There are several things that stood out to me here, but most notably these:
Look at how much housing takes up at every single level. No wonder I was able to accumulate such wealth by paying off my mortgage early.
Food is a category that most people spend way too much on IMO. Almost every single person we coached spent multiples of what we did on food (much of it on expensive, processed, branded products and eating out) even when we had more people in our family.
Transportation is a huge money suck. This information makes a good argument for living close to work, driving a car until it can't go any more, and keeping these costs as low as possible.
In fact, if you look at these three costs, they make up half the spending at almost every income (much more than that at lower income levels).
Here are some quick thoughts on how to reduce the spending in each area:
If you can live close enough to work to bike/walk, do it. If not, get a gas-efficient car and drive it into the ground. Or even better, see if you can work from home. :)
Doing these will make a MASSIVE difference in your budget and free up resources you can use to save and ultimately retire early.
A cool $1 million has long been considered the gold standard of retirement savings. These days, it's only a fraction of what you will really need.
For instance, a 67-year-old baby boomer retiring now with $1 million in the bank will generate $40,000 a year to live on adjusted for inflation and assuming a sustainable withdrawal rate of 4 percent, said Mark Avallone, president of Potomac Wealth Advisors and author of "Countdown to Financial Freedom."
It's worse for a 42-year-old Gen Xer, whose $1 million at retirement will only generate an inflation-adjusted $19,000 a year when all is said and done. And a 32-year-old millennial planning to retire at 67 with $1 million would live below the poverty line.
That's what Avallone, a certified financial planner, calls "million-dollar poverty."
First of all, why are they assuming the millionaire today can't live in $40k? That's completely reasonable, especially if they live in a low cost-of-living city https://esimoney.com/where-you-live-has-a-big-impact-on-your-net-worth/ and/or have their house paid off https://esimoney.com/how-to-buy-a-house-and-pay-off-the-mortgage-in-less-than-10-years/.
Second, let's say the 42-year-old retired NOW with $1 million. He could take $40k out of that PLUS it's highly likely he will earn more money here and there. Very few young retirees never earn another penny in their lives once they retire. And if they have something like a small side hustle, that makes retirement MUCH more affordable.
On the opposite end of the spectrum is a post that says you can retire on $1 million or less -- and gives examples of just that, listing how to reach financial independence by age 35.
So which is it? Is $1 million enough to retire on or not?
The truth is, it depends on:
How much you plan to spend in retirement -- If you need to spend $30k, it probably is enough. If you need to spend $100k, it probably isn't.
How much you can earn off that $1 million -- If you can earn 10% income off it by investing in real estate, then you are probably ok. If you have to withdraw at 4%, maybe it's ok and maybe not.
What margins of safety you have -- Personally, I wouldn't leave work life without it. ;)
Those are my thoughts. What's your take on the situation?
Theresa Sahhar and her husband make a combined $100,000, which is nearly double the median annual income in the United States.
They live in Olathe, Kansas, where the cost of living is "pretty reasonable," Sahhar told NPR's Lulu Garcia-Navarro during a segment on living on $100,000 a year. Still, they're "struggling to make enough money to do all the things that we normally do."
I don't need to go any farther into the article to know that these people are spending way too much.
I've been to Olathe, Kansas several times and it's not that expensive -- 5% above the average US location according to Best Places.
At the same time, as mentioned, $100k is twice the average income.
If you make twice what most people make and live in an average cost-of-living city, you have some BIG expense outflows in some area.
But we'll get to that in a minute. For now, let's move on to later in that article where it says:
They aren't the only residents earning six figures and struggling to set aside money for retirement, college and other major expenses. Some living in the area who earn $100,000 "are living paycheck to paycheck," the Post reports, and even families earning up to $250,000 "don't consider themselves to be high-earners."
On the income distribution charts at the center of tax overhaul plans, Courtney Mishoe knows she’s doing well. She works as a tax manager at a firm in the Atlanta suburbs. Her husband is a police officer. Together, they make more than $180,000 a year. They are solidly in the upper middle class. But they have a mortgage and three kids, including one in day care and another in high school with plans to go to college. It all adds up. They depend on tax deductions to make their budget work.
“I don’t feel wealthy,” Mishoe said. “I don’t have a bunch of money stashed away anywhere.”
They depend on tax deductions to make their budget work? Really?
Things are that tight on earnings of $180k?
And yet it gets worse.
If you think you can stomach it you can watch this:
It's a boo-hoo interview with a writer who talks about how hard it is to make things work financially.
He admits that he's made some bad financial decisions including:
Choosing to be a writer (low income)
Choosing to live in NYC (in the Hamptons -- high cost-of-living)
Choosing to have two children and send them to expensive colleges (expensive colleges can kill!)
