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


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 almost 10 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 longer 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 of financial self-sabotage. 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 Continues To 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.

Ruin Your Financial Life If You Want

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 Between 2010-2018 You Lost BIG TIME

If you took out a car loan, piled on other types of consumer debt, or simply bought a ton of wasteful stuff you didn't need, then you're really falling behind. Every dollar you borrowed to buy something you don't need could have easily returned a realistic 50%+ since 2012. 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!

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186 thoughts on “Maybe It’s Your Fault Why Wealth Inequality Continues To Worsen”

  1. I’ve preached a similar mantra to my friends for many years, and you are the first person I have every heard preach a similar story. I personally think your monthly payment shouldn’t be more than 10% of your take home monthly pay after taxes. Also it is best to be disciplined and save up enough to pay for your car in cash. The whole time you are saving you should be throwing the money into an investment account like LendingClub so their money continues to grow while they are saving, by the time you hit your intended savings goal you could do one of two things. Cash out and buy your car outright or take a loan for a car in which your monthly payments equal the amount of interest you are receiving from your invested money. For example, save $30k at an average 10% return which is around $300 a month. You can then go buy a 1 year old used car off the Airport rental lot for $16k which is about $287.50 per month @ a 3% interest rate over 5 years. Now you have a free car! This scenario is real as I just purchased by 2015 Prius this way, after driving my previous car for 250k miles. However I paid half down and only took a loan for $7k so my payments are closer to $150 a month.

  2. This is awesome! Very good perspectives and good oppinions. After reading, thing that was obvious was that people take other peoples oppinions directly personal. I do agree with the samurai and if able would like to do it, but then also If able I would like a flashy ride alot more too (personally)… My goals are not to own a home and die slow in it! Just like my goals are not to buy the most expensive car I can and drive off a cliff in it. What is your goal, do you have any besides “the goal of having bragging rights over your friend who has to buy you lunch most of the time…” nobody likes to eat in front of people waiting for them to finish”( especially if you know why he cant afford to eat) … And If your goal is to be the well known owner of a certain home then fine with me just invite me over “Success right”. Or how about besides “the goal of replying to what is my own oppinion to give YOUR OPPINION lol” … Like I said this is awesome! —Mr.Samurai “I took your advice before coming across your site “I started my own thing and its over a yr now” no, nothing to bragg about(haha I too can fall victim lol) money yet! And thats fine “as long it doesnt cost me any money I’ll keep at it! Great advice I’ll take what I need and aim at progress
    ” its not the size of the dog in the fight,
    It’s the size of the fight in the dog” …you can do whatever you like best from the choices availablecand while supplies last. ( I dont think people can do whatever they want, ever! Thers always something “thats the point”… A homeless person gave me the best advice he was so broke we called him joke, he said “make sure you dont buy a car or house today, and die tommorow! No matter what it costs you hear me!”

  3. This is awesome! Very good perspectives and good oppinions. After reading, thing that was obvious was that people take other peoples oppinions directly personal. I do agree with the samurai and if able would like to do it, but then also If able I would like a flashy ride alot more too (personally)… My goals are not to own a home and die slow in it! Just like my goals are not to buy the most expensive car I can and drive off a cliff in it. What is your goal, do you have any besides “the goal of having bragging rights over your friend who has to buy you lunch most of the time…” nobody likes to eat in front of people waiting for them to finish”( especially if you know why he cant afford to eat) … And If your goal is to be the well known owner of a certain home then fine with me just invite me over “Success right”. Or how about besides “the goal of replying to what is my own oppinion to give YOUR OPPINION lol” … Like I said this is awesome! —Mr.Samurai “I took your advice before coming across your site “I started my own thing and its over a yr now” no, nothing to bragg about(haha I too can fall victim lol) money yet! And thats fine “as long it doesnt cost me any money I’ll keep at it! Great advice I’ll take what I need and aim at progress
    ” its not the size of the dog in the fight,
    It’s the size of the fight in the dog” …you can do whatever you like best from the choices availablecand while supplies last. ( I dont think people can do whatever they want, ever! Thers always something “thats the point”… A homeless person gave me the best advice he was so broke we called him joke, he said “make sure you dont buy a car or house today, and die tommorow! No matter what it costs you hear me!”

