My last company (I stay home currently) had graduated health insurance coverage. For high income earners, you paid more than for people who made less. There were three tiers, and at the top, you were paying a lot for insurance. At the bottom, decent insurance was free, and good insurance was affordable. They put that in six months before I left, and honestly, it was one of the many reasons I pulled the plug on that job. I suppose it was fair, but I had been hired believing their insurance program allowed me to buy insurance at cost X. The next year to have it become 2X because I was a high income employee was a substantial pay cut. Since I didn’t like the job and had many other concerns (including how ethical - or legal - some of the things I was seeing were), it was time to leave.
Ah good point. In that light it does seem different.
Which brings up another interesting point, like myself I would bet that the money most people spend on “luxuries” is on the kids. I live fairly Spartanly (sp?) so that when my kids want to go out to a movie and dinner with friends I can say “yes” because I have a few bucks squirreled away for them.
Its something to remember when retirement planning - if you can get rid of all your debt and get a nest egg large enough to produce income (and get social security - which is - well…let’s not go there), your golden years can be - if not golden maybe copper. If you don’t manage to build up that positive net worth before you retire - you are so sunk - “Welcome to Walmart.”
And when you are 23 and have $50k in student loan debt and madly in love with someone who has $50k in student loan debt (and a desire to get an MBA or JD) and newly engaged, it looks like you’ll have forever to move that needle over into positive net worth - you don’t.
I’d probably just put $1000 in the checking account, or if I just got paid, maybe into the savings account.
That’s a good metric, indeed. $ 1000 (or € 1000 in my case) would go to the checking account, and I don’t really pay attention to such an amount, be it extra money or an unexpected expense (however, I would mention that I’m particularly not financially responsible. Most people with my income would pay much more attention to it). I’ll soon have to spend € 5000 or so. This is annoying, but not worrying. Two years ago, I got an unexpected windfall of €30 000 or so. This was nice and convenient since I had a hole in my finances precisely at this moment and would otherwise have needed to take out a loan. The money filled the hole, and the rest was spent on vacations or given to young relatives who needed it more than myself. It was definitely not life changing, though.
On the other hand, for my ex, a very poorly paid middle school teacher living alone (even though not in poverty. I guess she’in the 4th decile, slightly below the median income), every € 10 bill clearly matters and € 50 makes a difference (recently allowing her to buy a new and needed garnment, for instance). € 500 is a major issue, and if it is an unexpected expense she has to ask for help relatives or friends (her computer recently died on her, for instance).
I believe that her experience is much more common than mine, even taking into account my lack of financial responsibility. Roughly, I would guesstimate that € 500 matters as much to her as € 5 000 to me. And I obviously don’t make ten times more than her. Maybe twice as much. Which makes a massive difference, even though my income is pretty ordinary. Every small hurdle is a worry to her and put her finances in dissaray for a long time, while only the most serious ones (essentially whatever that could cause unemployment) would seriously bother me (and even then, insurances, small retirement savings or even the ability to take out a loan would shelter me at least for a while).
That considered, if someone is in turn making twice as much as myself, I would assume this person to be more than just secure and comfortable. You can’t just say that because you’re paying for a large mortgage, you don’t have much more disposable income than me. If being able to live in a $ 500 000 house isn’t luxury, then what is ?
I heard the arguments about differences in living expenses, but it only applies up to a point. Following one of the post mentioning the cost of housing, I found out that you can buy a 4 bedrooms house in Boston (same state as the poster) for much less than that. So, you can house three children without them having to share a bedroom in this major city with half of those $ 500 000. Similalry one could live in a less convenient place for much cheaper, I guess. I could live away from Paris proper and save a lot on rent (or gain a lot on living space) for instance. That wouldn’t make me a pauper. I would just have as much commuting time as most people.