Uh, yeah. Those things do impact your finances!
But then he doesn't really take responsibility saying, "But those choices are what I call life."
No, they are not simply "life". It isn't life to live in a resort area, high tax state, and send your kids to Harvard and Stanford.
BTW, he never gives his income but I don't think he's a starving writer. My guess is that he "only" makes $100k or so.
Towards the end of the piece he quotes USA Today as saying that a "middle class existence would cost $130,000 a year."
He then goes on to say that most people make $50k, so there's the problem.
But that's not what USA Today said. (I can't believe he as a writer or PBS as the interviewer didn't fact check this.)
In fact, three-quarters of Americans polled by the Brookings Institution in 2008 said the dream was harder to attain.
They're right to worry. An analysis by USA TODAY shows that living the American dream would cost the average family of four about $130,000 a year. Only 16 million U.S. households — around 1 in 8 — earned that much in 2013, according to the U.S. Census Bureau.
They basically make a bunch of over-priced assumptions (more than I've ever paid in almost every category) to "prove" that it takes $130k to make the American Dream work.
I'm thinking there's an agenda here...but we move on.
The video above is an interview with the writer who is covered in this Atlantic piece.
If you read far into that article you'll find this:
Lusardi, Tufano, and Schneider found that nearly one-quarter of households making $100,000 to $150,000 a year claim not to be able to raise $2,000 in a month.
It also states this -- which I can agree with 100%:
Basically, a good many Americans are “financially illiterate,” and this illiteracy correlates highly with financial distress. A 2011 study she and a colleague conducted measuring knowledge of fundamental financial principles (compound interest, risk diversification, and the effects of inflation) found that 65 percent of Americans ages 25 to 65 were financial illiterates.
NPR's Lulu Garcia-Navarro spoke to a variety of people in different cities about what their lives look like on $100,000 a year. On paper, that kind of salary is considered well-off. But as we heard from many, it often takes just one major expense for that to not feel like enough: student loans, health care, childcare or housing costs.
They try to make a good story but when you read between the lines you see "credit card debt" and high cost-of-living cities.
But hold on to your hats. We're about to take this to a whole new level!
Vanamee consulted experts to estimate the "happiness number" for a hypothetical, wealthy, non-working couple in their 40s with two teenage kids in an expensive private school in New York City. They live in a parkside Fifth Avenue apartment, buy art, take private jets, donate to charity, and have a household staff — a chef, a driver, and a housekeeper — plus two vacation homes. They're also setting aside $25 million for each child to inherit.
An analyst from US Trust cited in the Town & Country report estimated the hypothetical couple would need to have a net worth of $190 million to sustain this lifestyle.
Of course! I know I certainly wouldn't be able to be "happy" on anything less than $190 million!
Are these people real???!!!
As you might imagine, I have a lot to say about these stories:
No matter how much you make, you can spend it all. We've seen athletes, musicians, actors, and others who have made multiple millions go bankrupt, so there's no amount where you can't spend it all.
Many will say that incomes are higher in higher-cost areas. Some incomes are higher, but if you look at the numbers you'll see that the higher incomes don't offset the higher costs https://www.freemoneyfinance.com/2006/09/move_save_money.html.
If you really want to become wealthy, the best bet is to earn a high salary in a low cost-of-living market. This has been talked about in detail by financial bloggers at ESI Money and Physician on Fire.
In the end, the fact that someone can't make it on $100k, $180k, or $190 million isn't an earning problem, but a spending problem.
I want to close with a quote from a podcast interview I heard recently with Jonathan Clements, a personal finance journalist and writer for the Wall Street Journal, and one of the few financial writers who IMO actually knows what he's talking about.
In the interview he's asked, "What’s the most important thing that you’ve learned since you’ve started writing about personal finance?"
His reply:
It sounds ridiculously simple, but the one lesson that’s been driven home to me year after year, is the importance of being a good saver, everything else is secondary. Over the years, both when I was at the Wall Street Journal, when I was at Citigroup and even now, I’ve spoken to thousands of every day investors who have accumulated seven figure portfolios. Many of them have modest incomes, most of them were mediocre investors but almost all of them shared one attribute in common, they were extremely frugal, otherwise known as cheap.
The way they achieved financial success was living way beneath their means and saving great gobs of money every month. If you wanna be financially successful, it is indeed as simple as that, everything else is gravy. If you have great savings habits, you could afford to buy advantage funds. I wouldn’t suggest you do it but you could take that risk and end up with market lagging returns. You can pay too much to a financial advisor and you’ll still be fine. If you have great savings habits, good things are gonna happen, everything else is gravy.
So true. Because the fact is that without saving, you can simply spend all you make -- even if you make a fortune.
Recent Comments