The biggest problem I see in society is the widening gap between the rich and the poor. When CEOs make 300X their average worker's salary and the top 5% own roughly 74% of all the assets, we've got some serious wealth inequality here!
I was just at this political fund raiser party which consisted of a couple hedge fund partners, a pre-IPO Chairman (host), and a CEO of a major food company and I realized then and there equality for our children is but a pipe dream.
It's vexing to read about a 55 year old distraught over losing her job when she's had 30 years to save and invest. She should be close to millionaire status by now and ecstatic with a going away severance!
I'm doing my best to help empower people to build their own wealth and narrow this ridiculously wide gap. But I think I'm failing miserably, despite the millions of visitors a year on Financial Samurai. Some days I feel it might be better to just kick back on the beach all day long instead of spend over a hundred hours a year writing content for five almost 10 years in a row now.
Collectively, I think we all have a responsibility to help others if we have the capability to do so. So the question is: What are you doing to help reduce the wealth gap?
The other side of the equation is people who are purposefully widening the wealth gap through financial self-destruction. We know we need to work harder and longer than the average person to make more money. We know we need to spend within our means and invest in order to build our wealth. Unfortunately, we often don't do the logical, even if a logical proposal is laid out right before our eyes.
Below are some sharp comments from my 1/10th Rule For Car Buying post to give you some examples of financial self-sabotage. The post's goal is to help limit people's spending on one of the most destructive expenditures to wealth around. If you are easily offended or feel bad that I receive such vitriol on a constant basis, you may want to skip to the conclusion instead. I love it, but I'm masochistic!
Examples Of Why The Wealth Gap Continues To Widen
This is just bad advice. In fact it's just ridiculous and unpractical. If you make 40K you should buy no more then a $4,000 dollar car? That means a 10 year old car with over 100K miles on it.
Correct. What's wrong with a $4,000 car that's 10 years old with over 100,000 miles on it? Are you saying my dear Moose at 14 years old, with 130,000 miles and a $2,500 market value is no good? That's insulting. He's been a loyal car and runs great.
Serious issues with this post. To start, someone who makes $100K per year can easily afford a $25K car. If you have good credit, interest rates are in your favor and you can probably get a loan for 0% or 1.9%. I took the 0% interest for 3 years loan on last year’s purchase of a Fiat 500C. Getting this loan meant that I had to put $5000 down, so I now have payments of $550 per month and the car will be paid off in 2 more years.
“Easy to afford” is an illusion. Finance companies make things easy to afford so they can easily take your money. A $550 a month car payment for a Fiat 500C? What? “Easy to afford” is the main reason why we went through such a huge financial correction in 2008-2009. If everybody could afford the things they bought, nobody would have defaulted on their loans, causing a huge cascade of asset devaluation that ultimately ended in a government bailout.
I make around 44k, and I bought a 370z that came out to 36k after taxes. I took out a 4 year loan to pay it off quicker, so the payments are pretty high. I was 25 at the time, and figured I would buy a nice car, pay it off, and then proceed to purchase my first house. I don’t see anything wrong with this, as I don’t plan on getting rid of the car once its payed off.
A $36,000 car on a $44,000 income is absurd. Of course you had to take out a loan. You don't come close to affording such a vehicle. A $44,000 income is only about $35,000 after taxes. At least you were nice in your comment.
Little problem with one of the things in your article: “Your $20,000 invested in 2009 would now be worth $40,000.” On what Planet? Where can I invest $20,000 and have it go to $40,000 in 4 years? I am currently sitting on over $400,000 getting crap for interest.
Planet Earth. The S&P 500 is up well over 100% since 2009. It scares me that people with $400,000 don't realize this. But on the positive side of things, this reader has $400,000 in cash! Read: How Much Savings Should I Have By Age?
Interesting article. But honestly ludicrous. A 25,000 USD car is not an “absolute luxury” that could only be afforded by someone making 250,000 USD a year. You are just extremely stingy and are highly content with a minimalistic lifestyle. Anyone can claim to be a financial guru if their advice is “don't spend any of your money on anything, no matter how much you are making”. (Obviously hyperbole by the way). Theres a difference between being an irresponsible consumerist idiot and living a comfortable lifestyle within your means. You are missing the mark in my opinion. 20-25% is a much more realistic price point.
Is it really ludicrous and stingy to live within your means? 20-25% is not a bad percentage as I indicated in my chart, but it's still a lot of money to spend on a car. What's ludicrous is people who would rather work for many more years just so they can buy a car they will get tired of soon after purchase.