  4. Well, I actually like the 1/10 rule and used it myself when shopping to replace my 17 year old Pathfinder last summer. Probably would have kept driving it longer, but two breakdowns in three months with kids in the car was a “time to replace the car” moment for my wife. After picking out the vehicle with the features we wanted, I just dialed back the production year until the purchase price made sense. Single owner, beautiful condition and 75% less expensive than the original retail price. I also saved another 3-4 thousand by picking it up in Chicago, spending a couple days with friends and driving back home.

    The best part about starting with a used vehicle is minimal concerns about cosmetic damage. Only two weeks after buying it, I got some nice car length scratches while off-roading during a camping trip in the mountains. It was easy enough to buff them out afterwards, but it’s pretty easy to picture the major freak-out factor of my neighbors had the same thing happened to their brand new Mercedes/BMW/Range Rover.

    I don’t think it’s entitlement behind those negative responses. When you have little and think everyone around you is doing better, it’s pretty easy to fall in the trap of valuing yourself based on your possessions. Driving around in a 1/10 annual income car translates to feeling inferior for too many people. I’ve read exactly the same comments from high-income people on a different site when your car buying rule was referenced. The only differences were nicer language and rationalizing buying new because of the “better safety features”.

    Thanks for the suggestion!

  5. i may agree with your 1/10 rule at the begining when one is young. But, lets say you are making 80k passive income without touching any principal plus you work when and if yoy want extra money.. that rule is bogus then… if you are making 80k or 100 k passive and yoy have zero debt and you want to pay cash for 100k car I would say do it… at least you could afford it even not working. I already made the mistake of buying a kia optima for a total of 38k sadly I wasnt making 400k a year but half that… next time I buy used.
    In about 5 to 10 years I should be making 100k passive so I could spend in whatever I want, maybe a car wouldn’t even be in my desires anymore.

  6. My wife and I are both 29 years old. We make collectively ~$210k/yr and we don’t own a car at the moment. We’re saving to upgrade from a 1br apartment to a small house. We both walk, bike or transit to work. Living without a car is entirely possible, and saves a tremendous amount of money once depreciation, insurance, maintenance and gas are factored in. We know that the extra dollars we save now will be worth about $6-$8 when we retire. We’ve got a nest egg of about $300k saved now, and we’re working towards true financial independence by living well within our means.

    All of that said, I think there are many factors that contribute to the wealth gap that are out of control for Average Joe & Jane. “Be more frugal” is hard if you only make $40k/yr with dependants.

  7. Sam, you know all the people you quoted in your article are idiots, right?

    And that’s my comment.

    ARB–Angry Retail Banker

    1. I’m not sure they are idiots, I think they feel “they earned it” because it seems affordable without thinking long term + money lost on interest. (not to mention that they could’ve earned it )
      I’m seeing this pattern all over, people don’t tend to give a crap about their financial spending when it’s something like a car or a house ( just go max out the credit ).

      Have you tried to change someone’s else mind about a “premium” purchase ? Some people just don’t put too much thought when it comes to NOT go into maximum debt for a house/car.

  8. Pragmatic Thinker

    I’m not sure that I agree with 1/10th being the golden number. One might limit his/her expenses in another way that could allow them to own a nicer car.

    However I do agree that the wealth gap is 100% naturally created. You could redistribute all of the wealth, but within a generation it would naturally reform.

    You have people that make minimum wage, and they spend money on expensive $150-$200 sneakers. Going out to bars, smoking tobacco, etc. People need to save more, and spend less. Not everyone needs the newest iPhone, or expensive watches. Not everyone needs to travel the world.

    When you lose your job and discover you have no savings, who is to blame?

