Author Topic: The "everybody seems wealthy" illusion — is it really just all fueled by debt?  (Read 90198 times)

TheNick

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Right, if my Wife and I stopped putting any money in taxable accounts, maxing both 401k's, and maxing IRAs, we could blow about $100,000 more yearly and we already live pretty good IMO.

What could 100k YEARLY do?(After tax in pure spend...)
Well, it could be a Lambo....Or a million dollar house..... Or some sort of mega world trip(yearly)..... Or a new Corvette every 6 months (Without selling them at all) and enough to build a hangar to keep them in.

It's pretty impressive.... Yet, I prefer to attempt to buy my freedom. If I want the above items, I can just work a year or two longer after my FIRE date, and get it all.

Haha...my plan is exactly the same as yours!  Why buy fancy stuff with money I'm punching a clock today for when I can invest that money and when I get enough invested buy that fancy stuff with magical dividends that just appear in my account?  The way I look at it is simple sacrifices...like maybe skipping a vacation for 10 years and investing that money instead, will leave me with enough dividend income to go on a vacation a year for the rest of my life after that.  Seems like a no brainer to me...10 vacations now or 40 vacations later...

I'm now 46, and I used to feel like this a lot back in my 20s. Most of my friends spent everything they earned, and maxxed out whatever credit they had. So back then, they were always buying much more 'stuff' then I ever did. In contrast, my wife and I saved up a deposit, and generally avoided non-mortgage debt, and over the years built up investments. Now, they seem the most financially limited - many of them live in rented apartments, have no assets, and periodically complain about how much debt, how little money they have. If I ever mention my retirement plans, the usual reply is that they don't know how they'd ever do it.

So, debt/non-investing can certainly allow people to consume more, but not forever. And for most people, their spending only has a loose correlation with how much assets they have.

I'm 32 now, and its a pretty interesting age to be at in terms of financials.  It seems like half my friends are finally waking up and aggressively paying off debt and upping 401k contributions, while the other half are still in la la land totally oblivious to the fact they'll be working until the day they die if they keep their current habits up...but who cares...they have a nice car and fancy smart phone lol.

I see the end game though with older people I know and its exactly like you say.  A lot of the ones who had the most toys, vacations, and biggest houses over the years either end up with next to nothing or working until the day they die.  I'd almost feel bad for some of these people if it wasn't for the fact they are generally the ones that love to brag about all their stuff the most and look down on you for not having stuff.

steviesterno

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i think one of the issues is people only really post to social media the good things. I know I won't put a picture of the 4th PB&J sandwich I bought from home to save money. so if you only show off the good stuff, it's really easy to look like you're doing better than you are.

the other idea i'm having is a quote, not sure where I heard it, maybe here. "I can have anything I want, but I can't have everything I want." if I wasn't putting any money into a 403 I could drive a masarati. but I think a lot of us on this forum would rather have financial freedom or a big nest egg or not work in their 50s, which is something we're paying for.

I have a buddy who's big into spending, and he values a nicer car more than investing, so his car costs what my house does. it's pretty nice, but that's what he likes.

I don't think people we know are really poor, but I also don't have a chance to spend time with people living on nothing in the swamps of alabama, I'm in a major city. so everybody here has to have at least enough money every month to stay here. so we see people in similar income brackets. we don't see the super swings of the scale, so we don't know.

greentea

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I'm 32 now, and its a pretty interesting age to be at in terms of financials.  It seems like half my friends are finally waking up and aggressively paying off debt and upping 401k contributions, while the other half are still in la la land totally oblivious to the fact they'll be working until the day they die if they keep their current habits up...but who cares...they have a nice car and fancy smart phone lol.

I have a nice car and a fancy smart phone... and yes I have been FI for over 10 years. What am I saying is it is very easy to judge people based on their watch, bag, jewelry, car, phone etc. With my car and a pair of giant simulated diamond earrings (looks great and totally not expensive), my friend's mother watched me step out of my car and she laughingly said "You look like someone's mistress!". Haha! This is much much worse than being seen as stupid with money if you ask me!

Unless I really know what their situation is, I try not make these kinds of assessments of people based on these items.

pachnik

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I save about $1,200.00 per month from my salary and put it into long-term investments.  That's $1,200.00 per month that I am not spending on stuff or experiences other than the experience of having a healthy investment account. 

If I wanted to spend that money every month, I could come in to work with a Starbucks coffee + muffin  and eat lunch out everyday.   This is probably about $300 per month so there's $900 more to go.  I could buy lots of new clothes and accessories every month and talking about going out for dinner a lot.  I don't know if I would look 'wealthy' though anyway since I work for very wealthy people. 

I've also had experiences where I meet someone who appears wealthy - expensive car + living in a mansion in a HCOL area - and has serious money trouble.  Can't go by appearances I guess. 
« Last Edit: January 10, 2016, 07:44:27 PM by pachnik »

Exhale

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I've always wondered how things would look if we didn't have credit cards/easy access to credit. I mean this both in terms of using it for luxury items, but also as a safety net. Due to job insecurity and health issues in my early adulthood, there were times when I needed the credit card to get me through the month (groceries) or to deal with an unexpected emergency expense (medical). Without a credit card at those times I would've been at a food bank or without medical care.

