After publishing The Best Of Financial Samurai 2013, I went back to several of the articles to respond to comments I missed. As I was reading some of the comments across various topics, I started getting this sinking feeling that perhaps there’s nobody to blame but ourselves for our current financial situation.
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 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 later 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. 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 WILL 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.
BLOW YOURSELF UP FOR ENTITLEMENT’S SAKE
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 IN 2013 YOU LOST BIG TIME
2013 saw a 30% increase in the stock market and a 13% increase in home prices nationally. If you conservatively estimate an average home equity percentage of 30%, then homeowners saw a 39% increase in their home equity. In other words, a bull market is horrendous for consumers who want to grow wealth!
If you took out a car loan or piled on other types of consumer debt, then you’re really falling behind. Every dollar you borrowed to buy something you don’t need could have easily returned a realistic 10-30% in just one year. 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!
RECOMMENDATIONS TO BUILD WEALTH
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Refinance Your Student Loans: SoFi is one of the leading new financial technology companies based in Silicon Valley that not only reviews your credit score and income/debt ratios, but also looks at the quality of your education and quality of your work institution. If you’re right out of school, you’ve got a lot of upside, but perhaps your finances don’t look so great at the moment. That’s where SoFi can really offer lower rates because banks and government lenders can’t look at individuals holistically. Check SoFi out for a lower interest rate.
Refinance Your Mortgage: LendingTree has one of the largest networks of lenders that compete for your business. Interest rates are back down to near all-time lows thanks to the volatility in the stock market. Take advantage if you are looking to refinance, purchase, or get a HELOC. When banks compete, you win!
Updated for 2017 and beyond.