    1. Terry Pratt

      For the 11 million Americans whose rent consumes half or more of their income, The Rent Is Too High is often to blame.

  9. When you drive a used car, at a certain point a number of expensive items will break down in fairly close proximity to one another. You might as well plan for it.

    In 2009 I bought a 2002 Mazda Protege with 24,000 miles on it. It still has less than 90,000 miles. This is the year that expensive stuff starts to break simply because the car is now in its 15th year!

    So, I could trade it in for a newer (used) car and then make payments on it. Or I could just pay the charges to replace the old parts with new parts. Here’s the interesting thing. Over the next two years (as more stuff breaks), I might break even or I might come out ahead on total cost. But if I repair my current car I’ll have a used car with a higher percentage of key items that are new! Not only will I save money after this and next year’s high repair bills by not having any monthly payments to make, I’ll save money on repair bills in the future, too.

    Oh, one other thing. About 4 years ago we had a major hailstorm come thru the area. It totaled both our cars. Nothing was functionally wrong with either of them, they just had a whole lot of dents in them. Everyone else looking out the window with me was crushed because their car was dented. I was (literally) singing and dancing, “Money from Heaven! Money from Heaven for ME!”.

    We just kept driving them. The insurance company totaled them, which mean they paid us for the residual value of the cars, then we bought them back as salvage cars. We netted $10,000 on the deal. Everyone else was out their deductible.

    It’s not just what happens to you in life, it’s how you respond to it…

  10. The need to trade-up cars also depends where you live. I lived for a long time in US NE with lots of snow, very cold winters, and road-salt. I found that most cars would last ~6-7 years and then suddenly go seriously downhill in terms of big maintenance items. I also found that 2-3 year old used car market was tight, in general. Now I live in California and see 1970’s vehicles with original paint and wheels on the road, all the time. Used car market here seems to go as far back (in model year) as you care to own….

    Agree, it’s very important to NOT get intoxicated with continually having to have “that” new car. Just don’t go there!
    If you like a car that much, then why make it your targetted hobby to research, locate, and then buy |that specific awesome| classic car, and plan to keep it, as your particular source of owner-pride and a thing of beauty. Get a cheap, boring ride for day to day use. This way you’ll really appreciate your “other car”. Besides that, the new car feeling always wears off in about one year.

  11. Ecstatic with a going away severance? In the low-wage world, I have never seen or heard of such a thing.

  12. Brad Spencer

    It’s amazing how many idiots argue with you when they come to read YOUR blog/site.

    I wish I had followed the 10% rule after college. I spent a bit too much on that first car and literally at 30 I’ve had 3 new cars and finally traded last one used. All told…even on modest cars (basic CRV, ford focus, and a nissan sentra) I’ve probably lost 15-20k in depreciation alone…not counting interest and opportunity cost.

    Seriously…made great money…the 10% rule literally has probably sucked a “down payment” from us at this point. I’ll easily make it up in the long run and learned the lesson early.

    But to illustrate my (better but not perfect) decision on the last vehicle I bought and will run til the wheels fall off.

    Ford Escape custom build that I bought used…about 18 months old when I got it.

    Ford MSRP (Custom so she paid this) 32.5k
    18 months later I paid 19k for it with 36k miles and it was CPO.

    Basically I doubt they gave her more than 16 for it…

    She lost half the value in 18 months.

    19k is still a bit more than the 10% rule would’ve been for me but better than what I did before (was buying cars around 40-55% of my income early on…and this one is about 16-20% or so of my gross last year).

    Live and learn but seriously…please don’t ever pay attention to your moron readers who want to argue with you. Fact is…you’ve got optionality and they don’t…and frankly thats the ONLY true sign of wealth.

    When asset prices “settle back down” in the next 5 years…your optionality will be the only real asset with any value for a while. Cars are a weight and honestly I’ll probably never buy a new vehicle again since its just too easy to buy used and get a better car for less money.