This is BS all the way, yeah is well known cars depreciate quickly and is not in any way a good investment, but is definitely one of those little things that make you happy, to drive on a proper vehicle and not a peace of crap, that actually makes me sad, humans must surround themselves with beautiful things is one of the ways to make life bearable, if you pay all your bills and at the end of the month you still have a few thousands laying around why the fuck not, proper investments have proved to be really bad investments over the last few years, so fuck it, if you can afford it get a nice car and live a little. I think the rule should go like this: from 20K to 40K a year 10% sounds about right, from 40K to 65K 20%-30%, 65K to 100K 30 % to 40 % and if you make more than that, then get what ever the fuck you want, at the end if life changes you can always go back to be miserable and ride on a 2K car, or even worst, public transit.
Can you tell how someone is by the way they write? It's weird why public transit is considered so evil to so many people who must spend a high percentage of their income on a car. I take the bus every single week and would find even more value to public transportation if I didn't live in a large city because I'd get more bang for my bus fare traveling longer distances! What's wrong with riding a bicycle during nice weather either? Exercise + save money on transport is a win, no?
You sir or madam are an idiot. 250000 a year you can buy a toyota? hahahah I make 80k and drive a 40k tundra and easily afford it. and my wife doesnt work and takes care of our 2 year old daughter..oh yea and I pay for her 30k camry, groceries , bills, 1000 a month rent, 2 iphones, life insurance, car insurance, and 3 trips a year. hmmmm you may wanna rethink your numbers.
Isn't a Tundra also a Toyota? Isn't a Camry also a Toyota? Oh, what you're saying is that you don't need to make $250,000 to buy a Toyota. Got it. If spending 90% of your annual salary on two cars makes you happy, go for it. But why not shoot to make $250,000 instead?
Make 200,000 and drive a Honda Accord…… are u fucking serious this is a retarded list you have made. i'm not making anywhere near $500,000 but M3 all day. it’s something you use everyday and i want to enjoy it.
Why is it so bad to make $200,000 a year and drive an Accord? $200,000 is a respectable salary and the Honda Accord has won Best Mid Size car for 10+ years.
Ruin Your Financial Life If You Want
Why are these people so offended by my post on keeping a car purchase to 1/10th your annual gross income? I didn't make fun of people who drive around in BMWs while living at home with their parents. If someone violates the rule, they aren't going to be damned to hell. It's just a good rule I think everyone should follow.
The reason why some people are so pissed is because the rule violates people's sense of entitlement! A guy who only makes $44,000 a year feels entitled to his $36,000 370Z, so he takes out a four year loan to blow himself up. A husband who makes $80,000 feels entitled to spend 90% of his income on two vehicles because he works so hard. When I asked him to elaborate on his finances further, there was no response.
Most of us are “C” or “B” students. That's just the way the law of averages works and there's nothing wrong with being average. But if you are an average student who believes s/he deserves a rockstar lifestyle, you will be financially screwed until you face reality. You'll always be trying to catch up with the “A student” who can actually afford the “A lifestyle.” What's worse, so many “A” students live well below their means, investing their disposable income and getting that much richer in the process. The key is to live your life according to what you are.
If You Splurged Between 2010-2018 You Lost BIG TIME
If you took out a car loan, piled on other types of consumer debt, or simply bought a ton of wasteful stuff you didn't need, then you're really falling behind. Every dollar you borrowed to buy something you don't need could have easily returned a realistic 50%+ since 2012. And if you let those dollars compound over 10 years, you'll see incredible wealth accumulation. Consumers want bear markets because at least they have something to show for their consumption as everybody else loses money.
There's no need to worry about anybody's finances. Part of the reason is because you'll get incredibly frustrated if you keep on getting ignored or ridiculed by people you're trying to help. Instead, let go and let people figure things out on their own because everything is rational. Maybe they'll realize at age 50 they should have saved and invested more. But at least they had a spanking good time spending more than they could afford for 25 years after college right?
Attitudes are very telling in the comments people leave. Financial Samurai is large enough that it attracts a good sample set of people across all different ages, races, countries, and socioeconomic classes. It's just too bad more people who really need financial help aren't the largest consumers of financial information.
When they stumble across my site or other sites that practice financial discipline, their rage gets unleashed because discipline runs counter to their way of life. Words such as “cheap,” “miserly,” “ridiculous,” “impractical” and worse gets spit out like venom. And if you then write about the financial freedom you now enjoy due to such financial discipline, they'll hate you even more.
