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Learning, Sharing, and Teaching => Taxes => UK Tax Discussion => Topic started by: vand on August 12, 2019, 12:35:20 AM

Title: High earning but clueless friends
Post by: vand on August 12, 2019, 12:35:20 AM
We all have them.

My best friend is an interesting case-study, to me at least.

He is now 48, and we have been friends for 25 years. He spent his 20s stumbling from temporary job to temporary job, always struggling to make ends meets. During that time I used to outearn him, but to his credit he has always been an avid life-long learner. He put himself through an adult degree in his mid-late 30s, changed his career and has always improved his work-place skills every year I have known him, and now he is well qualified and experienced in his field and works contracts that pay handsomely, and while my income plateaued quite a few years ago he has increased his earnings all the time and I would handily guess earns triple what I do.

Despite, or perhaps because of his earning power, he's always reaching for the next step on the consumerism ladder and is never more than 2 paycheques from being in serious trouble. He works in London but they recently moved and bought a new house in St Albans.. I mean, that commute would already crush me.

When you have more money you tend to spend it. House & associated travel costs I have just illustrated... but it's anything and everything that tends to inflate. You use your income for convenience in each and every situtation you can think of.  Instead of bringing in tupperware and leftovers for lunch you go to the restaurant and spend £20 every lunchtime. Hey it's "only" £100 a week.. right? Taxis whenever you need to get from A to B. Bigger car. Missus has a car accident you say? no problem, write it off, but a new car (Who wants a dent in their bumper.) etc etc.

He also doesn't have a pension or any other savings for retirement. I have "advised" him that he needs to change his way and find a way to live on half his income, but he is wholly incapable of spending less than he brings in, never mind drastically doing so for any sustained amount of time.

He will literally never be able to retire.

Title: Re: High earning but clueless friends
Post by: nereo on August 12, 2019, 03:59:16 AM
Sounds like a textbook example of the hedonistic treadmill at work:  get a raise, inflate your lifestyle -- lather, rinse, repeat.

He will literally never be able to retire.
Maybe, maybe not.  Time has a way of refocusing one's priorities, and many (many!) people don't start saving until their 50s, including some on this site.  I hope your friend comes around soon.
Title: Re: High earning but clueless friends
Post by: Manchester on August 12, 2019, 07:31:05 AM
He will literally never be able to retire.

Of course he'll be able to retire 'if he decides that's what he wants'.

He just needs to decide it sooner rather than later! 

There are people older than him, with no retirement investments who only have an annual earning potential of about £20k pa.  They're the people who're never going to retire!

Title: Re: High earning but clueless friends
Post by: vand on August 13, 2019, 02:48:46 AM
IMO I don't ever see him changing his attitude to money, and I think most people are the same. Your income is something that you spend first and foremost on shiny things, and if you are lucky enough to have anything at the end of the month only then you do tuck it away. They will "retire" when it is forced upon them, either through eventual age or obsolence, and when it happens there will be a big drop in their living standard.
Title: Re: High earning but clueless friends
Post by: Intrigued on August 21, 2019, 02:16:09 PM
I think the part that always saves this type of situation is buying the big house. High mortgage payments are almost a form of saving, add on house price inflation and anyone living in London is likely to be able to sell up and downsize to the rest of the country with savings to fall back on.
Title: Re: High earning but clueless friends
Post by: vand on August 22, 2019, 02:51:18 AM
Some update on his situation..

Turns out that the reason for his move was not primarily about lifestyle, more a question of family security. Can't hold that against him.. your family's welbeing is much more important than money.

So he's actually renting his new house in St Albans while hanging onto his old house in London, which he's just managed to rent out (after a void period and sizeable chunk of spent on bringing it up to rental standard). Overall I think he's more or less break-even on the costs before tax, but after paying the tax on the income from the rental he will be nicely out of pocket. The only way that'll work to his advantage is if house prices in London manage to go significantly higher in the next few years.. and think the chances of that are prety much zero.

He'll fly by the seat of his pants and muddle through while the job market is still good as he always manages to do, because being a high earner affords you the luxury of doing just that, but at the same time he's letting the advantage of what is probably the period of his peak career earnings slip by with not much to show for it.

Title: Re: High earning but clueless friends
Post by: londonbanker on September 03, 2019, 02:54:26 PM
Donít assume he wonít change. Everybody has a trigger whatever his is.
My wife and I went through a transformative journey 6+ years ago and literally changed our mindset overnight; it really came down to security, which for us was financial security.
We then went on a networth journey that took us from virtually zero to over £2m over 6 years. We had to make decisions and the biggest one was about acceptance that owning things was not worth giving up financial security.
You can help him see the light but he alone will make it work.