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Scraping By On $500,000 A Year: Why It’s So Hard To Escape The Rat Race

Updated: 02/26/2021 by Financial Samurai 638 Comments

Can you imagine scraping by on $500,000 a year? Well, believe it. Thousands of households living in expensive cities are running on this never-ending treadmill.

They’ve got big mortgages to pay, private school tuition to pay, and fancy cars to drive. No matter how much they make, these households tend to spend all their income and not save as much as they should.

I’ve highlighted in a previous article how living off $200,000 a year in an expensive city is really just an average lifestyle. In this article, I’ll discuss how one couple is living paycheck to paycheck while making a combined $500,000 a year. They are a real couple who shared with me their financial details to anonymously share with you. Judging others, after all, is an American pastime!

$500,000 a year or higher is a level which I think is considered rich. Anybody who thinks otherwise has no concept of financial reality. Even the government agrees after compromising by raising the income level for when the highest marginal tax bracket kicks in to ~$400,000 from $200,000 back in 2013.

But starting in 2018, things got even more painful  for the upper middle class. The SALT tax cap capped mortgage interest deduction and limited property tax deduction to $10,000. And now, Joe Biden is looking at raising taxes for households making over $400,000!

Although making $500,000 a year may sound like a Herculean task, you’ll be surprised to know there are plenty of regular folks who hit the half million mark every year.

I literally get e-mails and comments from similar income-earning couples every week asking for financial help. This article will discuss why many folks who earn a large income won’t be retiring any time soon. 



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Contribute To My 401k Or Invest In An After-Tax Brokerage Account?

Updated: 01/26/2021 by Financial Samurai 90 Comments

Contribute To My 401k Or Invest In An After-Tax Brokerage Account?

The decision to contribute to a 401k or invest in an after-tax brokerage account is a dilemma that will be solved in this post.

The great thing about a 401k is that you are contributing witth pre-tax money. The higher the tax bracket you are in, the more tax savings you will have. If you can start withdrawing from your 401k when you’re in a lower income tax bracket, then you’ve successfully conducted some tax engineering to boost your wealth.

The problem with the 401k is the 10% early withdrawal penalty before age 59.5. If the government gets desperate, they can raise the early withdrawal penalty percentage or increase the age limit. I ascribe a 75% chance one of these two things will occur over the next 30 years.

It’s easy to understand why saving for retirement is difficult. The value proposition is that you put your money away in an institution like Fidelity, which operates under the confines of the omnipotent government, who punishes you if you err from their rules, all for the chance that your money will grow decades down the road.

With no assurances from your money manager or the government that your money will be there in retirement, spending money now on instant gratification makes perfect sense. Give me the latest iPhone vs. the potential to have $25,000 more in retirement!

Therein lies the dilemma of the 401k contributor who can’t max out his or her account every year, and who therefore doesn’t have excessive after tax savings for liquidity and other purchases.



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Everything Is Rational – The Answer To All Things Irrational

Updated: 01/01/2021 by Financial Samurai 48 Comments

Stop Complaining - Everything Is Rational

If you want to reduce your stress, it’s good to adopt the “everything is rational” mantra. Once you believe that everything is rational, you’ll stop getting so frustrated and angry at things. You’ll also stop being so jealous of other people’s success.

There’s a lot of messed up things in the world such as war, poverty, racism, corruption, and a pandemic. Some things we can try to explain, and some things we can’t. Always step up and fight for what is right and speak out against what is wrong.

However, if you constantly try to fight everything wrong, you will end up stressed and miserable. Pick your battles, such as speaking out against racism. And let other things that bother you, go.

Unless you are a “Karen,” here are some examples that shouldn’t concern you. You can’t change everyone, so don’t try.



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Are You Smart Enough To Act Dumb Enough To Get Ahead?

Updated: 01/06/2021 by Financial Samurai 135 Comments

The smartest people in the world are listeners, not speakers. If all you’re doing is speaking, how do you learn anything new? To get ahead, you need to smart enough to act dumb.

