How are people scraping by on high incomes with Financial Samurai.

Intro:                  Hello, and welcome to Your Money Over Coffee, the daily discussion zone for your cash, investments, credit and financial future. Most days, we examine an article or two, but sometimes, we speak with a guest or reveal a product.

Robert Graham:                  Welcome to Your Money Over Coffee. Today, we have another article from the Financial Samurai, financialsamurai.com. Enjoyed some of the stuff in the past. It’s a really interesting perspective. Today I think is another interesting perspective and the title is Scraping By on $500,000 a Year: Why It’s So Hard for High-Income Earners to Escape the Rat Race. Here we go. I’ve highlighted in a previous article how living off $200,000 a year in an expensive city is really just an average lifestyle. In this article, I’ll discuss how one couple is living paycheck to paycheck while making a combined $500,000 a year. They’re a real couple who shared with me their financial details to anonymously share with you. Judging the others after all is an American pastime.

Robert Graham:                  $500,000 a year is a level which I think is considered rich. I’ll interject here and mention that the Financial Samurai has an article about what it considers rich, and it’s something like $400,000-plus in income. Back to the article. Anybody who thinks otherwise has no concept of financial reality. Even the government almost agrees after compromising by raising the income level for when the highest marginal tax bracket kicks in to about $400,000 from $200,000 back in 2013. Although making $500,000 a year may sound like a Herculean task, you’ll be surprised to know there are plenty of regular folks who hit the half million mark every year. I literally get emails and comments from similar income earning couples every week asking for help.

Robert Graham:                  This article will discuss why many folks who earn a large income won’t be retiring any time soon. Various combinations of $500,000 households. One, couple 30-year-old lawyers in their fourth year at a big firm. Two, couple 32-year-olds, second-year associates at an investment….

[Check out the audio for a complete experience. I don’t want to reproduce all of what the Samurai had to say here. It’s worth checking out.]

Robert Graham:                  Being free is absolutely priceless the older you get, because you no longer are willing to put up with the world’s BS. After I left Corporate America in 2012 at the age of 34, all my chronic pain — TMJ, lower back pain, sciatica, tennis elbow, golfer’s elbow — went away. The time for working on a side-hustle before or after work is now. You never know what might become of it. It’ll feel weird giving up so much money at first. Golden handcuffs are incredibly tough to break. But I bet the value of your new found freedom will far surpass any money you’ll forsake. Always remember that money is simply a tool for happiness. If you aren’t happy doing what you’re doing, then you must save more, change careers, or take some calculated risks. So, all of that said, I’ve gone a bit long today. I think all of this an interesting study.

Robert Graham:                  I think it is really easy to have high income, but have that be tied up in a lifestyle, have that be tied up in where you live, and ultimately, what we’re seeing here is that this couple makes a lot of money, but they don’t have very much leverage. So, what I mean by that is not only are they a little bit long on debt, they have little too much debt to have a lot of freedom in their lives, have a lot of spare income. They have a high-tax burden. They need to watch out for their children and play that game a bit. And in the end, they don’t have a lot of time that’s available to do what they want. They work long hours. They have a high enough debt burden and a high enough burden of living where they are, taking care of their family that they don’t have a lot of time, freedom, and they don’t have a lot of income freedom, and this just a difficult place to be.

Robert Graham:                  So, I think I agree with the author’s overall advice. You shouldn’t compare an income. You should compare more on things like freedom. And I think, unfortunately, when he outlines the debt position of a lot of professional workers, like those with business degrees, law degrees, medical degrees, unless you are extremely circumspect about how you handle your money and how you handle your accumulation of debt, it can be very difficult to live a lifestyle with very much leverage and a professional degree. Often times, the wheels come off a bit. You indulge your lifestyle a bit. You buy a bigger house and that high-income unfortunately gets nullified, and the professions, as outlined, usually are high-hour professions. So despite having high incomes, they also come with some difficulties in keeping very much of that income, and because of the lifestyle, because of the places you live, et cetera.

Robert Graham:                  There’s a really interesting perspective on this phenomenon in the book The Millionaire Next Door, which we mentioned earlier this week, as being one of the most popular books among 200 personal finance writers, by Jay Money and Budgets Are Sexy. You can check out that list on the directory that Jay Money set up, and I think that’s going to close us for today. I think this is pretty interesting. We’ll have some more reads from the Financial Samurai in the future. If you enjoyed the episode, we really appreciate a rating our view on iTunes, and if you’d like to get in touch, we’re always happy to talk with our listeners. You can get in touch with us, pod@yourmoneyovercoffee.com. Thanks for listening, and we’ll see you tomorrow you.

 

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