Maybe It’s Your Fault Why Wealth Inequality Continues To Worsen

wealth-inquality-chart

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!

Recommendation: Build wealth by saving money in an online savings account at 95X the national average. Because online banks don’t have all the bricks and mortar overhead, they can afford to provide you higher savings rates. Money is accessible and transferable.

Updated: 7/2014

Regards,

Sam

Sam started Financial Samurai in 2009 during the depths of the financial crisis as a way to make sense of chaos. After 13 years working on Wall Street, Sam decided to retire in 2012 to utilize everything he learned in business school to focus on online entrepreneurship.

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Comments

  1. Stefanie @ The Broke and Beautiful Life says

    The attitude of the people in the comments you shared are truly puzzling to me. I just don’t understand why you would blow 50% of your annual income on a car- and that’s just the purchase price, forget maintenance, gas, insurance, etc.

    The one area where I understand people spending a huge percentage of their income is housing. Even without amenities or convenience, the cost of housing can eat up so much of your income.

  2. Thomas says

    I think you are suffering from some kind of disconnect from reality. I had never heard of “financial samurai” before but after reading a couple of articles I think I get the gist of what you think. You seem to equate your experience in life with everyone else’s. Maybe the reason people write negative comments is the way you write your articles. Calling people C students for not having money will not “empower” anyone. As far as the car thing I agree it’s probably better to buy used. But 10 percent is unworkable for a large swathe of people. According to your chart I shouldn’t have a car because I don’t make enough. Instead I should walk or use public transit. Where I live, like millions of americans there is no public transit. So according to you I should walk three miles one way to work at Wal-Mart five days a week. If we traded places I think you would see spending a little bit more money on a car. Some people in situations like mine find it near impossible to get out. If I had money in 2008 when the market crashed I would have put as much in as I could like you would have recommended. Guess what I just a couple thousand in my checking not much to do with that. To save money I have to not eat food. Well it’s not as bad as that because I do get food stamps but that’s pretty much how life is. Between the car and apartment there isn’t much left. If our lives were switched I doubt you would do any better you would be just as poor. You would be thankful that your crap car got you those three miles to Wal-Mart. That’s why people do not like what comes across as an entitled rich person attitude. Some people weren’t lucky enough to have parents or family or any support at all and you know many my coworkers have children so they have even more on their plate. I wonder if you recommend that all C students should just refrain from ever having children. Some people cannot relax on a beach and here you are saying it’s our fault we are poor because we didn’t walk in 10 degree weather three miles to glorious Wal-Mart. There are two Americas the one you are clearly living in and the one I’m imprisoned in. So I think you should have a little more empathy. If your situation was reversed you would see things different.

    • Financial Samurai says

      I never called someone a “C student” for not having money. I’m using grades as an analogy to say that if you are a “C student” but try and live an “A lifestyle” you are going to blow yourself up eventually, financially at least. I hope you understand the difference. What type of student were you?

      There’s nothing wrong with being a C student if you live within your means. I was a C student in Spanish towards the end in HS, and a D student in Japanese in college so I dropped the course. If I expected to be a Spanish professor, or a Japanese translator, then I would most likely fail and be miserable.

      I’m sorry you think America is a prison. But just think, you have shelter, a car, a job, and food support from the government. What about the beggar on the street with NONE OF THAT. What do you say to him? How do we help others? Or should we even care given such responses?

      I realize we are all felt different cards in life. What can we do but do everything possible to improve our situation? Finally, how can I help you specifically?

    • Cindy @ GrowingHerWorth says

      You’re putting a lot of words in Sam’s mouth that he didn’t say, while also proving his point about not taking responsibility for your own situation. It’s great that you’re on this website, as it shows you are making an effort to improve your situation. Sam has some great advice on his blog. Take what works for you, and leave the rest.

      FYI, I was a B student, who grew up in a poor, crime ridden neighborhood. I put myself through college. I used to walk 3 miles to work, in Wisconsin, year round, along Lake Michigan. Brrr! Lots of layers. I usually brought a change of clothes in a backpack, since often I’d be wet by the time I got there. I worked from the time I was 13, and often had more than one job. I had a LOT of opportunities come my way that got me where I am today. But I can’t help thinking some of those opportunities presented themselves because of my attitude and drive.

      It’s all about choices my friend. Admittedly, I got to the point where things were better (~$45,000), and lost a lot of my drive. I could have gone farther sooner. I hope to go farther now. But I have to accept that, no matter where I started, my choices got me where I am. And there is a lot I can learn from people like Sam.