FTR, I’ve lived twice on a very small income. Not as worrying as it would be for many people since in one case I knew the situation woud improve within at worst one year and in the second I was too young to truly realize how poor I was and too unrealistically optimistic to fear that it could last. So, I know what it is like to live on very few money (or even to have no money to buy food), with the associated worries (like not daring to open the mail box that might contain a new bill or a certified letter from a creditor), even though I don’t know how it is like to feel stuck in this situation. I know for a fact that you can live on way much less money than most people would assume (because they never had to try) but know also that it would be a nightmare if it were a long lasting situation. One can feed oneself healthily on € 50/month, for instance. Having to do so year after year couldn’t be tolerable. And the absolute lack of disposable income, even to buy, say, a cup of coffee, sucks big time.
This has been brought up but not really given the importance that I think it has:
People lie.
My next door neighbor claims to make $150K a year and is full of male bovine manure. My older brother claims to make far more than he does and I know this because his boss/company owner is a good friend and laughed when I praised him on how well he pays his workers leading to a discussion of what he pays.
Coworkers lie. There was some data released a couple years ago that allowed someone to make a mathematical model to predict their salary and we were able to make it and test it amongst ourselves. Applying it to others showed about what others made and it was enlightening.
People lie. If you hear someone saying what they make it is likely to be inflated.
I had a friend once who was very mad at me because I didn’t let him know I had a position open. I was confused and told him that the position paid far less then he currently made. He looked confused, then said “Oh, Yea”…then told me to make sure I tell him about openings in the future.
There was a salary website where someone asked me to confirm (or not confirm) what people I manage make and their reported income was a good 30-40% higher than they are actually paid.
You would think on the Internet where people don’t know who you are that people would be more truthful. I don’t think so. In a silly example of Eve Online - go to the forums and ask how much people make (in the in game currency) for doing certain activities and there will be floods of people stating extremely high amounts.
Yes, people spend too much on stuff, don’t save enough everything that has been mentioned on this thread. However, just as important a factor and probably more important:
People lie.
The point isn’t that they do it, but why they do it, and why they believe an ability to accumulate crap equals a “good income” and a “comfortable life.”
Yes, they do, but your statement is too short.
People lie… first and foremost, to themselves.
I’m pretty sure the percentile stats are based data from other sources (e.g. IRS), not self reported info.
Yes, but they also lie to others. If the people they lie to believe them, then they think everyone makes much more than they do leading to dissatisfaction and the weird result mentioned in the OP of very high incomes being considered only ‘decent’.
Oooo, and this can be so bad when you make a “good” income.
The thought process goes something like this. “We make almost $150k a year, I should be able to drive a BMW. And we should be able to afford that nice vacation - $150k a year is a lot of money.”
But they don’t really make $150k a year - they make ALMOST $150k a year. And they don’t take home nearly that - maybe 2/3 of that and that sort of assumes they aren’t putting money towards retirement. And every time you spend $500 because “we make almost $150k, we can afford it” you come closer to not affording it. $500 is not a lot of money against $150k a year. Its a lot of money when you do it over and over again.
Or they look to the aggregate of what their co-workers can afford: Yes, Bob has a BMW and Suzie takes nice cruises and Johnny wears designer clothes and Betty has her kids in a nice private school, but none of them do all of those things. But it’s easy to lump it all together and think “People like me have nice cars, go on nice vacations, wear nice clothes and send their kids to nice schools. Therefore, I can afford that, too”.
Related to the people lying thing: people also “lie” about what they can and can’t afford. For example, I really can’t afford to go out drinking. But if my co-workers invite me to happy hour, I’m not going to say “I can’t afford that”. It’s not even that I am ashamed of that fact–it’s just that if I do, they will offer to buy me a drink, and I don’t want that, because it’s not like I Don’t Have the Money, it’s because I don’t want to spend it there, and I can’t take someone else’s money on that basis. Or if I go and drink a soda, again, I am not going to mention why.
So for new people learning to budget, it looks like everyone else can afford to go out drinking whenever they want however much they want.
I agree- Voyager hit the nail on the head with that one. What makes it so handy is that it kind of abstracts the income vs. cost of living questions down into a simple question of how important is $1000 to your finances by looking at what you’d do with it.
It works equally well for other amounts of money to determine where your finances stand at different scales. For example, if you used $20, you’d get a different picture than $1000. Most people would probably just pocket the $20 and spend it as petty cash, but there’s likely to be a significant number of people who would have that earmarked for something in particular.