The Solution To Wealth Inequality
The solution to wealth inequality must take a concerted effort from both sides. Those fortunate enough to have gotten ahead need to do more to give back in the form of time, money, and education. Parents need to do a better job teaching their children about the importance of education. With more education comes more opportunities. What people do with their opportunities is up to them.
For those who are struggling, it's incumbent upon you to spend more time educating yourself about money matters e.g. savings, income earning strategies, investing, etc. There are plenty of free resources at the library or on the internet to learn from. There's also an example of almost every one of you who has managed to improve their financial situation over time. Seek to hear what they have to say and take their advice to heart. It's easy to discredit other people's achievements. Instead, change your mindset so that you're on a mission to create your own luck.
Note: If you were offended by the comments, don't read, “How To Retire Early And Never Work Again.” The comments are full of naysayers that will get you down if you let them. Be of strong mind and fight, fight, fight!
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I’ve preached a similar mantra to my friends for many years, and you are the first person I have every heard preach a similar story. I personally think your monthly payment shouldn’t be more than 10% of your take home monthly pay after taxes. Also it is best to be disciplined and save up enough to pay for your car in cash. The whole time you are saving you should be throwing the money into an investment account like LendingClub so their money continues to grow while they are saving, by the time you hit your intended savings goal you could do one of two things. Cash out and buy your car outright or take a loan for a car in which your monthly payments equal the amount of interest you are receiving from your invested money. For example, save $30k at an average 10% return which is around $300 a month. You can then go buy a 1 year old used car off the Airport rental lot for $16k which is about $287.50 per month @ a 3% interest rate over 5 years. Now you have a free car! This scenario is real as I just purchased by 2015 Prius this way, after driving my previous car for 250k miles. However I paid half down and only took a loan for $7k so my payments are closer to $150 a month.
This is awesome! Very good perspectives and good oppinions. After reading, thing that was obvious was that people take other peoples oppinions directly personal. I do agree with the samurai and if able would like to do it, but then also If able I would like a flashy ride alot more too (personally)… My goals are not to own a home and die slow in it! Just like my goals are not to buy the most expensive car I can and drive off a cliff in it. What is your goal, do you have any besides “the goal of having bragging rights over your friend who has to buy you lunch most of the time…” nobody likes to eat in front of people waiting for them to finish”( especially if you know why he cant afford to eat) … And If your goal is to be the well known owner of a certain home then fine with me just invite me over “Success right”. Or how about besides “the goal of replying to what is my own oppinion to give YOUR OPPINION lol” … Like I said this is awesome! —Mr.Samurai “I took your advice before coming across your site “I started my own thing and its over a yr now” no, nothing to bragg about(haha I too can fall victim lol) money yet! And thats fine “as long it doesnt cost me any money I’ll keep at it! Great advice I’ll take what I need and aim at progress
” its not the size of the dog in the fight,
It’s the size of the fight in the dog” …you can do whatever you like best from the choices availablecand while supplies last. ( I dont think people can do whatever they want, ever! Thers always something “thats the point”… A homeless person gave me the best advice he was so broke we called him joke, he said “make sure you dont buy a car or house today, and die tommorow! No matter what it costs you hear me!”
This is awesome! Very good perspectives and good oppinions. After reading, thing that was obvious was that people take other peoples oppinions directly personal. I do agree with the samurai and if able would like to do it, but then also If able I would like a flashy ride alot more too (personally)… My goals are not to own a home and die slow in it! Just like my goals are not to buy the most expensive car I can and drive off a cliff in it. What is your goal, do you have any besides “the goal of having bragging rights over your friend who has to buy you lunch most of the time…” nobody likes to eat in front of people waiting for them to finish”( especially if you know why he cant afford to eat) … And If your goal is to be the well known owner of a certain home then fine with me just invite me over “Success right”. Or how about besides “the goal of replying to what is my own oppinion to give YOUR OPPINION lol” … Like I said this is awesome! —Mr.Samurai “I took your advice before coming across your site “I started my own thing and its over a yr now” no, nothing to bragg about(haha I too can fall victim lol) money yet! And thats fine “as long it doesnt cost me any money I’ll keep at it! Great advice I’ll take what I need and aim at progress
” its not the size of the dog in the fight,
It’s the size of the fight in the dog” …you can do whatever you like best from the choices availablecand while supplies last. ( I dont think people can do whatever they want, ever! Thers always something “thats the point”… A homeless person gave me the best advice he was so broke we called him joke, he said “make sure you dont buy a car or house today, and die tommorow! No matter what it costs you hear me!”