    Appreciate you Sam…really do. I’ve read many of your articles here the last month or so and it’s really helped me out. Biggest growth I’ve had is shifting back to the way I was brought up to honor “stealth wealth” and admire those who secretly own much but outwardly show little signs of conspicuous wealth. I was raised that way and admittedly lost my way at times in my 20’s…starting my 30’s off with a bang and making up for lost time.

    Cheers buddy hope you have a great one!

    1. Howdy Brad!

      Thanks for your thoughts. Awesome you’ve been reading a lot of my other articles as well.

      I generally always like a good argument if things are kept civil with good data points to back a viewpoint up.

      Optionality really is an excellent thing to have. Things are going to be tough for the next two years and I’m saving all I can!


      1. Brad Spencer

        Absolutely going to be interesting. Just read this piece on the rise in dividend cuts. I think the corporate “binge drinking” on cheap debt is about to come to roost.

        What will be interesting though is picking up XOM and stocks like that with a history of weathering the storm.

        Going to be a lot of assets on sale in the next few years…best time in a while to pick things up.

        You noticing any changes in San Francisco with tech stocks like Linkedin, Twitter, and others dropping a bit?



  13. onlyalittle

    Whoa…those comments are ridiculous. Spend half your income on a car if you like, but don’t complain that you have too much month at the end of your money when all is said and done. I made the mistake of buying a car that’s way too expensive for me last year, when I didn’t know any better. I wish I had heard this 1/10th rule before I spent so much on something that should really just get you from point A to B and be safe for you to drive around.

    I learned my lesson and am considering either trading the car in once the car is worth more than what I owe on it, or just finishing off the payment I have left and NEVER making such an expensive financial mistake again.

  14. Pingback: The Best Way To Gain Financial Security Is To Develop Financial Buffers For Your Financial Buffers | Financial Samurai

  15. 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.

    1. Jerome,

      Welcome to my site! Your perspective is excellent and very welcome. I’ve been looking for more such perspective myself as I visit Europe for 2-3 weeks a year interviewing people.

      I hope more readers read your comment. I might publish a dedicated post around your comment. Point 2 of yours is spot on. I felt much less desire to make money the more I made due to taxes and our very inefficient government.

      You might like this post on America becoming more like Europe:

      This one too:

  16. 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.

    1. Hi AC,

      That’s very nice of you to say. Thank you. Nice job with your money spending habits and discipline. I do wish your car goes to at least 200K. That would be great!


  17. 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!

  18. 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”…

    1. 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?

  19. 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

  20. 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!

    1. 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!

  21. 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.

  22. 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!)

    1. 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.

      1. 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.

      2. 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.

  23. 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

  24. 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’.

    1. 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.

      1. 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).

  25. 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.

  26. 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.

  27. Bryce @ Save and Conquer

    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.

  28. 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.

  29. 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?

    1. Doh, let me look into it, as I noticed that happened too when I put in 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.

      1. 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.

        1. 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.

          1. Liz Weston over at 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.

            1. 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.

              1. 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.

            2. 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.

              1. 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!

            3. 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.

        2. 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.

  30. 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.

    1. 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?

    2. Cindy @ GrowingHerWorth

      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.

    3. Walmart Worker

      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.

    4. 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?

    5. mysticaltyger

      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.

      1. 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.

  31. Stefanie @ The Broke and Beautiful Life

    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.

  32. Folks,

    I’m actually very optimistic about Generation Y. The younger folks seem not to be as interested in automobiles (beyond reliable transportation). It’s really Baby Boomers who purchase most new cars.

    There will be a very large generational shift later into this decade as retirements start to pick up. Most likely result will be a labor shortage. The younger generation being accustomed to a bit more frugality will begin to benefit from higher wages.