There was once this portfolio manager I covered who had this uncanny ability to make you feel uncomfortable without saying anything at all. He had a poker face when you spoke to him, and when he felt like changing expressions, he’d go from solemn to smiles in a millisecond.

We nicknamed him Crazy Face. It turns out that he was literally a genius with an IQ over 160. He also consistently beat his index benchmark for eight years in a row and made millions because of it.

The earliest examples of acting dumb to get ahead starts in grade school. You know what I’m talking about. Those kids who were too cool to study and too cool to sit still in class as they flicked spitballs from the back of the room. These kids weren’t just acting dumb, they really were dumb.

When you purposefully waste your opportunities growing up, you’re not only disrespecting your parents, but also the millions of other kids around the world who will never have the same opportunities.

This post will do the following:

1) Argue why acting dumb is a smart move to get ahead.

2) Provide some tips to help you look and seem a little dumber than you are.

3) Share three personal examples of how acting duhhh, has helped in work, stress management, and relationships.



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Cheap Health Insurance Options For The Unemployed, Self-Employed, Or Early Retiree

Updated: 05/25/2020 by Financial Samurai 34 Comments

Whether you are unemployed by choice or due to unfortunate circumstance, having health insurance is a must. According to The American Journal Of Medicine, 62% of all bankruptcies in 2007 were health related and that’s before the economic meltdown. What’s more frightening is that back in 2001, health related bankruptcies were “only” 45% of total. The epidemic is growing!

Say what you will about Universal Healthcare, with a nation as rich as ours going bankrupt at the rate of 62% due to health expenses is an absolute travesty. Genetics and a drunk driver hitting you while crossing the street doesn’t discriminate between rich and poor. So why should one die while another lives when all it takes is money to save a life?

In 2009 roughly 2.3 million people were unemployed for longer than six months. By June 2012, the ranks of the long-term jobless soared more than 100 percent to 5.3 million. The employment market is thankfully recovering with a rise in corporate profits, but we are still at levels much higher than the natural rate of full employment.

You do not want to be unemployed AND uninsured. You’ve already lost your steady paycheck. The last thing you want is to have a medical disaster that wipes out your savings, emergency fund, and retirement funds.

If you lose everything while unemployed, it will be brutally difficult to rebuild. You might very well enter a cycle of poverty and never get out.

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How To Make Six Figures A Year And Still Not Feel Rich – $200,000 Income Edition

Updated: 01/14/2021 by Financial Samurai 291 Comments

Luxury home on the water

Making six figures a year is a lot of money. However, depending on where you live, making six figures may still not make you feel rich!

One of the great things about America is freedom. Tired of feeling like death living in Chicago, New York City, or Boston during the winter? Why hello San Diego, Miami, or Honolulu! Not feeling there are enough job opportunities for advancement in Detroit?

Migrate To Where The Jobs Are

Then come on down to San Francisco! Tired of eating healthy food in San Francisco that costs an arm and a leg? No city can beat the wonderful soul food of New Orleans. Further, all the job opportunities are in California.

Geo-arbitrage is a term where one can earn and save money in one place and move to a cheaper location to maximize their money. If you happen to own an internet business, then your ability to geo-arbitrage is greatest.

I’ve often thought about just relocating to Thailand for several months at a time given friends say they live extremely well off $2,000 a month for two. Given one of my goals is to take 100 hours of intensive Mandarin lessons, I may very well be writing to you from some lower cost country in the future.

75% of the audience comes to Financial Samurai through a search engine like Google. They have a financial problem they are trying to solve. This is huge because it takes initiative to come to grips with one’s finances. But what I’ve noticed over time is that besides the middle class getting pissed off about the widening wealth gap, upper-income earners are also feeling some angst as well.

Over 50% of singles readers and 74% of household readers make over $100,000 a year based on my Financial Samurai income poll (14,000+ so far down below). As a result, I’d like to delve into analyzing how a “typical” $200,000 a year household spends their income.

A six figure salary can range from $100,000 to $999,999, so I figure I’d start on the low end for two people. $200,000 is a comfortable household income, but I don’t think it can qualify as rich.