Well, I actually like the 1/10 rule and used it myself when shopping to replace my 17 year old Pathfinder last summer. Probably would have kept driving it longer, but two breakdowns in three months with kids in the car was a “time to replace the car” moment for my wife. After picking out the vehicle with the features we wanted, I just dialed back the production year until the purchase price made sense. Single owner, beautiful condition and 75% less expensive than the original retail price. I also saved another 3-4 thousand by picking it up in Chicago, spending a couple days with friends and driving back home.
The best part about starting with a used vehicle is minimal concerns about cosmetic damage. Only two weeks after buying it, I got some nice car length scratches while off-roading during a camping trip in the mountains. It was easy enough to buff them out afterwards, but it’s pretty easy to picture the major freak-out factor of my neighbors had the same thing happened to their brand new Mercedes/BMW/Range Rover.
I don’t think it’s entitlement behind those negative responses. When you have little and think everyone around you is doing better, it’s pretty easy to fall in the trap of valuing yourself based on your possessions. Driving around in a 1/10 annual income car translates to feeling inferior for too many people. I’ve read exactly the same comments from high-income people on a different site when your car buying rule was referenced. The only differences were nicer language and rationalizing buying new because of the “better safety features”.
Thanks for the suggestion!
i may agree with your 1/10 rule at the begining when one is young. But, lets say you are making 80k passive income without touching any principal plus you work when and if yoy want extra money.. that rule is bogus then… if you are making 80k or 100 k passive and yoy have zero debt and you want to pay cash for 100k car I would say do it… at least you could afford it even not working. I already made the mistake of buying a kia optima for a total of 38k sadly I wasnt making 400k a year but half that… next time I buy used.
In about 5 to 10 years I should be making 100k passive so I could spend in whatever I want, maybe a car wouldn’t even be in my desires anymore.
My wife and I are both 29 years old. We make collectively ~$210k/yr and we don’t own a car at the moment. We’re saving to upgrade from a 1br apartment to a small house. We both walk, bike or transit to work. Living without a car is entirely possible, and saves a tremendous amount of money once depreciation, insurance, maintenance and gas are factored in. We know that the extra dollars we save now will be worth about $6-$8 when we retire. We’ve got a nest egg of about $300k saved now, and we’re working towards true financial independence by living well within our means.
All of that said, I think there are many factors that contribute to the wealth gap that are out of control for Average Joe & Jane. “Be more frugal” is hard if you only make $40k/yr with dependants.
Sam, you know all the people you quoted in your article are idiots, right?
And that’s my comment.
Sincerely,
ARB–Angry Retail Banker
I’m not sure they are idiots, I think they feel “they earned it” because it seems affordable without thinking long term + money lost on interest. (not to mention that they could’ve earned it )
I’m seeing this pattern all over, people don’t tend to give a crap about their financial spending when it’s something like a car or a house ( just go max out the credit ).
Have you tried to change someone’s else mind about a “premium” purchase ? Some people just don’t put too much thought when it comes to NOT go into maximum debt for a house/car.
??? Millions of Americans have no credit to max.
I’m not sure that I agree with 1/10th being the golden number. One might limit his/her expenses in another way that could allow them to own a nicer car.
However I do agree that the wealth gap is 100% naturally created. You could redistribute all of the wealth, but within a generation it would naturally reform.
You have people that make minimum wage, and they spend money on expensive $150-$200 sneakers. Going out to bars, smoking tobacco, etc. People need to save more, and spend less. Not everyone needs the newest iPhone, or expensive watches. Not everyone needs to travel the world.
When you lose your job and discover you have no savings, who is to blame?
For the 11 million Americans whose rent consumes half or more of their income, The Rent Is Too High is often to blame.
When you drive a used car, at a certain point a number of expensive items will break down in fairly close proximity to one another. You might as well plan for it.
In 2009 I bought a 2002 Mazda Protege with 24,000 miles on it. It still has less than 90,000 miles. This is the year that expensive stuff starts to break simply because the car is now in its 15th year!
So, I could trade it in for a newer (used) car and then make payments on it. Or I could just pay the charges to replace the old parts with new parts. Here’s the interesting thing. Over the next two years (as more stuff breaks), I might break even or I might come out ahead on total cost. But if I repair my current car I’ll have a used car with a higher percentage of key items that are new! Not only will I save money after this and next year’s high repair bills by not having any monthly payments to make, I’ll save money on repair bills in the future, too.
Oh, one other thing. About 4 years ago we had a major hailstorm come thru the area. It totaled both our cars. Nothing was functionally wrong with either of them, they just had a whole lot of dents in them. Everyone else looking out the window with me was crushed because their car was dented. I was (literally) singing and dancing, “Money from Heaven! Money from Heaven for ME!”.
