disputes and divorces of rich people. You really have to be loaded to afford $600+/hr for issues that can take months of work and associates spend their days dealing with these clients. That has to rub off. And when associates making $160k try to live like partners making $5 million, trouble ensues.
[Just numbers, and you get used to those so it's no big deal. Partners in general do not flaunt their wealth to associates, unless you are a summer associate]

3. Spendy professions tend to rely heavily on appearance to judge competence, success and to attract clients- People choose executives, ibankers and lawyers based on appearance and demeanor. If you want a lawyer, you want the slickest shark in the room to go to town for you. You don't know anything about law, but if people play the part, you'll probably go with them. Things like an incredible suit, shoes and such are basically required and putting extra money into these things is seen as a sort of "investment" in one's career. CEOs typically need an aggressive, commanding style, and conspicuous consumption in wardrobe or in watches, cars, houses, etc. gives them a display of power and success.

[Clients are more sophisticated than what you describe; they don't really care how you dress (in general) as long as their deal gets done the right way. I would even say Big Law is about as close to meritocracy as it gets.]

Engineers and teachers however, are judged mostly on the basis of actual work product. They aren't required to attract or oftentimes even interact with clients. They can easily be tested for competence in an interview or through a standardized test. When livelihood or competence isn't tied to appearance, engineers and teachers have little incentive to spend so much
[Not true at all; engineers are just as susceptible to the behaviors you described above as any big law lawyer.]

« Last Edit: May 25, 2013, 06:56:33 AM by chesebert »

Mr Mark

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Re: Half a million and worried
« Reply #11 on: May 25, 2013, 01:10:45 PM »
Isn't much of the problem hedonistic adaption, where they keep spending more and more money on ever increasing stuff, combined with lock-in to that lifestyle, due to a (at least perceived) high opportunity cost to any changes?

Remember, it's said one of the reasons the USA  encouraged home ownership is because a man with a mortgage doesn't go on strike....

Mr. Mark

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Re: Half a million and worried
« Reply #12 on: May 27, 2013, 12:03:00 PM »
I'm not sure that this article belongs in the wall of shame and comedy. If you read through the whole thing you will see that the guy seems very reasonable and is living below his means and spending much less than most of his peers. I think people are put off by his salary but he's certainly not claiming to be poor or living paycheque to paycheque. His issue is that he is worried about the economy, his children's future, and other large scale issues that are largely out of his control. While his spending isn't MMM level by any stretch, he isn't spending his money on bling, he's driving an older car (even if it is a lexus), and he's learning about investing. And regarding the personal chef thing, he freely admits that it's a huge expensive luxury that he felt guilty about but he can certainly afford it. I would compare this guy to other people on this forum who discovered frugality recently and are slowly reforming their ways.

Grigory

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Re: Half a million and worried
« Reply #13 on: June 01, 2013, 03:21:45 PM »
That guy is the textbook example of lifestyle inflation. Sure, he sounds more reasonable than most people we make fun of on this forum, but he's definitely come a long way from his backpacking college days...
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