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Three Bad Jobs That Can Eventually Make You Rich And Happy

Updated: 02/21/2021 by Financial Samurai 79 Comments

Three Bad Jobs That Can Eventually Make You Rich And Happy

If I wasn’t whipped so hard during my first job out of college, I never would have saved over 50% of my after-tax income every year for 13 years in a row. I probably would’ve blown the majority of my income on fancy cars, late nights at the clubs with bottle service, and frequent weekend trips to Atlantic City or Vegas.

At age 22, I already had the penchant for the good life having finally landed a plum job in finance. Going from making hardly anything to making a tidy sum very quickly is a very dangerous situation (think lottery winners).

When your peers are recklessly spending money every weekend, it’s very hard not to follow. But I didn’t follow because of the jobs I once had.

Getting in at 5:30am and often leaving after 8pm was NO FUN. I gained 15 pounds, was constantly sick, and became a stress case. I also worked most weekends for the first two years. I was a dumbass who needed to learn more about finance if I was to sound remotely intelligent with clients.

Each minute I worked past the 12 hour mark was a reminder to keep on saving money. There was no way I could last for more than three years in this cutthroat business I remember telling myself.

Before the post college lashes, there were three other jobs that helped me prepare for the real world. I hope to never do any of these jobs again, but never say never when you’re unemployed. What I realize today is that adversity builds character.

The following three jobs helped prepare me to navigate workplace politics, resolve conflicts with employees, endure marathon work hours, produce consistent work and appreciate the value of a hard earned dollar.



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How To Cheaply Build A Diversified Investment Portfolio If You Don’t Have Much Money

Updated: 03/13/2021 by Financial Samurai 78 Comments

Diversity by Kongaline.com
Diversity by Kongaline.com

The rich get rich by buying appreciating assets like stocks, bonds, real estate, and fine art. They have very diversified portfolios

The people who don’t get rich spend their money on depreciating assets. They buy cars they can’t comfortably afford instead of using my 1/10th rule for car buying. And, they waste money on things like clothes they only use a few times a year.

It takes discipline doing research on investable assets. This is probably one of the reasons why many people don’t even bother. But, investing and building a diversified portfolio are keys to growing wealth.

#1 Excuse: It’s Too Hard To Build A Diversified Portfolio

One of the biggest push backs I hear from readers who want to get rich, is that investing is too complicated. People don’t like change either, because it takes effort. But anyone can learn how to invest.

And thanks to the boom in fintech companies, investing today is easier than ever. Not only that, fintech companies have made a wide array of investment types accessible to every-day investors. You don’t have to be a hedge fund manager or a professional day trader to build a diversified portfolio. Any novice can open an E-Trade account and the like. Just stay away from RobinHood trading platform.

#2 Excuse: I Can’t Afford To Have A Diversified Portfolio

The second most common push back I get from readers is that they don’t have enough disposable income to invest. People whine all the time that investing costs too much. In the past, broker commissions might have been a deterrent. But guess what folks – most reputable trading platforms like Fidelity now offer free trades.

And thanks to technology, some brokerages let you buy fractional shares of stocks. Fractional share trading was introduced by Motif Investing, which was acquired by Charles Schwab. Now anyone can afford to buy positions in stocks with 3 and 4 digit share prices.

Not only that, fintech companies have enabled both non-accredited and accredited investors to invest in a wide range of asset types. For example, you can now invest in real estate crowdfunding, farmland investing, fine art, collectibles, and more with just hundreds of dollars instead of millions of dollars.

A Diversified Portfolio Is A Wise Move

I’ve been encouraging folks to save, invest, earn passive income, and build a diversified portfolio for well over a decade.

It’s been a while since I’ve had to carefully watch my own cash position. But since I spent a lot of money buying a fixer last year, cash flow is tight. I have a goal of rebuilding my liquid cash hoard to $100,000, while also paying off roughly $85,000 in rental mortgage debt. It won’t be easy because I don’t want to cheat by selling assets to pay off debt.