    • Walmart Worker says

      I work at Walmart too, and I’m man enough to take the bus to work and admit I didn’t bust my balls studying in high school. My parents are lower middle class but they gave me what I needed to succeed. I chose not to take advantage and there’s nobody to blame but myself.

      It does annoy me that the children of the Walmart founder are all billionaires without having to do anything. They wouldn’t be so rich if they paid their workers more. But I also realize it’s my choice to work at Walmart or not.

      The point about the beach. Sam doesn’t have to spend any time writing about PF, but he does b/c he likes it presumably, there’s some income involved, and he wants to help. Nobody in their right mind dedicates hundreds of hours on something without enjoying it. Instead of whining we you are in prison, even though real prisoners are in prison, what about kicking up your effort a notch.

    • Ace says

      Thomas,

      It’s tough to be poor. But it sounds like you currently have a reliable vehicle, and that is actually an “asset” in my book! Good transportation provides you the flexibility to employ your human capital by having the ability to drive to a better employer!

      A good reliable automobile will also allow you to drive to a local college/trade school and increase your job skills.

      You may currently be financial asset poor but you have something better. Human capital. Develope your skills/experience and get as much training/education which is available to you. In the long run you’ll fine.

      How’s that?

    • mysticaltyger says

      You don’t need to walk 3 miles to work every day. Have you never heard of getting a BIKE? People in other rich countries like Demmark and The Netherlands ride their bikes to work ALL THE TIME…and those countries have chilly/crappy/rainy weather.

      • Financial Samurai says

        Ahh, Amsterdam. I love that place. And yes, they bike everywhere, even in the crappy weather. Same thing with Beijing in the late 90s when I went as a student. Beijing winters are ridiculously brutal and dirty due to the sandstorms.

  3. john says

    Sam, love your blog and the lively interaction in the comments section.

    I tried to sign up for the private newsletter but it mentions my email is already subscribed. I never received the earlier ones and remeber you mentioning that you were still working out the kinks wrt subscription emails. Not sure if you managed to resolve them?

    • Financial Samurai says

      Doh, let me look into it, as I noticed that happened too when I put in test@yahoo.com. Perhaps the good thing is that you are actually registered, and you will be getting my upcoming newsletter, so no need to worry. I’ll double check anyway. Thanks for the feedback.

      * I haven’t sent out a newsletter in a while btw so maybe you’ll just get one this week since you already subscribe and hopefully confirmed.

      • Thomas says

        I was perhaps a little critical which really doesn’t leave me any ground to stand on. You know since it was moderated I didn’t really expect you to post my comment. But I have you some respect for that and replying to it as well. So I apologize my comments were a little bit crass.

        As far as the Wal-Mart thing goes I never meant to sound critical of them it’s a good entry level job. But people do seem get trapped in it. They get their 40 cent a year raise and they are afraid to apply for another job because they might lose that $10.20 an hour. It really hurts me because they are not stupid. I think being poor is making their decisions turn out bad. That’s different from saying their bad decisions made them poor. They never have a buffer to fall back on and if say around Christmas time they get a bonus it will be gone in an instant.

        I have some family that is very well off. We are definitely the white trash when we visit. They are NO different than the people I work with as far as spending money in fact they are twenty times worse. They get new vehicles every year always, constantly travel and never stop spending money. They will make more money in a month renting out a large plant than I would make in years working at Wal-Mart or any other job that is accessible to me. Unless I get extremely lucky I will never make it there. That’s probably why this article rubbed me the wrong way. One of my aunts has two kitchens in her house. She didn’t even know that butter could expire (hers had). That kind of waste is sad especially when as you said there are people on the street who are virtually unemployable just because of the way they look meanwhile someone has two kitchens for show and doesn’t cook anything.

        To me it just seems like people aren’t really getting awarded fairly. My coworkers clearly contribute more to society than my aunt but it is not recognized. Labor has just about lost the war against capital. I am not a luddite but the future worries me because I can just see most of the jobs being automated away. If you don’t own a piece of that pie it doesn’t matter how much growth there is because your going be left out and there will not be any pie.

        • Financial Samurai says

          Life is really not fair. But if we keep on dwelling about the unfairness of it all, we’re just going to get all depressed and end up doing things that hurt us even more.

          One way I’ve gotten over feelings of jealousy is to just think in karmic terms. He’s rich and lucky b/c he did good things in his life or previous life. I’m not lucky b/c I did bad things, but I’m going to be a better person now to be luckier in the future.

          The one thing we need to be thankful for is our HEALTH, if we are healthy. Without health, we have so little.