I’d say for middle class people, $1000 is a great value; if you make $50k, live in Topeka, and can afford to just plunk it into the checking account, you’re doing ok. Conversely, if you live in Manhattan, make $150k per year, and have to use that $1000 to make ends meet, you’re not making enough to support your lifestyle.
This is odd, because in the US at least people would rather talk about their sex lives than their income. Employers strongly discourage comparing salaries for reasons why too obvious if you’ve ever done salary administration for a department.
For the most part you can’t win. If your salary is low compared to others you feel like a schmuck, if it is high you sound like you’re bragging. (Just like IQ.)
I’m very surprised that any employer would report on what he paid to the point that someone would be able to know if an employee were lying or not. I don’t doubt it - it just seems like a really dumb thing to do.
That’s a great point. As I mentioned, people moving back to India got their incomes slashed in half but are probably better off than living in Silicon Valley. When we lived in Africa my father was able to support two kids in a nice house with a servant on his per diem, and was able to save his entire salary.
A few years ago the local rag published a database containing the salaries of all state employees. My entire office building was abuzz as we discovered who was reeling in the big bucks and whose salaries were so small that they didn’t even make the cut-off required to be in the database.
It was enlightening. This was I discovered how I ranked against other coworkers. The talk around the water cooler was colorful during those days.
This kind of information was always available to us. But who wants to do a FOIA request on their colleagues?
I was thinking of mentioning that, since public employee (and top exec) incomes are public knowledge. Private companies however keep it very secret.
Were there big discrepancies between people of the same seniority and same level? There are in private companies.
I didn’t study the numbers that closely. And my biggest problem with the database was that it didn’t report years of service so that I could do that type of comparison even if I had wanted to.
I do know the old guy who routinely falls asleep at his desk and does absolutely nothing all day makes more money than my boss does. My coworkers and I (secretively) crack up over this.
I didn’t necessarily mean they lie (only) about their incomes. I meant they lie about almost every aspect of their personal economics, mostly to themselves.
I know some people with terrible economic habits. When he got laid off they bought a new car. They took out tons of home equity loans and spent it on junk. But I don’t know if they lied to themselves. Being in denial is more like it - like tossing bills into the drawer unpaid because they couldn’t be faced. She was only able to keep her house long enough to sell it because he was going to reduce his life insurance to save money and never got around to it before he died.
Some people have a drive to spend money they don’t have because it makes them feel good, which I think goes along with convincing themselves they have more money than they do.
I think I probably lie to myself in that I convince myself I have less money than I really do. But I don’t think it is really actively lying.
I wonder if you can do a survey which determines a person’s perceived income level, and compare it to their real income level. I’ll have to see if I can convince my daughter to do a study on it some day.
Thank you for posting this. The guy with a $150,000/year salary might have huge savings as a result of lifestyle choices, no debt because his parents paid for school and he’s always paid his bills in a timely manner, and an investment portfolio. His money is working for him while he’s working. He may have additional income from consulting, speaking at conventions, publishing the occasional book or article, or even a generous annual gift from his wealthy family. Maybe he also receives bonuses on top of his salary at his job. This guy is pretty f-ing well off, especially if he’s single and childless.
Another guy with the same salary could have no savings, massive student debt (let’s say he’s a lawyer who went to a top school and is still $100k+ in the hole), credit card debt due to poor decision making, and no investments. He deposits checks and they go into his checking account where they accrue no (or virtually no) interest. He has no additional sources of income. He has a wife who doesn’t work and five kids. He’s not in an awesome position.
There are just so many variables, some mentioned above and elsewhere in this thread. Another big one is healthcare costs. Cost of living does make a huge difference and, in my earlier example of Topeka vs. NYC, potentially the difference between rich and poor.
This is also so contextual! I know it’s been said but it’s important. People tend to live near others in similar socioeconomic situations and they grow up thinking a specific way of life is normal, more or less. If everyone in your neighborhood growing up makes at least $250k and has a fancy car and you’ve only gone to private schools, it actually can be hard to understand how people live on $80k. If you grow up in an apartment complex where most adults work in the service industry and make under $40k a year with kids to support, it can be hard to understand what someone would do with $250k.