  33. The Hopeful Sorrow

    Hey Sam! Been lurking on this site for a while now, great work buddy, definitely would not want you to stop those creative juices and positive information from reaching us, you inspire plenty of readers and give us hope. Hope, to reach financial freedom. However, I am torn with this post because I somewhat sympathize with the gentleman with the 370Z. When I was 21 I bought a similar sports (used of course) for ~16k while making 50k yearly. I made the move because I had fantasized about the car since my early teens. I painstakingly saved up about 25k by the time I did buy the car, had great credit and knew that a purchase (through financing) like that would raise my credit from great to excellent (which it did).

    I guess what I am saying is that as long as there is a plan in place for financial security why not splurge once. Most of the readers here (including myself) were not born with silver spoons in our mouths, but why not try one meal with a silver spoon? I’m 24 now with 75k in CDs, a years worth of emergency fund, 50k in pre-tax retirement accounts and 10k in investments, and working towards a pension (passive income streams are always the way to go right Sam!?). Nowadays all my disposable income goes straight to investments, and I do mean every dollar.

    Do I regret my decision on buying a vehicle that gave me $350 monthly payments? Absolutely not, the feeling of buying the thing you have always wanted is priceless. If you have a strict plan in place to follow and you have allocated enough to do what you want, then why not get it (within reason of course)? I had a plan, buy my car, still save, and get more crafty with how I spent my money which would benefit my future. Life is a very long race and every once in a while you need to take a pit stop from the chaos so you could recharge your batteries and that comes in the form of a car, vacation or whatever it is you’re into.

    I do believe that most of us are “B” and “C” students that need to be more savvy about personal finance, as a whole we need to be more methodical with our approach to being consumers. Sam, I think we’ll be able to close that gap with better thinking, planning, and execution.

    1. Thanks for commenting.

      I TOTALLY empathize/sympathize with the fellow who bought a 370z for all of his income, b/c I was one of those fellas who couldn’t wait to get my first car out of college since I drove a BEATER Corolla FX16 hatchback that was 9 years old and worth $1,500. So embarrassing in college, but still was able to have fun!

      But, you’ve got to admit, spending 100% of your annual income on a car is ludicrous, especially if you don’t have a large nut to fall back on. Now if the fella was expected to triple his income the next year, OK, maybe. But it’s doubtful.

      We do need to live it up a little though!

  34. On the other side of this, are the wealthy who also try to widen the wealth gap. They send their children to public schools and buy homes in gated communities so that they ensure they and their offspring will stay in the top income brackets.

  35. New reader here! Thanks for being awesome! Some of my favorite personal finance posts are replies to hater comments. People either get it or they don’t, then they will or they won’t decide to change. :)

  36. The comments from the haters are the same types of comments I hear from many of my co-workers. This is why I never try to “help” too often because they’d think I was getting up on my pedestal telling them how to live their lives. They wonder why I can pay for my used car in cash, while they finance a much more expensive car while struggling with credit card debt. Then they make excuses as to why they are in that predicament and make assumptions that I’m either lucky, had help, cheap or all of the above.

  37. People want to justify their actions, so when they read something that completely negates how they’re living, their first reaction is to argue and disagree. However, over time, those people who actually want to improve their situation will catch on. So keep sharing the financial information!

    1. mysticaltyger

      I disagree with you. Most will never catch on. But a few people will change, and even a few people changing can make a difference over time.

  38. When I was consulting years ago, I learned I could not change people. I was paid a very handsome hourly or daily fee for my advice and yet it was very hard to create permanent change. A lot of my time was to get the CEO to buy in to the advice and then I had to convert the staff too. At least in my case, they were paying for the advice.

    Many, if not all of the detractors do not seriously want to be wealthy anyway. I know I made some hard choices over a lifetime to get to where I am. I think it is up to each individual to do what is necessary to achieve their goals. It is what makes this country what it is!

    1. And that’s the great thing! If you don’t want to be wealthy, or you don’t want to build your wealth, then all is good. Just don’t complain in the future or ask someone to bear your burden.


  39. Sam,

    A few more thoughts in regards to your blog. I actually stumbled on to your blog because you were comparing real estate investment to stocks. I thought you did a really good analysis.