We just kept driving them. The insurance company totaled them, which mean they paid us for the residual value of the cars, then we bought them back as salvage cars. We netted $10,000 on the deal. Everyone else was out their deductible.
It’s not just what happens to you in life, it’s how you respond to it…
LOVE your story :) you were very smart!
The need to trade-up cars also depends where you live. I lived for a long time in US NE with lots of snow, very cold winters, and road-salt. I found that most cars would last ~6-7 years and then suddenly go seriously downhill in terms of big maintenance items. I also found that 2-3 year old used car market was tight, in general. Now I live in California and see 1970’s vehicles with original paint and wheels on the road, all the time. Used car market here seems to go as far back (in model year) as you care to own….
Agree, it’s very important to NOT get intoxicated with continually having to have “that” new car. Just don’t go there!
If you like a car that much, then why make it your targetted hobby to research, locate, and then buy |that specific awesome| classic car, and plan to keep it, as your particular source of owner-pride and a thing of beauty. Get a cheap, boring ride for day to day use. This way you’ll really appreciate your “other car”. Besides that, the new car feeling always wears off in about one year.
Dave
Ecstatic with a going away severance? In the low-wage world, I have never seen or heard of such a thing.
It’s amazing how many idiots argue with you when they come to read YOUR blog/site.
I wish I had followed the 10% rule after college. I spent a bit too much on that first car and literally at 30 I’ve had 3 new cars and finally traded last one used. All told…even on modest cars (basic CRV, ford focus, and a nissan sentra) I’ve probably lost 15-20k in depreciation alone…not counting interest and opportunity cost.
Seriously…made great money…the 10% rule literally has probably sucked a “down payment” from us at this point. I’ll easily make it up in the long run and learned the lesson early.
But to illustrate my (better but not perfect) decision on the last vehicle I bought and will run til the wheels fall off.
Ford Escape custom build that I bought used…about 18 months old when I got it.
Ford MSRP (Custom so she paid this) 32.5k
18 months later I paid 19k for it with 36k miles and it was CPO.
Basically I doubt they gave her more than 16 for it…
She lost half the value in 18 months.
19k is still a bit more than the 10% rule would’ve been for me but better than what I did before (was buying cars around 40-55% of my income early on…and this one is about 16-20% or so of my gross last year).
Live and learn but seriously…please don’t ever pay attention to your moron readers who want to argue with you. Fact is…you’ve got optionality and they don’t…and frankly thats the ONLY true sign of wealth.
When asset prices “settle back down” in the next 5 years…your optionality will be the only real asset with any value for a while. Cars are a weight and honestly I’ll probably never buy a new vehicle again since its just too easy to buy used and get a better car for less money.
Appreciate you Sam…really do. I’ve read many of your articles here the last month or so and it’s really helped me out. Biggest growth I’ve had is shifting back to the way I was brought up to honor “stealth wealth” and admire those who secretly own much but outwardly show little signs of conspicuous wealth. I was raised that way and admittedly lost my way at times in my 20’s…starting my 30’s off with a bang and making up for lost time.
Cheers buddy hope you have a great one!
Howdy Brad!
Thanks for your thoughts. Awesome you’ve been reading a lot of my other articles as well.
I generally always like a good argument if things are kept civil with good data points to back a viewpoint up.
Optionality really is an excellent thing to have. Things are going to be tough for the next two years and I’m saving all I can!
Sam
Absolutely going to be interesting. Just read this piece on the rise in dividend cuts. I think the corporate “binge drinking” on cheap debt is about to come to roost.
What will be interesting though is picking up XOM and stocks like that with a history of weathering the storm.
Going to be a lot of assets on sale in the next few years…best time in a while to pick things up.
You noticing any changes in San Francisco with tech stocks like Linkedin, Twitter, and others dropping a bit?
Cheers
Brad
Whoa…those comments are ridiculous. Spend half your income on a car if you like, but don’t complain that you have too much month at the end of your money when all is said and done. I made the mistake of buying a car that’s way too expensive for me last year, when I didn’t know any better. I wish I had heard this 1/10th rule before I spent so much on something that should really just get you from point A to B and be safe for you to drive around.
I learned my lesson and am considering either trading the car in once the car is worth more than what I owe on it, or just finishing off the payment I have left and NEVER making such an expensive financial mistake again.
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I discovered this website quite recently and found several article very valuable.
I would just add some thoughts based on my European origin; I moved to the US 2 years ago.