I've been advising students for almost 15 years now and see the increasing amounts of credit card debt they acquire to support their Starbucks habit, new phones/computers, the "right" clothes and outings/vacations. (Seems to be tied to feeling "grown-up," an extension of habits learned at home and/or simply not really thinking about what the consequences are.) It's so easy to just pull out the card and deal with payment later.

I'm experimenting with how to fold financial information into the advising I do. I'm not qualified to/interested in doing financial advising, but I do think that as an advisor I need to say something. After all, we talk to students about professional development and staying physically and emotionally healthy (in addition to the educational advising). Recently I came across a website for junior academics and one of the main recommendations was to get/stay financially healthy because it'd allow a degree of independence in terms of what jobs to take and where. I'm adapting that resource to use with my students.

TheNick

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I'm 32 now, and its a pretty interesting age to be at in terms of financials.  It seems like half my friends are finally waking up and aggressively paying off debt and upping 401k contributions, while the other half are still in la la land totally oblivious to the fact they'll be working until the day they die if they keep their current habits up...but who cares...they have a nice car and fancy smart phone lol.

I have a nice car and a fancy smart phone... and yes I have been FI for over 10 years. What am I saying is it is very easy to judge people based on their watch, bag, jewelry, car, phone etc. With my car and a pair of giant simulated diamond earrings (looks great and totally not expensive), my friend's mother watched me step out of my car and she laughingly said "You look like someone's mistress!". Haha! This is much much worse than being seen as stupid with money if you ask me!

Unless I really know what their situation is, I try not make these kinds of assessments of people based on these items.

Great, thanks for sharing, but I wasn't talking about you.  There is obviously nothing wrong with nice things when you have a high income...but if you actually read my whole post and not just that little bolded section you wanted to pick out of it, I was referring to friends of mine that I do know, not just making broad sweeping judgements about random people...because yes, I do know plenty of people who definitely aren't high income earners who have money for a nice car, vacations, and the latest greatest phone they upgrade yearly...but if something unexpected pops up like a trip to the vet or a TV crapping out that is going to cost hem a few hundred bucks more than they had expected...they end up in absolute panic mode because they have no savings and their entire life is based around making all their payments next month.

4alpacas

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i think one of the issues is people only really post to social media the good things. I know I won't put a picture of the 4th PB&J sandwich I bought from home to save money. so if you only show off the good stuff, it's really easy to look like you're doing better than you are.
If you're eating 4 PB&J sandwiches in one sitting, then I think that's post worthy!

the other idea i'm having is a quote, not sure where I heard it, maybe here. "I can have anything I want, but I can't have everything I want."
I think I first heard a similar comment at Afford Anything.
http://affordanything.com/2012/02/20/you-can-afford-anything-but-not-everything/

BTDretire

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 I think much is fueled by debt.
23% of households earn less than $25k
51% of households earn $25k to $100K
23% +51% = 74%, and 100% -74% = 26%
A percentage of that 26%, live in HCOL areas,
call that 1/3, that leaves 18% of households
that can live the high life, ahh, spending life, versus borrowing life.
Pg 31,
https://www.census.gov/content/dam/Census/library/publications/2015/demo/p60-252.pdf


50% of households have a net worth less than $82k,
However, I contend most of that is not liquid, mostly
equity in a home.
http://www.frugalfringe.com/numbers-crunching/how-to-compare-your-net-worth-to-others-without-being-rude/

tobitonic

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Friend of mine took ten, TEN, trips last year. Places like Hawaii, San Fran. A week, a long weekend, ten days. Now she will "scale back" for 2016  . . . By buying a new $30k SUV!
Thing is, two good 6 figure incomes, no kids, a great but "modest" house (under a million) means this is EASY. My only question is why they still work. But hey like the spending. It's fun. They also have decent savings.
Upper middle class Canadians--world's most comfortable people.

If they're earning as much as you suggest, they're not upper middle class--they're just upper class.

In 2010 in Canada, the middle quintile for households was 60-85k, while the 4th quintile (upper middle) was 85k to 125k. The top quintile was anything above 125k.

tobitonic

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It's incredibly entitled to think that maxing a 401k is accessible to most people.
The median household in the US, not individual, the household income is $50k. You think all the workers in a household with that income have $18k to put aside? What about the 50% of households with lower incomes? Do you really expect someone making $25k a year and supporting a family of 4 to max a 401k?

Being able to set aside $18k a year is a massive privelage!

Excellent post and point.

VladTheImpaler

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Here's a quick remedy: get off Fakebook, I mean Facebook.