    I don’t consider myself a real estate guy (even though I have a lot of real estate). When it comes to investing, I’m more of a stock picker. You did bring up some things in your posts that I have not paid much attention to. I think that’s good.

    Also, I don’t think people need to necessarily agree to learn something useful. I think just the process of putting personal finance front and center is enough to make at least small changes in behavior. It’s the process of actually thinking about the issues that will slowly push behavior in the proper direction.

    In regards to automobiles. I purchased maybe seven automobiles in my entire life and inherited two. Only four of them were brand new. None of them for more than $20,000. So….. I guess I’m not much of car guy either!

  40. I have a slightly different take on this. I dont believe in loans except mortgage. If you have to take a loan to buy a car, you cannot afford it. Try paying 40k out of checking account. It hurts!!! Thats been the deterrent for me not to buy an expensive car, even though our income is 300k plus. Love my 1999 civic that I bought after graduation. Besides, if Alfred Morris can drive a 1991 Mazda 626 when his peers are all driving Ferraris and Hummers and what not, I dont think I have any reason to be embarrassed!

    1. Sunil,

      My sentiments exactly! After paying off credit cards and student loans several years ago I swore to myself that I won’t go into debt buying a car whether used/new if I couldn’t pay cash for it.

      What I realized several years ago is that just because you can “pay” for something doesn’t mean you can “afford” it given your income/wealth. I always try to look at things from the perspective of “how much is this going to dent my net worth, in absolute/percentage-wise.”

      My 1998 Toyota Camry still runs great and I’m not much into cars anyway, although the Mazda CX-5 looks mighty tempting. :)

  41. One of my favorite posts on one of my favorite blogs.

    I think people tend to forget how big of a liability a car can be.
    Taxes, registration/smog, maintenance, parking, insurance…

    As I accumulate more and more wealth (and age) I value my time much more.
    Having a low maintenance car is about money, and more importantly time savings.
    A big reason why I like the Prius: less fill-ups, no smog, low maintenance

  42. SavvyFinancialLatina

    Some people can’t accept their reality and that’s that. Sadly, there’s a lot of people out there who don’t think fiscally responsible. And as much as you to reiterate it, they think they deserve what they want and are getting it.

  43. Another great article. I am a new reader to your blog and the 1/10th rule was the most timely article I have come across in years!! It helped me convince my wife that a new Honda Pilot was the way to go rather than a Land Rover. I could not convince her on getting a used one, but in the end the cost came in at 10% of joint family income. We are both happy, she loves the car and I feel like I increased my investable income. You have saved……and potentially……helped me earn a substantial amount of money just off this one article. With a 4 and 6 year old the savings will be going directly into their 529 plans. Whoever has gotten this far down in the comment section likely gets the time value of money and the associated benefits. This decision alone will significantly (depending on market conditions) help fund college. So please keep writing, it is only 3.5 hours a day after all.

    1. Welcome!

      Indeed only 3.5 hours a day after all. Care to give it a go and contribute an article with your perspectives? You won’t believe how many people have come up to me in five years and said they want to start a blog and don’t, or stop after the first several months.

      The new Ranger Rover Sport and Big Boy is sweet! Don’t read this article below or else you might want to get one!

  44. Ourselves to blame? Yes. I believe that financially I am exactly where I am due to all the decisions both good and bad, I have made in my lifetime.

    Unless you were hit by a car or had cancer, you are where your decisions have led you. Make $80K and drive two brand new high end cars? I am guessing net worth <$100K.

    I drive a car worth about $1200. I ride my bike to work when weather is OK. I spend money on food and travel but very few 'things'.

    Like a previous comment, too, wish I would have learned more about finances when I was in my 20s (where were you Sam?). I think I only pulled my head out of my ass at age 36 when I was $240K in debt and had a net worth of <$0. After putting the brakes on spending, I was debt free 7 years later with a 30% saving rate which has since risen to about 50%. Damnit, I wish I could go back to my dumbass 26 year old self and shake some sense into me. I would have had a full decade head start on what I have now. I blew a LOT.

