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

Published: 02/01/2020 | Updated: 01/01/2021 by Financial Samurai 630 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 almost 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 with the elimination of state income taxes, capping mortgage interest deduction, and limiting property tax deduction to $10,000.

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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Everything Is Rational – The Answer To All Things Irrational

Published: 12/24/2019 | 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?

Published: 07/09/2019 | Updated: 01/06/2021 by Financial Samurai 134 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

Published: 03/08/2019 | 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

Published: 02/03/2019 | 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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Contribute To My 401K Or Invest In An After-Tax Brokerage Account?

Published: 01/20/2019 | Updated: 07/18/2019 by Financial Samurai 90 Comments

foragingThe great thing about a 401k is that you are contributing with 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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Three Bad Jobs That Can Eventually Make You Rich And Happy

Published: 04/11/2018 | Updated: 01/11/2021 by Financial Samurai 79 Comments

Fast Food Job

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 because 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.

CRAPTASTIC JOBS THAT CHANGED MY LIFE FOR THE BETTER

My parents were squarely middle class. We lived in a cozy three bedroom townhouse while I was in high school and we rocked a seven year old Toyota Camry which my father bought second hand. I think I got $10-$15 a week in allowance or something, but I can’t remember because it wasn’t enough to buy anything memorable.

When you have no money, receiving any amount of money is awesome. I’d always look forward to my birthday or Christmas because my grandparents would always be so kind as to send me some crispy cash. I was embarrassed to ask my parents for money, so I rarely ever did except for the time when I wanted to upgrade my 386 computer.

As a freshman in high school I needed money because I liked this girl. I wanted to have at least $30 bucks so I could take her out for dinner and a movie. I decided to get a job. Oh, the things you do for love!

Three Jobs I Will Cherish Forever

1) Greasy Burger Flipper. Getting up at 5:30am on a Saturday as a high school student is probably one of the least enjoyable things to do. I walked five blocks in the dark to McDonald’s so I could open up shop by 6am. There was something very calming about walking the misty suburban streets with nobody around. Perhaps I enjoyed the seven minutes of quiet so much because I knew chaos was about to ensue.

My McDonald’s colleagues were fantastic. A veteran colleague  named Pedro became my mentor, teaching me how to make Egg McMuffins, clean the grill, work the cash register, and assemble Big Macs. Pedro also gave me the inside scoop about work place politics by telling me who to avoid and how to please our over eager manager.

Over time I became adept at cracking eggs with one hand and assembling the best quarter pounders with cheese. I was proud of how far I came and made food production a game so I’d forget I was only making $3.5-$4.25 an hour. I also reminded myself about the great benefit of all you can eat apple pies. Yum!

Things were going well until one day, the manager started yelling at us for speaking Spanish to each other at the cash register. “How many times do I have to tell you to stop speaking Spanish in front of the customers?!” he raged. “They’ll think you’re speaking bad about them!” It wasn’t just speaking Spanish at the cash register, but even while we were making apple pies in the back, minding our own business. He’d dish out racial stereotypes which left us dumbfounded.

We despised him for telling us what we could and could not say. Now that I write this post, a part of me wants to see if he’s still a manager at a McDonald’s so I can go buy the particular restaurant and fire his ass. We felt like prisoners making $20-$30 a day. I swore I would never return to fast food again.

Takeaways:

* There is magic to getting up early.

* The physical heat of a blazing grill doesn’t get easier to endure over time.

* Punctuality breeds credibility.

* Consistent production leads to progress.

* Racism, subtle or direct feels worse in a work setting because of the needed money.

* Following orders is necessary when you’re at the bottom of the totem pole.

* Appreciate every single person who decides to take a minimum wage fast food job rather than complain.

* Why I love this Yakezie Writing Contest essay so much: El Aguacate.

2) Envelop stuffer. Despite the unfun times at McDonald’s, I became enthralled with being able to make my own money and not depend on my parents. I decided to apply to a temp agency to see if I could land myself a more work friendly office job. Computers were my forte and I could also type well over 120 words a minute by sophomore year.

After only about a week of waiting, I was deployed to my first office job. Sweet! Finally, I got to go to an environment where there’s no grease splashing all over the place and impatient customers waiting in line for their heart attack sandos. It was a Saturday morning when I arrived at the company at 8am. The place was desserted except for a grumpy worker whose task was to let me in and tell me what to do.

The worker escorted me into conference room where I saw a mountain of envelopes and papers. My job was to spend the next eight hours folding papers, stuffing envelopes, and sealing envelopes. She brought me a radio to keep me company and told me she’d check back in four hours for lunch.

For the first hour I didn’t mind because I was now making $5 an hour, equivalent to a 30% raise! I didn’t have to look out for a Spanish language hating manager either. By the third hour I was bored out of my mind. The woman came back after two hours to inspect my work. Instead of saying “great job,” she scolded me for not making perfect folds and told me to redo over 200 stuffed envelopes!

F*CK! I did what I was told and meticulously refolded every single paper and stuffed them right back in. I ended up stuffing envelopes for three days before the task was done. Never again! At least I was $120 richer.

Takeaways:

* Working in solitude is terrible.

* How to forge through nonstop mindless work.

* Attention to detail is critical.

* Doing things right the first time is more important than doing things quickly.

* Realizing freedom is better than having lots of money.