DollarBill

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The "everybody seems wealthy" illusion — is it really just all fueled by debt?
« Reply #111 on: January 11, 2016, 04:43:49 AM »
We’re probably spending the same amount of money as our next door neighbor, but we’re buying different things. They bought a boat; we bought investments. They buy a fancy car; we buy our freedom.

steviesterno

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i think one of the issues is people only really post to social media the good things. I know I won't put a picture of the 4th PB&J sandwich I bought from home to save money. so if you only show off the good stuff, it's really easy to look like you're doing better than you are.
If you're eating 4 PB&J sandwiches in one sitting, then I think that's post worthy!


haha not in a row... every day for a week, and I get half days on friday. Everyone goes out and averages like $15 a day/4 days a week for lunch. and I eat some much fancier left overs than they get

Squirrel away

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I think some people are in a lot of debt, some get helped out financially a lot by their families, some are spending now because they are banking on a big inheritance when their parent/s die...

We are putting a lot into pensions and savings, if we didn't we could live a more outwardly lavish lifestyle but that isn't important to us.

2Birds1Stone

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I think a lot of this has to do with how you prioritize your spending.

In 2015 I earned $80k, spent $20k, and invested $60k.

I can only imagine how lavish I could make my lifestyle look if I spent 4X my actual spending for the year......we are talking a nice house, a high end sports car, vacations to exotic places, etc. At the cost of having to work forever.

Kitsune

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I think a lot of this has to do with how you prioritize your spending.

This.

I posted on another thread about some of my colleagues suddenly looking at my lifestyle and being like 'huh, someone CAN be doing well, what I am doing not-well?" But it's true.

Look: on the surface, if you see me, I'm in my early 30s, with a large-ish and full-of-gorgeous-antiques house, dress in cashmere sweaters and wear pearls and diamonds on a regular basis, and we eat excellent food that we reguarly invite people over to share (duck magret in a brandy and peach sauce, anyone?)

But: the jewelry is all inherited from my grandmother (and if I sold it, I'd get maybe 20% of what you'd pay in store for it - worth of jewelry is a funny thing). The house is our only large expense, and both of us prefer to stay home than go out, so it made sense to have a house we wanted to stay in and instead cut our going out and travelling budget, since that's what we enjoy. The antiques are hand-me-downs or refinished dirt-cheap kijiji finds. Our main hobbies are gardening (which, even if you go bonkers on tools and landscaping, at least breaks even if you're growing food) and curling up in front of the fireplace with our cat and a good book (library! also time with spouse!). My husband mixes amazing cocktails (20% the cost of a cocktail in a restaurant, and much, much better!), I cook (less than 20% the cost of going to a restaurant!), we spend time with our daughter, we donate time and effort to our community... we genuinely don't spend much money outside of our mortgage and car maintenance.

Look: we live in a spot known as a 'vacation spot' (15 minutes farther from work than most of my colleagues, nestled between a climbing mountain with a clifface and a large lake). Last summer, I brought my swimsuit to work regularly, and switched into it under my clothes before leaving. Then I picked up my daughter at daycare and we spent an hour at the beach before going home for an excellent dinner, and then she'd go to bed and I'd have 2 hours with my husband (cocktails on the patio with candles and books, anyone?) before we headed up. Beaches and cocktails all evening make it feel a LOT more like a summer-long vacation... Expenses: house in a good location, daycare and car (associated with work), 1 swimsuit for the summer, homemade food and cocktail ingredients... And yet I've had visitors comment that they 'don't know how we make ends meet' and 'they couldn't afford this' and 'are so jealous'. Universally, these are people who make more than we do, but they go out for dinner/drinks 4-5 nights per week (100$ per night, each, easy), and so no, they couldn't afford our lifestyle WHILE STILL PAYING FOR THEIRS. That's the key.

big_slacker

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I think a lot of this has to do with how you prioritize your spending.

In 2015 I earned $80k, spent $20k, and invested $60k.

I can only imagine how lavish I could make my lifestyle look if I spent 4X my actual spending for the year......we are talking a nice house, a high end sports car, vacations to exotic places, etc. At the cost of having to work forever.

When I was young and very dumb I got my first 35k/yr job (which was pretty good for '99 in a small town) I went out and leased a $35k car. Lived in a nice condo with a view of the lake. New snowboard gear and clothes on credit card. 24 year old rolling up to the ski resort parking lot in the audi thinking I was hot shit. Maybe someone else did too. I shoulda kept my beater wagoneer and bought the condo I was living in for the $92k it was offered to me at instead. It's worth $350k now and I'd be retired already. As they say in TX, "All hat, no cattle."

MrsDinero

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"All hat, no cattle."

One of my favorite phrases

Kitsune

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justajane

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Look: on the surface, if you see me, I'm in my early 30s, with a large-ish and full-of-gorgeous-antiques house, dress in cashmere sweaters and wear pearls and diamonds on a regular basis, and we eat excellent food that we reguarly invite people over to share (duck magret in a brandy and peach sauce, anyone?)

At least for me, none of the things you mention would lead me to think anyone is living beyond their means. The only jewelry that would lead me to think someone is overspending would be an enormous, clearly new-looking engagement ring. Otherwise, jewelry or antiques could clearly be inherited and thus not a marker for overspending. The same with cashmere or other, non-conspicuously branded clothing, which can be found at a thrift store. But a brand-new looking North Face jacket? The newest and shiniest new phone, car, or electronic? That to me is a better marker for overspending - not a slam dunk, mind you, but a more clear indication.