          • Laura says

            Liz Weston over at AskLizWeston.com has pretty much said the same thing (and more) about this article. Have you seen her post, which I think makes good points about some of the unfair assumptions you make? While there is an awful lot to be said for saving wisely and living below our means, I think it is both presumptious and niave of you to suggest that the problem of income inequality can be solved by the 99% (never mind the lower 50%) exercising more self discipline when it comes to their personal spending.

            • Laura says

              Yes, I did. And, your post (and blog) offers some good suggestions about how an individual can get a better handle on their personal finances. But, I do not think the “wealth gap” as you call it will widen because low income or lower middle income workers at, for example Walmart or a restaurant or a daycare center, aren’t saving 50% of their net income or aren’t using your 1/10th rule when buying a car (however meritorious those suggestions might be). The income disparity problem in America is a systemic problem and will require systemic solutions. While I am all for personal responsibility, blaming the bottom half of the income scale and expecting them to solve this problem through financial self discipline seems both facile and smug.

              As for Liz Weston, I don’t know why she didn’t identify you. You should ask her. But I’d like to hear what you have to say on the merits of her points, especially given that you recently had a guest poster who seems to have struggled with some of the issues Liz identifies as reasons why a 55 year-old women might not be well on her way to a comfortable retirement and therefore undaunted by losing her job.

            • Financial Samurai says

              Good. I’m glad you at least read my post. How were you able to determine that she took my writing without giving me credit? Do you so happen to follow both?

              The 1/10th rule is just an example of folks spending too much. There are countless examples of how people can tighten their spending and work to increase their wealth.

              The question for you is: What are you doing to help narrow the wealth gap?

              My hope is to get more people who know to share the knowledge and help others who may not know better. Something as simple as sharing my posts on your social media network or e-mailing friends is a good start. This blog is all about inviting different perspectives to try and understand the other side.

              I know why Liz doesn’t ID me, even after I left a comment asking her to, e-mailing her contact form, and Tweeting her. It doesn’t look like she writes or manages the blog, or her Twitter account. It’s the world of Ghost writing and Ghost managing.

            • Laura says

              You are conflating personal finance advice with macroeconomics. And, you are also STILL avoiding addressing Weston’s critique on the merits. I think it’s great that you are trying to get individual people to examine their spending and lifestyle choices in hopes of helping them get on a sound financial footing and hopefully obtain a secure retirement (early or not). But, you are not doing anything about the systemic wealth gap in the United States when you do that. No wonder you feel like you are failing miserably at it.

            • Financial Samurai says

              Any tips to narrow the gap? Can you share what you are doing to help please?

              It’s all fine and dandy to address the issue as you and Liz and I have done. But I’m looking for solutions.

              Please share some of your solutions and your story. Thanks so much!

            • Linda says

              I agree with Sam. All I’ve seen you and Liz do is complain about the situation, but offer no solution.

              I don’t expect Liz to offer solutions because she’s just a reporter posing as a financial export. So I guess it’s no surprise you don’t offer solutions either.

              My suggestion is to stop with your victim mentality and try and believe in the good more.

        • cephlon says

          Just a suggestion…

          Most start-up capital for successful businesses are family financed. If you have family that is well-off, they may be willing to loan you some money to start a business. Come up with a good business plan, even if it’s just a Laundromat or Burger King Franchise. Present it to them. The worst they can say is no.

          If you fail, they’ll have a tax right off and you will have learned a ton. If you succeed, they will make even more money. Plus they’ll feel good about helping out the family.

  4. Bill V says

    Thomas,

    After reading your well thought out comment, I just wonder how many job applications you could have filled out in the time it took you to write it.

  5. Bryce @ Save and Conquer says

    It seems that many people who need financial education either think they are above it, or do not like having their shortcomings pointed out. In my line of work, mechanical engineering, I am always trying to learn new things. I am also happy when someone can show me something that may help me to reach financial independence sooner.

  6. Meghan says

    I tried to get by without a car and it was not for me. But when I went to buy a car, I followed your advice and bought a $7300 car and I make $96,000. Thanks for the inspiration.

  7. Rich says

    I have a theory. If you take all the money in the country and spread it out evenly, someday in the future, it will all revert back to the original distribution. Some people create value and build wealth, some people are just spenders.

  8. Jeep says

    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’.

    • Financial Samurai says

      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.

      • Jeep says

        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).

  9. Jc says

    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

  10. Bunny says

    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!)

    • Financial Samurai says

      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.

      • Rich says

        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.

      • Bunny says

        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.

  11. S says

    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.

  12. phil says

    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!

    • Financial Samurai says

      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!

  13. phil says

    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

  14. Ed says

    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”…

    • Financial Samurai says

      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?

  15. AC says

    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!

  16. AC says

    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.

  17. Jerome says

    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.

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