– America is one of the few place I know where the value of the car owned and income seems so disconnected.
In Europe I had the habit to see low-level employees driving used compact cars and upper management driving new high-end German cars. The value of the cars bought were maybe not 1/10th of income but they still followed a relatively constant percentage of the income.
But within my new company in the US, full-size pickup trucks are pretty popular… at every level of the hierarchy! It is mind-blowing that the division manager earning $200k+ and a low-level employee at $40k spent the same amount on a car (or even more for the low-level employee as its financing options were probably less interesting).
– One solution to solve part of the income inequality is the tax system.
I lived both in Australia and Denmark, two countries with a very strong middle-class but also very high taxes on luxury items. I think the two are correlated.
Concerning income taxes, even if most people in high brackets feels that they pay an insane amont in taxes, they are still paying less in the US than they would in most of Western Europe. High income taxes for high incomes have a double consequence:
1. you get richer slower once you reach a certain salary;
2. it “reduces” greed : the interest of making more money once you reach a certain level diminishes strongly has most of it goes towards taxes.
Jerome,
Welcome to my site! Your perspective is excellent and very welcome. I’ve been looking for more such perspective myself as I visit Europe for 2-3 weeks a year interviewing people.
I hope more readers read your comment. I might publish a dedicated post around your comment. Point 2 of yours is spot on. I felt much less desire to make money the more I made due to taxes and our very inefficient government.
You might like this post on America becoming more like Europe:
https://www.financialsamurai.com/ive-seen-americas-future-and-it-looks-bright/
This one too:
https://www.financialsamurai.com/your-obsession-with-being-the-best-kills-happiness/
Forgot one thing…Financial Samurai, you are a wonderful human being for what you have been doing on this site. Unfortunately, in many cases, you just can not fix stupid! For that reason, the gap might just go wider many years down the road until….??? Like you, I will try to keep provide good education to everyone around me and hope for the best.
Hi AC,
That’s very nice of you to say. Thank you. Nice job with your money spending habits and discipline. I do wish your car goes to at least 200K. That would be great!
Sam
While I love all your articles, this is the best one IMO. It is clear that those people you mentioned in the article is exactly the reason why Top 5% owns 74% assets in this country. My understanding of affordability is after tax, the basic needs, tons of savings and if you still have some extra cash, then you could spend part of that for what you want (not need). For example, I did buy a 25K car in cash when I was 35 based on the time I had 250K liquid assets with a house paid-off. Yes, we have similar 10% rule here except for me the 10% is based on the net assets and not my salary. If you really could afford something (including your house!), you pay cash NOT borrow money that you don’t have and assume you will be still healthy and have a good job many years down the road. Sometimes I am wondering how low the house price would be if the laws says you can only buy your home with cash. Now my net assets are much higher but I am still driving the 25K Honda Accord with 132K miles. It runs great and maybe it will pass 300K mark someday!
I think the biggest mistake I made growing up was taking my sweet time before jumping into the working world. I had always been taught that education was the most important way to become successful and therefore rich, but in the end i became a good poor student. I wish it would have been the other way around, instead of striving for knowledge from the very beginning i should have strived unceasingly for money, learned to work a cash register, how to swindle people out of their last dollars. Instead I went down the path of philosophy, now i am too overwhelmed by philosophical doubts to make any money. There is certainly a discrepancy between rich and poor but i think it’s not that simple, in some way I feel it’s easy to think the game is rigged, perhaps it is, however, i think the education system is partly to blame, it is somewhat outdated and isn’t always preparing students for the “real world”…
Ed, can you share your age and what you do now? Did you go the Super Senior route of more than 4 years in college? Or are you talking about also getting a Master’s degree when “taking your sweet” time and not working?
Hi there
I stumbled across your site a couple of years ago and liked the advice, so I’ve kept reading
I do have to say though that there have been occasions where I’ve thought I’d unsubscribe, because sometimes your advice does come over as a bit patronising.
I know you’re well intentioned but to listen to someone going on about how you should save 50% of your salary to invest when the person giving the advice is earning $200000 a year can seem a bit rich if you’re earning $30000 a year.
The trouble is that no matter how frugal you are, there is a basic cost of the bare minimum for what should be considered a reasonable income in a country where some people earn 300x, or more, than that $30000 salary. Saving 50% of $200000 a year is frankly a doddle. Saving 50% of $30000 is close to impossible.