Vacations are still the grey area, especially since I know there are people who travel hack. I really shouldn't make a conclusion about someone based on the vacations they take. And in general I don't, but it's the ubiquitous Facebook posts that make it harder to ignore. One woman I know posts constantly over-the-top places that she goes. But she is certifiably rich. I mean, like golden parachute, tens of millions in the bank kind of rich. It doesn't really bother me when she posts, since I know she is not living above her means. It doesn't really bother me (per se) when other people post either, aside from the fact that I just don't understand how the math works in their favors.

Think

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I'm sure someone could say the same about us.  We spend a lot in certain areas and in others we don't.  Our income is close to 400k and we purchased a 750k home in a hot neighborhood.  Our plan is to pay it off before early retirement.  We only have one car and I ride my bike to work.

We save around 100k plus each year when including 401k matching, defined pension contribution, emergency savings, stock grants etc.   but we also go on some fancy vacations and I have some luxury clothing items.  Life is short.  While I want to ensure we can retire early I also want to enjoy my relative youth and time with my husband.  I try to balance things.  We also stand to inherit a pretty penny and I try to not count on this.

JLee

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I'm sure someone could say the same about us.  We spend a lot in certain areas and in others we don't.  Our income is close to 400k and we purchased a 750k home in a hot neighborhood.  Our plan is to pay it off before early retirement.  We only have one car and I ride my bike to work.

We save around 100k plus each year when including 401k matching, defined pension contribution, emergency savings, stock grants etc.   but we also go on some fancy vacations and I have some luxury clothing items.  Life is short.  While I want to ensure we can retire early I also want to enjoy my relative youth and time with my husband.  I try to balance things.  We also stand to inherit a pretty penny and I try to not count on this.

That's because you are wealthy - it's not an illusion. :P

Think

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I'm sure someone could say the same about us.  We spend a lot in certain areas and in others we don't.  Our income is close to 400k and we purchased a 750k home in a hot neighborhood.  Our plan is to pay it off before early retirement.  We only have one car and I ride my bike to work.

We save around 100k plus each year when including 401k matching, defined pension contribution, emergency savings, stock grants etc.   but we also go on some fancy vacations and I have some luxury clothing items.  Life is short.  While I want to ensure we can retire early I also want to enjoy my relative youth and time with my husband.  I try to balance things.  We also stand to inherit a pretty penny and I try to not count on this.

That's because you are wealthy - it's not an illusion. :P

Funny because I don't consider us wealthy but I suppose to many we are.   

Marus

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Going on Facebook to judge other people might skew your perspective.  People love posting expensive dinners and fancy vacations.   If they're struggling financially or living a modest lifestyle, that's probably not going to be reflected in their posts.

JLee

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I'm sure someone could say the same about us.  We spend a lot in certain areas and in others we don't.  Our income is close to 400k and we purchased a 750k home in a hot neighborhood.  Our plan is to pay it off before early retirement.  We only have one car and I ride my bike to work.

We save around 100k plus each year when including 401k matching, defined pension contribution, emergency savings, stock grants etc.   but we also go on some fancy vacations and I have some luxury clothing items.  Life is short.  While I want to ensure we can retire early I also want to enjoy my relative youth and time with my husband.  I try to balance things.  We also stand to inherit a pretty penny and I try to not count on this.

That's because you are wealthy - it's not an illusion. :P

Funny because I don't consider us wealthy but I suppose to many we are.

Imagine a $350,000/yr pay cut, then you'd be where most people are. :P

wenchsenior

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I'm sure someone could say the same about us.  We spend a lot in certain areas and in others we don't.  Our income is close to 400k and we purchased a 750k home in a hot neighborhood.  Our plan is to pay it off before early retirement.  We only have one car and I ride my bike to work.

We save around 100k plus each year when including 401k matching, defined pension contribution, emergency savings, stock grants etc.   but we also go on some fancy vacations and I have some luxury clothing items.  Life is short.  While I want to ensure we can retire early I also want to enjoy my relative youth and time with my husband.  I try to balance things.  We also stand to inherit a pretty penny and I try to not count on this.

That's because you are wealthy - it's not an illusion. :P

Funny because I don't consider us wealthy but I suppose to many we are.

Statements like this blow my mind. It's not 'to many you are'. There's no question you are wealthy, objectively speaking. You just ARE. Shit, we recently cracked 100K gross per year, and I was well aware that we were breaking into the upper quintile of wealth, and how incredibly fortunate we are.  Just because we live modestly, in a 90K starter home, drive 10+ year old cars, and don't consume much, doesn't change the actual stats of our relative position in the wealth stratum.

mm1970

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I'm sure someone could say the same about us.  We spend a lot in certain areas and in others we don't.  Our income is close to 400k and we purchased a 750k home in a hot neighborhood.  Our plan is to pay it off before early retirement.  We only have one car and I ride my bike to work.