Despite my debt elimination and savings goals, I want to continue investing in stocks and bonds when I see opportunity. With the recent volatility in the market, I see A TON of opportunity right now. Oil and energy stocks have gotten crushed, but aren’t going to zero.

Market darlings such as Tesla, Pandora, GoPro, Yelp, and Lending Club have all taken a beating, and I love all their products and services. Interest rates are moving, providing a tailwind for a couple industries. And I want to invest!



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Focus On Building Net Worth Even More Than Growing Income

Updated: 09/18/2018 by Financial Samurai 101 Comments

Grow Your Net WorthIncome and net worth amounts are intricately linked. However, I’m going to argue that building a sizable net worth is more vital for early retirement/financial independence than generating a high income. Creating passive income is definitely a very good endeavor as well. Unfortunately, there’s a lot of uncertainty involved in the viability of your passive income. For example, my 4.2% CDs eventually came due, but nothing matches such a risk-free return any longer in 2H2017.

There’s even more uncertainty involved with your day job income. We all think our income will continue to grow to the sky for decades, but one day it’ll likely stop growing. We might get a new boss who doesn’t like us. Our company might get sold or go bankrupt. Departments might shutdown. We might absolutely burn out. All sorts of things could happen that will assail our income growth.

I thought my income was going to keep on growing to “make it rain” status by the year 2017 (age 40), but my income was slashed in half during the 2008-2009 downturn. It recovered in 2010 and 2011 before getting completely cut in 2012 after I left the finance industry. Only after two and a half years of working online has my income finally got back to my day job income days.

Needless to say, my income is highly volatile and should not to be counted on at all! The only thing I have counted on is my consistent discipline to put away at least 50% of my after tax income every year, no matter what. As a result, focusing on growing my net worth into a stable behemoth has been my main goal for the past 10 years.

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Financial Samurai Passive Income Update 2014-2015

Updated: 11/06/2018 by Financial Samurai 90 Comments

Financial Freedom Through Passive Income

Earning passive income in Santorini, Greece 2015

Welcome to my annual passive income update. I don’t do these updates more often because nothing changes too much on a month-to-month or quarter-to-quarter basis. Do you really want to see that I increased or decreased my passive income by $1,000 from the month before? I think not.

Here are some immediate reasons I can think of for why building passive income is a good idea:

1) You likely won’t want to work forever, no matter how much of an eager beaver you now are.

2) Unfortunately bad things happen all the time e.g. layoffs, financial meltdowns, theft, etc.

3) It’s nice to provide as solid a financial foundation as possible for your family and loved ones.

4) You broaden your knowledge and expertise across various topics so you can seem erudite but remain a little dumb.

5) You’ll reduce financial stress and feel happier that not all your income is tied to one main source.

6) You will decrease your chances, your spouse’s chances, and your children’s chances of ever having to depend on the government to survive.

7) You will have more freedom to do things you truly want to do. This feeling becomes more intense as you grow older given you become more aware of the finality of life.

8) You can push yourself financially beyond what you think could ever be possible. Who doesn’t love a good challenge except for the people who have everything handed to them?

This is my third annual passive income report where I have a goal of making $200,000 in relatively passive income by mid-2015 after leaving my job in early 2012. I started off with roughly $78,000 a year and I’m currently up to a projected ~$150,000 a year if all goes well after renting out my old primary residence. Life is uncertain, and I’m sure things will change.

To clarify the meaning of passive income, I do not include income from consulting, freelancing, asset sales (stocks, bonds, real estate, baseball cards etc), and business income. I’ve got other targets for these revenue streams that I might discuss in a future post, but probably not. The goal of passive income is to have the income largely come in without doing much work at all. But in order to not do much work for money, we’ve first got to work very hard for our money!

One thing to note is that I started my passive income journey before writing about Stealth Wealth. $78,000 a year is roughly the median income in SF, so it wasn’t a big deal. But I promise that if I ever breach $200,000, I will go dark and never write any specific figures again. If I do, you’ll know that I’m lying to blend in because that’s what Stealth Wealth is all about. 

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