I live in the UK and earn about $83k and to be honest could’ve done with your advice 30.years ago, as I’ve made a bit of an arse of things financially, however I was recently left a sum of money and have invested it in stocks – I started out small and carefully, but I’ve now put in $50k and managed to make it grow to $73k – that might not seem like a great return for 4 years, but most of the money has gone in later rather than sooner, so it’s a better return than it looks at first – $9k of the profit has come since mid October 2013!
It feels great to see my investment growing and I get a real buzz out of it, but to be honest, I found it nigh on impossible to put anything away when I had no capital, was younger and earned less. But it’s easy, now I have some capital, to see this is exactly what you should do – even if you can only save $10 a month, you should still do it because eventually, it will grow into something worthwhile – the main thing is to start young, but most of all, just to start, and then to keep going.
Incidentally I spent $6k on my car, which is less than 10% of my salary – it’s a 2006 Ford mondeo (sorry you”ll have to Google that if you’re in america) with 40k on the clock, had it about 18 months and hasn’t cost me a penny in maintenance!
Keep up the good work on the site, and if you’re reading and you are on $30k per year, even if you put away a dollar a week, if you start young enough, it will grow into something useful, so don’t um and aw – just do it!
The gap between the rich and poor will never get any less while atitudes prevail that it is ok for CEO s to earn 300x the salary of the lowest paid worker at the same company – frankly, that is an obscene differential and nobody is worth that sort of money, whatever justification they may give.
As an example, Wayne Rooney, a footballer over here in the UK has just signed a new contract for £300000 a WEEK (about$500000). Salaries like these are sometimes justified on the basis that being a footballer is a short lived career, but with the average UK salary being $24k, you would have to work 650 years to earn 1 year of Wayne’s salary. If you think that is in any way justifiable, you must be certifiably nuts.
We need a change in attitudes to this sort of inequity
Hi there
I stumbled acroos your site a couple of years ago and liked the advice, so I’ve kept reading
I do have to say though thY therr have been occasions where I’ve thought I’d unsubscribe, because sometimes your advice does come over as a bit patronising.
I know you’re well intentioned but to listen to someone going on about how you should save 50% of your salary to invest when the person giving the advice is earning $200000 a year can seem a big rich if you’re earning $30000 a year.
The trouble is that no matter how frugal you are, there is a basic cost of the bare minimum for what should be considered a reasonable income in a country where some people earn 300x, or more, that $30000 salary. Saving 50% of $200000 a year is frankly a doddle. Saving 50% of $30000 is close to impossible.
I live in the UK and earn and to be honest could’ve done with your advice 30.years ago, as I’ve made a bit of an arsd of things financially, however I was recently left a sum of money and have invested it in stocks – I started out small and carefully, but I’ve now put in $50k and managed to make it grow to $73k – that might not seem like a greatereat return for 4 years, but most of the money has gone in later rather than sooner, so it’s a better return than it looks at first – $9k of the profit has come since mid October 2013!
It feels great to see my investment growing and I get a real buzz out of it, but to be honest, I found it nigh on impossible to put anything away when I had no capital, was younger and earned less. But it’s easy, now I have some capital, to see this is exactly what you should do – even if you can only save $10 a month, you should still do it because eventually, it will grow into something worthwhile – thé peu thing is to start joint, but most or all, just to start, and tien to keep going.
Incidentally I spent $6k on my car, which is less than 10% – it’s 2006 Ford mondeo (sorry you”ll have to Google that it you’ré in america) with 40k on the clock, had it about 18 months and hasn’t cost me a penny in maintenance!
Keep up the good work on the site, and if you”re reading and you are on $30k per year, even if you put away a dollar a week, if you start young enough, it will grow into something useful, so don’t um and aw – just do it!
Glad you are making progress!
And I’m enthusiastic your attitude about saving has changed. I think the goal is to try and save 50% or as much as you can with what you’ve got. Obviously 50% at $30,000 is extremely difficult, but there are examples in the PF community where people do exactly that.
Once you build the savings momentum it is hard to stop!
I really appreciate your car post, it was a new way at looking at car purchasing that I hadn’t thought of. But I’m not big into purchasing cars. I’m in my late 30’s and I have only purchased one car in my life (being fortunate enough that my parent’s purchased a used one for me a graduation gift). Every now and then I get the urge to want a new car, knowing that financially it makes no sense to get rid of an 8-year old car that is fully paid for with only 100,000 miles on it. But new cars are nice. However, I find that once you look at the sticker, all thoughts of wanting a new car quickly fade away. One day I’ll have to replace my car, and I’m not looking forward to that day. Of all the payments in life, I think car payments are the worst.