We save around 100k plus each year when including 401k matching, defined pension contribution, emergency savings, stock grants etc.   but we also go on some fancy vacations and I have some luxury clothing items.  Life is short.  While I want to ensure we can retire early I also want to enjoy my relative youth and time with my husband.  I try to balance things.  We also stand to inherit a pretty penny and I try to not count on this.

That's because you are wealthy - it's not an illusion. :P

Funny because I don't consider us wealthy but I suppose to many we are.
Top 1% income is about $400k a year, so yes, whether you feel like it or not, you are wealthy.

kasperle

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Funny because I don't consider us wealthy but I suppose to many we are.

I really want this to be sarcasm, but it reads so sincerely!

BTDretire

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That's because you are wealthy - it's not an illusion. :P
Quote
Funny because I don't consider us wealthy but I suppose to many we are.

Yes, with the US median household income at $51,000, you earn 8 times more than 1/2
of all US households.
This is 3 years old, but it will put you in your place, I mean that in a good way. :-) Congrats.
http://money.cnn.com/calculator/pf/income-rank/
   Move the slider to your income.

I might add this income creates an additional burden, if your saving $100K, your spending $300k. It will take $7.5 million to replace that spending, using the 4% withdrawal rule.
A bit exaggerated, because I expect your tax bill will be less in retirement.

golden1

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In what realm of imagination is $400K a year not wealthy? 


jengod

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Funny because I don't consider us wealthy but I suppose to many we are.

I really want this to be sarcasm, but it reads so sincerely!

I want to stand with kasperle and say the same thing: "I don't consider us wealthy, but I suppose to many we are."

I think anyone feels wealthy until ALL aspects of their lifestyle are "upper class": first-class vacations, five-star restaurants, luxury vehicle, interior decorator, private school, nanny, housekeeper, newest iPhone, etc. Unless you ARE the Jones that people are trying to keep up with, even legitimately wealthy people don't necessarily feel rich and untouchable and forever secure.

My husband once described my parents' lifestyle as extravagant. (They probably have an eight-figure net worth and they live a very nice life.) I told my mother this and she snorted: "Have you seen our cars?" She drives a 10-year-old Nissan Quest minivan she bought used for $10K. My dad drove a 10-year-old Honda Civic until recently. He sold it to my younger brother and upgraded to a relatively luxurious new Volkswagen Passat.

Ditto my in-laws. They probably have a high seven-figure net worth. They don't live like it. They live in a perfectly modest house in an "age-preferred" Vegas housing development, they shop at Costco and Smith's and buy clothes with coupons at Kohl's, and they get their jollies playing Scrabble competitively (MIL) and watching old movies on TCM (FIL). MIL won't buy a hearing aid even though she is 70 percent deaf in one ear because it's "so expensive."

All I'm saying is Accounting and Feelings are not the same thing, and that I think, to OP's original question, the difference between "millionaires next door" and "just millionaires" is a confidence gap. Spenders (who may or may not be balance-sheet wealthy) feel rich, feel like there's always going to be more money, feel like they can trade this cash for that item and be just fine later. Savers (who may or may not be balance-sheet wealthy) would prefer to keep cash on hand for the proverbial rainy day.

Our society discusses spending early and often. It does not honor and valorize saving. (Whereas, Japan, for example, does seem to place a cultural premium on saving, at least until very recently, cf Mottainai Grandma and Japan’s Recovery Is Complicated by a Decline in Household Savings.)

Neustache

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Re: The "everybody seems wealthy" illusion —
« Reply #131 on: January 11, 2016, 12:39:37 PM »

That's because you are wealthy - it's not an illusion. :P
Quote
Funny because I don't consider us wealthy but I suppose to many we are.

Yes, with the US median household income at $51,000, you earn 8 times more than 1/2
of all US households.
This is 3 years old, but it will put you in your place, I mean that in a good way. :-) Congrats.
http://money.cnn.com/calculator/pf/income-rank/
   Move the slider to your income.

I might add this income creates an additional burden, if your saving $100K, your spending $300k. It will take $7.5 million to replace that spending, using the 4% withdrawal rule.
A bit exaggerated, because I expect your tax bill will be less in retirement.

I imagine that a decent sum of their gross income goes to taxes, which most wouldn't consider that spending.  They are probably spending closer to 180K or so, if I guessed, and will need about 4.5million in order to retire at that level of spending. 

Chris22

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Going on Facebook to judge other people might skew your perspective.  People love posting expensive dinners and fancy vacations.   If they're struggling financially or living a modest lifestyle, that's probably not going to be reflected in their posts.

Last night for dinner, I cooked two filets (seared indoors on my new $16 Target cast iron skillet!) and boiled a couple lobster tails and had a bottle of red wine for dinner.

Lunch was a ham sandwich.

I skipped breakfast.


Guess which meal went on Facebook?  :)

Chris22

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I might add this income creates an additional burden, if your saving $100K, your spending $300k. It will take $7.5 million to replace that spending, using the 4% withdrawal rule.
A bit exaggerated, because I expect your tax bill will be less in retirement.

