We in Honolulu live in a very high cost of living area as do our kids in NYC and LA. We all live on much lower incomes than $500K/yr per household but live below our respective means and manage to pay off our credit cards in full every month.
Ever since being done with grad school, I’ve had savings. When you have savings (especially a sizable emergency fund), I don’t consider that living paycheck to paycheck, whether your savings are growing or not.
I guess my definition of paycheck to paycheck is different from study authors.
If only in whatever high school math course that exponential functions are taught (algebra 1, algebra 2, precalculus), they would include “word problems” about compound interest as it applies to debt and savings/investment…
[quote=“HImom, post:21, topic:3708668”]
I don’t consider that living paycheck to paycheck, whether your savings are growing or not
The focus of the study is on building a retirement fund so saving/investing for the future is the primary goal. Turns out that credit card debt (and carrying that debt load) is a huge part of that.
In our house, we grew up always living below our means and not paying off bills in full every month was for suckers. Interest is something you earned, not something you paid. The only exception was a mortgage. Our kids followed the same playbook.
The survey asked people how well prepared they feel to meet their long-term financial goals. It’s not an assessment of their actual financial situation. So, how people feel is very subjective, and it depends on what those long term goals are.
The number of high earners who feel they’re living paycheck to paycheck isn’t “most.” Although 36.6% is a high percentage, it’s not even a majority. I certainly don’t feel this way myself but I’ve heard others complain that they have so little money left in hand each month (and yes, they could make different spending choices to address this, as I’ve mentioned in previous posts)
Some of them FEEL they may need 8 figures or more for their retirement goal and to retire in a short timeline. Who knows? Who knows how these people were chosen for the survey in the 1st place.
First, there is no justification for the sort of spending that results in a family of 4 who make >$500K a year “living from paycheck to paycheck”. The Median CoL in San Francisco, arguably the most expensive place in the country, is around $170K a year. Even after taxes, $500K in SF leaves far more than $170K.
The cost of a home that is affordable is around 3X-5X your annual gross income. For a family making 500K that is $1.5-$2.5 million. The median home price in SF is around $1.3 million for a condo, and $2.2 million for a single family home.
So really, the only way that a person who is making more than $500K a year is “living from paycheck to paycheck” is if they are spending money as though they are making $1 million a year.
Second, there is the fact that families that are making more than $500K a year have increasing amounts of their income that is not from a salary. For more than half of this group, the majority of their income is through capital gains.
What that means is:
A. People cannot “live paycheck to paycheck” if they are not not dependent on paychecks for income, and
B. This SES mostly have large amounts of accumulated wealth, so claiming that they “live paycheck to paycheck” is a huge load of bovine excrement.
I agree. But my point is that you can’t change how someone feels about something. I don’t agree that they’re living paycheck to paycheck either, but I can see why some may feel that way.
The survey didn’t include a financial audit to compare feelings versus reality. It merely asked how people feel about their retirement readiness.
There are people who never FEEL they have enough money and don’t FEEL ready for retirement and costs of old age, regardless of how much they have and how much they earn.
D1 has a nanny to take care their 2 kids. It’s about 75k/year (after tax) and they have their kids in private preschool and kindergarten. Her husband’s salary goes to pay for the sitter and schooling. I just googled on the cost of daycare around their neighbors. It’s around 3500/child/month, so having a nanny is actually more economical. They don’t live lavishly. They go on vacations, go out to eat, etc, but no second home or cars and their apartment is a 3 bedroom. She said it would be hard for them to live on 500k with 2 kids in nyc. D1 is pretty disciplined to only live on her base salary. A lot of people at work with her salary have home in the Hampton, big house and multiple cars. She said she probably could retire at 45.
Second exception was for college. Refugee/immigrant families know that they only thing you can take with you is what’s inside your brain… Land, factories, bank accounts, homes- all left behind or seized.
It was probably 35 years ago but we watched a short documentary about a couple in Texas that came into a lot of money (oil or cattle). I can’t remember the details but it made an impression.
They acquired about 2 million ( let’s say) which changed their lives and with that money came a new circle of friends–all of whom had more than they did. The expectations rose and expenses rose to match the lifestyle.
They grew the business and got to 6 million networth. Once again, the peer group changed to the next rung of the social ladder. And once again at 13 million. It was a never ending spiral.
The question was “Did the money make you happier?” And the answer was “not really”. The first amount of course did because it was then they didn’t need to worry about needs at all. It was freeing. The rest was “wants” and expectations driven by a peer group at each rung of the ladder. At each step up they lost friends just from class devides simply because those relationships became too hard to maintain. The best friends were those who knew them before they had anything.
One doesn’t HAVE to change “peer” groups when one increases net worth. For example, my sibs likely have double or triple or quadruple our net worth but are still “peers,” in many senses.
Your sibs are not a new peer group based on wealth and running in new social circles. They are the ones who’ve been with you from the start. They are the “long time friends” who know you and accept you for you.