I’m usually fairly on board with you but the problem with this article is that wealth equality starts with income inequality and that gets worse every year due to many factors that are outside of peoples jurisdiction. You can’t build wealth from a position of zero. I think if we work to lower income inequality we’d be a natural close in the gap of wealth equality as well. A person who is stuck in the bottom half of income will never catch up to someone in the higher brackets especially when the upper bracket is making even 20x more than the. It takes me about 3 years to save 50k (my salary), a person making 100k has the ability to save more than that in a year if they choose, and even if they save at the same percentage as me they’re coming out ahead re: wealth building because at 8% interest their money would compound even faster to outpace in terms of wealth. Even with magnificent luck I’d be hard-pressed to ever catch up to them without significant debt to improve my training/education and there by my salary but only possibly OR without some magnificent big break.
Could most people stand to save more money? Yes of course. Do people buy expensive cars when they can’t afford them? Of course some do. Generally though wealth gap goes hand in hand with inequality of income and I think it’s a little disingenuous to blame it on people not investing or buying cars as if those are the sources of peoples woes and not a disparity in the income of most of the people in this country.
(In case you’re curious I followed your 10% rule for my car because I just want to get from point A to B, I have a cute little green hatchback with great mileage that I bought for 5k that was 3 years olds when I got it. Apparently most people don’t like driving around in a bright green tiny car in case you’re looking for a good deal, strange colors are almost always cheaper and easier to find in the parking lot!)
So the question is: What is the solution? And what are some of the things you are doing to help lessen wealth inequality?
There are two sides to this equation. How people who can help can help. And how people can help themselves.
Maybe the inequality can’t be helped. Large gaps between the haves and have-nots are everywhere. A small percentage of athletes, artists, musicians, authors, actors etc. make a disproportionate amount of money relative to others in their professions A small percentage of average American workers will save way more than they spend. We make the mistake that everything needs to fall on a nice neat bell curve, with gradual variations across a sample population. Society is not that predictable.
I spend a large portion of my free time working to change the status quo surrounding minimum wage (which is nearly impossible to live), pushing for legislation which closes tax loopholes and deductions (which keeps wealth situated at the top of society), and healthcare reform (the majority of bankruptcy comes from medical debt and a lot of it from chronic illness and cancer – both mostly unpreventable/genetic). There are other including lowering the cost of education and investing in better infrastructure as well.
I protest, I write letters, I work with charities and I vote for people who work towards the same goals.
I also I attempt to leverage my money to work for me and educate others to do the same (not too unlike you :) ). There’s a world of factors out there that keep wealth funneling towards the top.
It’s mind blowing how disconnected from reality you are.
Feel free to share what the real reality is.
Sam…have you wrirren any articles on how much house can i afford? Or how much mortage can i take on??? Id love to read your perspective. Thanks
Sure, here are a couple posts:
https://www.financialsamurai.com/three-home-buying-rules-for-all-to-follow/
https://www.financialsamurai.com/the-ideal-mortgage-amount-is-1-million-dollars/
Like many others, I was fascinated by this article. My wife and I live and work in Manhattan and are lucky to have worked in a highly compensated roles for over 15 years that require long hours and a lot of stress. My wife and my annual expenses are about 20% of our gross income. We bought a second hand compact that was already 15 years old in 2000 for about $1k, and a brand new compact that cost around $16k in 2003, both for cash. We sold both to my sister and brother in law who as senior oncologist earns plenty but also sees no need to waste money. When we moved to the city in 2004 we’ve never been able to justify the expense of owning a car. (I realise this is only really possible if you live in a city with good public transportation and don’t have kids.)
We enjoy ourselves immensely, but simply don’t feel the need to live a luxurious life or keep up with anyone despite being surrounded by very highly paid colleagues. Our living expenses seem huge compared to where they were back in 2000, but proportionally our salaries have risen many times more in the same time period. It’s entirely about how you perceive yourself and how much you think you ‘deserve’.
Thanks for sharing Jeep.
When do you think you’ll ever give up your job for a less stressful life?
Stress is something I took like a champ on Wall St., but finally decided to call in quits in 2012. With my new consulting role at a tech company, I feel stress and frustration again. I’m acutely aware b/c I experienced absolute freedom for 18 months before that.
Good question… My wife and I grew up poor (my father was an academic who was unemployed for several years and my mother worked part time, my wife’s were small hold farmers who didn’t get out of debt their entire working lives) and living cheaply and saving the rest is part of our make up. Reading your site has given me some great ideas about achieving some kind of financial independence — although $200k is a big challenge. I’d love to see more from you about how to go about buying and letting real estate (among other financial independence opportunities).