Quote
Our income is close to 400k and we purchased a 750k home in a hot neighborhood.  Our plan is to pay it off before early retirement.

Good chance a big lump of $300k of spending is going there. 

Chris22

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All I'm saying is Accounting and Feelings are not the same thing, and that I think, to OP's original question, the difference between "millionaires next door" and "just millionaires" is a confidence gap. Spenders (who may or may not be balance-sheet wealthy) feel rich, feel like there's always going to be more money, feel like they can trade this cash for that item and be just fine later. Savers (who may or may not be balance-sheet wealthy) would prefer to keep cash on hand for the proverbial rainy day.

There's also an acronym, HENRY, for High Earners Not Rich Yet.  If one is young and makes a lot money, they still may be in the "Setting up" phase of life where you're buying a house, furnishing it, maybe buying a car, paying for daycare, paying off student loans, etc, and simply haven't had time to accumulate any money yet.  Year 1 of making $400k is very different than year 10 of the same income.  I'd put my wife and I in this category; we're in our early 30s, each have a six-figure income, but only a few years ago we were making half that income.  And we've been laying out for things like house down payments, etc.  We don't have a particularly high NW simply because we haven't been making this money for long and we haven't had a long time for our investments to grow and compound. 

Neustache

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Re: The "everybody seems wealthy" illusion
« Reply #135 on: January 11, 2016, 01:30:48 PM »
HENRY - I like that - it's where I feel we are as it's only been the last two years that our household has hit 6 figures in income and pension contributions.

I suspect that year 10 after making more than 6 figures will feel differently than it does now.  I do think we are 'rich', just not the way the average US person defines it. 


KCM5

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All I'm saying is Accounting and Feelings are not the same thing, and that I think, to OP's original question, the difference between "millionaires next door" and "just millionaires" is a confidence gap. Spenders (who may or may not be balance-sheet wealthy) feel rich, feel like there's always going to be more money, feel like they can trade this cash for that item and be just fine later. Savers (who may or may not be balance-sheet wealthy) would prefer to keep cash on hand for the proverbial rainy day.

There's also an acronym, HENRY, for High Earners Not Rich Yet.  If one is young and makes a lot money, they still may be in the "Setting up" phase of life where you're buying a house, furnishing it, maybe buying a car, paying for daycare, paying off student loans, etc, and simply haven't had time to accumulate any money yet.  Year 1 of making $400k is very different than year 10 of the same income.  I'd put my wife and I in this category; we're in our early 30s, each have a six-figure income, but only a few years ago we were making half that income.  And we've been laying out for things like house down payments, etc.  We don't have a particularly high NW simply because we haven't been making this money for long and we haven't had a long time for our investments to grow and compound.

As opposed to a young household making $50k/yr? Own your money and the difference in lifestyle that it affords you. It's okay!

(Or maybe it will afford you with the ability to stop working for money very early. There should be a blog or two about that!)

Think

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Re: The "everybody seems wealthy" illusion —
« Reply #137 on: January 11, 2016, 01:46:34 PM »

That's because you are wealthy - it's not an illusion. :P
Quote
Funny because I don't consider us wealthy but I suppose to many we are.

Yes, with the US median household income at $51,000, you earn 8 times more than 1/2
of all US households.
This is 3 years old, but it will put you in your place, I mean that in a good way. :-) Congrats.
http://money.cnn.com/calculator/pf/income-rank/
   Move the slider to your income.

I might add this income creates an additional burden, if your saving $100K, your spending $300k. It will take $7.5 million to replace that spending, using the 4% withdrawal rule.
A bit exaggerated, because I expect your tax bill will be less in retirement.

I imagine that a decent sum of their gross income goes to taxes, which most wouldn't consider that spending.  They are probably spending closer to 180K or so, if I guessed, and will need about 4.5million in order to retire at that level of spending.


Yes.  pp here.  We paid around 100k in income taxes last year.  Of the approx 300k take home , we save around 100-125k.  We spend 60k paying down our mortgage. 

JLee

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Re: The "everybody seems wealthy" illusion —
« Reply #138 on: January 11, 2016, 01:48:43 PM »

That's because you are wealthy - it's not an illusion. :P
Quote
Funny because I don't consider us wealthy but I suppose to many we are.

Yes, with the US median household income at $51,000, you earn 8 times more than 1/2
of all US households.
This is 3 years old, but it will put you in your place, I mean that in a good way. :-) Congrats.
http://money.cnn.com/calculator/pf/income-rank/
   Move the slider to your income.

I might add this income creates an additional burden, if your saving $100K, your spending $300k. It will take $7.5 million to replace that spending, using the 4% withdrawal rule.
A bit exaggerated, because I expect your tax bill will be less in retirement.

I imagine that a decent sum of their gross income goes to taxes, which most wouldn't consider that spending.  They are probably spending closer to 180K or so, if I guessed, and will need about 4.5million in order to retire at that level of spending.