3) Mover. My final craptastic job was moving hundreds of boxes for a small family business to a bigger space office space. My buddy asked if I wanted to join him for a weekend and I said sure. Anything was better than sitting in a dark room alone stuffing envelopes!

My friend was a pretty big guy for a 16 year old at 6′ 3″ and 200 lbs. He could bench 350 pounds without a problem. Here I was five inches shorter, 40 lbs lighter, and benching 205 lbs on my best day, trying to hoist the same amount of boxes. After about four hours of moving I felt my lower back give out so I decided to lay on the floor and stretch. The lower back is crucial for serving, and I wanted to prevent potential long term injury as a starter on the varsity tennis team. My buddy was still going strong so he started making fun of me for “sleeping on the job.” Sleep? Damn, that’s all I wanted to do. Sleep on a nice massage table and have a lovely lady knead out my knots!

I could barely get out of bed the next day. There were aching muscles I didn’t even know I had. I walked around the house hunchbacked like an 80 year old man wondering whether to return. I wasn’t going to let my buddy or my employer down so I got back to work at 8am on a Sunday and we moved boxes until 6pm. Our employers each gave us a $100 dollar bill and thanked us for our time. I swore never to move anything for a living again.

Takeaways:

* Pain can be overcome through the mind.

* To always follow through on a commitment.

* Cash is a nice way to get paid.

* Manual labor is brutal and not for me.

* Everything is relative. I’d rather stuff envelopes with a friend.

* If only I could find a job that used my mind more.

* A body breaks down, but the mind can last for a much longer time.

WORKING TOUGH JOBS BUILDS CHARACTER

Whenever I got yelled at by a client or boss or had to travel thousands of miles for a one hour long meeting, I’d remember back to my high school days and smile. I had this immense fear that if I did not do well in school, I would end up flipping burgers in the morning, stuffing envelopes in the afternoon, and moving boxes at night for a living. Thanks to fear, I studied my heart out so I could at least have a chance at a better life.

So many of my colleagues from Wall Street quit after two or three years because they couldn’t take the long hours and immense pressure. Many went complete 180s by joining non-profits, the government, or going back to school in fields totally unrelated to finance. Good for them. I probably would have been out by age 25 if it wasn’t for my job experiences in high school and a move to the more balanced city of San Francisco after my second year.

Nowadays, writing three to four times a week online is a piece of cake compared to all jobs I’ve held prior. Whenever I start to feel burnt out or sorry for myself, I laugh at how silly I am and think, “How the hell can you get burnt out sitting in the hot tub writing a post? Don’t you remember your past? Stop complaining!” I sometimes get lazy and need all the motivation I can get to carry on.

I encourage everyone to work a minimum wage job growing up or find a job you might feel is beneath you at some point in your life. Once you experience craptasticity, you will not only appreciate everyone who currently works such jobs, you’ll also become much more appreciative of what you have.

Related post: Examples Of Good Resumes That Get Jobs

Recommendation For Leaving A Job

If you want to leave a job you no longer enjoy, I recommend negotiating a severance instead of quitting. If you negotiate a severance like I did back in 2012, you not only get a severance check, but potentially subsidized healthcare, deferred compensation, and worker training.

When you get laid off, you’re also eligible for up to roughly 27 weeks of unemployment benefits. Having a financial runway is huge during your transition period.

Conversely, if you quit your job you get nothing. Check out, How To Engineer Your Layoff: Make A Small Fortune By Saying Goodbye.

It’s the only book that teaches you how to negotiate a severance. In addition, it was recently updated and expanded thanks to tremendous reader feedback and successful case studies.

Add to Cart

Start Your Own Business

Be your own boss: It’s been over seven years since I started Financial Samurai, and I think being your own boss online is the best job in the world now. 

I never thought I’d be able to quit my job in 2012 just three years after starting Financial Samurai. But by starting one financial crisis day in 2009, Financial Samurai actually makes more than my entire passive income total that took 15 years to build.

If you enjoy writing, creating, connecting with people online, and enjoying more freedom, see how you can set up a WordPress blog like mine in 15 minutes.

You never know where the journey will take you. In 2015, I fulfilled a bucket list item by visiting the ancient temples of Angkor Wat in Cambodia, while stopping over at the DMZ in Korea, and attending a friends wedding in Malaysia.

In 2016, I worked overseas while visiting Prague, Vienna, Budapest, and Paris for a month. Starting this website is the best career/ lifestyle move I’ve ever made.

Blogging For A Living Income Example: $300,000+
The possibilities are endless!

Updated for 2020 and beyond.

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

Published: 02/01/2017 | Updated: 07/17/2019 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. The people who don’t get rich spend their money on depreciating assets like cars they can’t comfortably afford, and clothes that are never worn more than a few times a year. It takes discipline doing research on investable assets, which is probably one of the reasons why many people don’t even bother.

One of the biggest push backs I hear from readers who want to get rich, but don’t have enough disposable income to invest, is that investing costs too much and is too complicated. This post eliminates one more excuse people have for not building additional wealth.

It’s been a while since I’ve had to carefully watch my 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 in 2015, 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 have collapsed, providing a tailwind for a couple industries. I want to invest!

The only problem is, I’ve only got about $10,000 I can spare in this market volatility vs. a normal investment of $50,000 if I want to reach my savings and debt pay down goals.

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Focus On Building Net Worth Even More Than Growing Income

Published: 09/05/2016 | 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

Published: 07/31/2014 | 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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