Yes.  pp here.  We paid around 100k in income taxes last year.  Of the approx 300k take home , we save around 100-125k.  We spend 60k paying down our mortgage.

lol, I can't even imagine.

Hopefully I'll get there someday. : )

Think

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I might add this income creates an additional burden, if your saving $100K, your spending $300k. It will take $7.5 million to replace that spending, using the 4% withdrawal rule.
A bit exaggerated, because I expect your tax bill will be less in retirement.

Quote
Our income is close to 400k and we purchased a 750k home in a hot neighborhood.  Our plan is to pay it off before early retirement.

Good chance a big lump of $300k of spending is going there.

Also you have to take into account we live in a hcol city.  While we earn high incomes, we could maintain the same lifestyle in another city while earning 50 percent.  The 400k may seem high but would you be as impressed with 200k in say, Houston?  Probably not.

Chris22

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I might add this income creates an additional burden, if your saving $100K, your spending $300k. It will take $7.5 million to replace that spending, using the 4% withdrawal rule.
A bit exaggerated, because I expect your tax bill will be less in retirement.

Quote
Our income is close to 400k and we purchased a 750k home in a hot neighborhood.  Our plan is to pay it off before early retirement.

Good chance a big lump of $300k of spending is going there.

Also you have to take into account we live in a hcol city.  While we earn high incomes, we could maintain the same lifestyle in another city while earning 50 percent.  The 400k may seem high but would you be as impressed with 200k in say, Houston?  Probably not.


People here get very angry when someone says that, for some reason. 

Think

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Re: The "everybody seems wealthy" illusion —
« Reply #141 on: January 11, 2016, 01:52:32 PM »

That's because you are wealthy - it's not an illusion. :P
Quote
Funny because I don't consider us wealthy but I suppose to many we are.

Yes, with the US median household income at $51,000, you earn 8 times more than 1/2
of all US households.
This is 3 years old, but it will put you in your place, I mean that in a good way. :-) Congrats.
http://money.cnn.com/calculator/pf/income-rank/
   Move the slider to your income.

I might add this income creates an additional burden, if your saving $100K, your spending $300k. It will take $7.5 million to replace that spending, using the 4% withdrawal rule.
A bit exaggerated, because I expect your tax bill will be less in retirement.

I imagine that a decent sum of their gross income goes to taxes, which most wouldn't consider that spending.  They are probably spending closer to 180K or so, if I guessed, and will need about 4.5million in order to retire at that level of spending.


Yes.  pp here.  We paid around 100k in income taxes last year.  Of the approx 300k take home , we save around 100-125k.  We spend 60k paying down our mortgage.

lol, I can't even imagine.

Hopefully I'll get there someday. : )

I do realize we make a lot.  We are also preparing ourselves for having children and forking out a good 50-60k of pretax income on childcare (nanny).  Sometimes I feel guilty about only saving 100-125k but I don't want to retire before 50, when I'm eligible for my pension.  I'm 32.  Plan on having our rental properties and primary residence paid off in my 40s.  My husband loves his job and I can't imagine him wanting to retire anytime soon. 

Think

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I might add this income creates an additional burden, if your saving $100K, your spending $300k. It will take $7.5 million to replace that spending, using the 4% withdrawal rule.
A bit exaggerated, because I expect your tax bill will be less in retirement.

Quote
Our income is close to 400k and we purchased a 750k home in a hot neighborhood.  Our plan is to pay it off before early retirement.

Good chance a big lump of $300k of spending is going there.

Also you have to take into account we live in a hcol city.  While we earn high incomes, we could maintain the same lifestyle in another city while earning 50 percent.  The 400k may seem high but would you be as impressed with 200k in say, Houston?  Probably not.


People here get very angry when someone says that, for some reason.

I've noticed that.  I grew up in a lcol city.  I think you have to live somewhere like SF or ny to really get it.  To put it in perspective, you could make 100k in these cities and probably only afford a one bedroom apartment in a desirable area. 

honeybbq

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I might add this income creates an additional burden, if your saving $100K, your spending $300k. It will take $7.5 million to replace that spending, using the 4% withdrawal rule.
A bit exaggerated, because I expect your tax bill will be less in retirement.

Quote
Our income is close to 400k and we purchased a 750k home in a hot neighborhood.  Our plan is to pay it off before early retirement.

Good chance a big lump of $300k of spending is going there.

Also you have to take into account we live in a hcol city.  While we earn high incomes, we could maintain the same lifestyle in another city while earning 50 percent.  The 400k may seem high but would you be as impressed with 200k in say, Houston?  Probably not.


People here get very angry when someone says that, for some reason.

LOL, why? My house cost 7 figures (yeah, yeah) and I have the same plan. A family sized house here costs $750k. Get one that has a big yard, and garage, etc, and it's easy a Mil.  Plus selling and moving away and downsizing and laughing all the way to the bank when we ER.   Why would that make anyone mad?

To the 400k income not being wealthy-- it might not FEEL wealthy, but you ARE wealthy. I have the same misconception of my own life sometimes. Just because you drive a 10 year old Honda doesn't mean you AREN'T wealthy.  Or maybe you ARE. It just depends on so many other things.

justajane

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Going on Facebook to judge other people might skew your perspective.  People love posting expensive dinners and fancy vacations.   If they're struggling financially or living a modest lifestyle, that's probably not going to be reflected in their posts.

Last night for dinner, I cooked two filets (seared indoors on my new $16 Target cast iron skillet!) and boiled a couple lobster tails and had a bottle of red wine for dinner.

Lunch was a ham sandwich.

I skipped breakfast.


Guess which meal went on Facebook?  :)

I think most of us mentioning meals aren't talking about home cooked meals, even the fancy ones. I'm talking about the weekly pictures of expensive restaurant meals.

big_slacker

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We argued about this for pages on another thread and seemed to come to the idea that X/yr salary is high income, X in liquid assets is rich/wealthy.

I said in that thread my idea of rich is $1m in liquid assets, wealthy would be beyond that quite a bit.

You certainly have a very high chance of becoming rich if you have a 400k/yr income but it doesn't mean you currently are.

JLee

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I might add this income creates an additional burden, if your saving $100K, your spending $300k. It will take $7.5 million to replace that spending, using the 4% withdrawal rule.
A bit exaggerated, because I expect your tax bill will be less in retirement.

Quote
Our income is close to 400k and we purchased a 750k home in a hot neighborhood.  Our plan is to pay it off before early retirement.

Good chance a big lump of $300k of spending is going there.

Also you have to take into account we live in a hcol city.  While we earn high incomes, we could maintain the same lifestyle in another city while earning 50 percent.  The 400k may seem high but would you be as impressed with 200k in say, Houston?  Probably not.


People here get very angry when someone says that, for some reason.

I've noticed that.  I grew up in a lcol city.  I think you have to live somewhere like SF or ny to really get it.  To put it in perspective, you could make 100k in these cities and probably only afford a one bedroom apartment in a desirable area.
Oh easily...I'm just outside of NYC and I'm renting a furnished room, which costs me ~$100/mo less than the mortgage/tax/insurance on my house in AZ.

I would still bet that it's possible to save more on a 400k NYC salary than on a 200k TX salary, unless you insist on the same standard of living (i.e. the big house, etc).  I moved from Phoenix to northern NJ for a 36k raise and I am financially far better off than I was.

beltim

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Also you have to take into account we live in a hcol city.  While we earn high incomes, we could maintain the same lifestyle in another city while earning 50 percent.  The 400k may seem high but would you be as impressed with 200k in say, Houston?  Probably not.


People here get very angry when someone says that, for some reason.

I've noticed that.  I grew up in a lcol city.  I think you have to live somewhere like SF or ny to really get it.  To put it in perspective, you could make 100k in these cities and probably only afford a one bedroom apartment in a desirable area.
Oh easily...I'm just outside of NYC and I'm renting a furnished room, which costs me ~$100/mo less than the mortgage/tax/insurance on my house in AZ.

I would still bet that it's possible to save more on a 400k NYC salary than on a 200k TX salary, unless you insist on the same standard of living (i.e. the big house, etc).  I moved from Phoenix to northern NJ for a 36k raise and I am financially far better off than I was.

People usually talk about the same "standard of living" when talking about the "cost of living."  Otherwise it's a meaningless comparison.

How much of your being financially far better off is because you're living in a single room instead of a house?

JLee

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Also you have to take into account we live in a hcol city.  While we earn high incomes, we could maintain the same lifestyle in another city while earning 50 percent.  The 400k may seem high but would you be as impressed with 200k in say, Houston?  Probably not.


People here get very angry when someone says that, for some reason.

I've noticed that.  I grew up in a lcol city.  I think you have to live somewhere like SF or ny to really get it.  To put it in perspective, you could make 100k in these cities and probably only afford a one bedroom apartment in a desirable area.
Oh easily...I'm just outside of NYC and I'm renting a furnished room, which costs me ~$100/mo less than the mortgage/tax/insurance on my house in AZ.

I would still bet that it's possible to save more on a 400k NYC salary than on a 200k TX salary, unless you insist on the same standard of living (i.e. the big house, etc).  I moved from Phoenix to northern NJ for a 36k raise and I am financially far better off than I was.

People usually talk about the same "standard of living" when talking about the "cost of living."  Otherwise it's a meaningless comparison.

How much of your being financially far better off is because you're living in a single room instead of a house?

I own a house in AZ and had three roommates. I'm renting a room in a place with two other people now.  My living situation hasn't really changed all that much - I just am the renter instead of the owner.

Nangirl17

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I've come to the conclusion that most of Facebook (and indeed a lot of social life) is an illusion since what is seen is not taken in context. People post their best moments or socially present their best selves, and unless you know them very well, cannot compare your life with theirs.

a CW of mine appeared to have a fantastic life, and it was all an illusion - she suddenly decided to move out of country... long story short, she owed the CRA a bunch of money, then people showed up at our workplace looking to serve a subpeona...