    Sam, I still cringe when I see the way friends and family spend right up to their means. I am just extremely grateful I clued in before it was too late.

    To the guy with the Tundra. Nice truck. Love em. $40,000 interest free loan for 5 years. payments $667 per month. $667 per month invested at 8% for 30 years is just shy of 1$M. I will drive my hunk of crap car and keep throwing money at the S&P. Enjoy your ride.

  45. By far one of my favorite posts. Here in ABQ NM it is common to see new Mustangs and Camaros in front of apartments that cost ~$600/month.
    I have been on the good and bad side of the car game, and I have learned from it. Upon starting my first job after getting an MS in Engineering, I bought a new Subaru (through cash for clunkers). The price was about 27% of my income, and I hope to never make that dumb of a mistake again. I paid it off quick, but now I have a depreciating asset. Based on your recommendation, I should aim at 9-10k for my next car, which sounds like a reasonable amount to spend on a quality used car. It is also a reasonable amount to save up and pay in cash. For now I plan on driving my 96 Camry until it dies (currently 213000 miles), and I will keep the Subaru until it dies.
    I think many of the negative comments are from a lack of understanding about the difference between “affording” the payments, and the true cost of dumping a high % of your income into a depreciating asset.

    This is my first time commenting, and I just wanted to say that I love your site. You present a very logical approach to understanding the alternatives in financial decisions.

    1. Always great to have new readers, so welcome! Hopefully the bull market we just experienced in 2013 serves to extra highlight how foolish it is to splurge on things you don’t need due to the opportunity cost of not investing.

  46. In response to the guy complaining about returns. The other day I was thinking about returns on the S&P. If in 2007 you’d put in all of your money at the peak before the crash you’d be up roughly 20% today. Now over 6-7 years that’s not the best return ever but it’s actually pretty great for one of the most ill-timed investments in the S&P 500’s history.

    I definitely regret not having your site around a couple years out of college. In 2008 I bought a more expensive car than I needed (though not extravagant) and focused on paying back debt because the conventional wisdom was stocks and real estate were risky at the time and I figured debt repayment at least guaranteed some return. That mindset looking back theoretically set me back many many thousands of dollars.

    1. Great point you make! There’s definitely a lot of timing involved, which is why most investment advisors just recommend buying and holding for the long run and focusing on asset allocation.

      However, if you bought more than you needed in 2009, 2010 you missed out on 100%+ returns.

  47. Great post and great representation of every day attitudes. When I mention ideas like this (purchase affordable cars) to family and friends, I get EYE ROLLS? WTF?

    For the record my family is taking home over $100K, and i just bought a 10 yr old 130K mile ride for $2500. Future me is loving this decision.

    1. Alex,
      I have been made fun of since I started driving…I always had the cheapest, most fuel efficient car. Even when gas was .99 a gallon and all my friends had trucks, I rocked a 91 Ford Escort. I have spent less on all the cars I ever owned than most people spend on one car that they keep for less than 5 yrs.

      This is the primary reason why I am in Sam’s upper quartile for net worth and 401k balance by age charts.

      Current me is loving the past me and future me is going to love the present me! I say keep on doing what you are doing and make it your persona!

  48. Perhaps a differential viewpoint would help people understand better.

    They way I figure, owning a car costs about $5k a year (including things like maintenance, tags, depreciation, etc…). You can look up the total cost of ownership based on your particular make and model, but the costs are generally in that realm.

    So over a 5-year period, simply owning a car costs you $25k. That is just costs though. The impact on your networth is at least double that (assuming you were able to save the $5k per year). If you invested that $5k, then the difference could be something closer to +$65k (which is the number in my case).

    Note that this cost is well in excess of the purchase price of the car, and that you can buy a lot of taxis, subway passes, and a few nice bicycles without making much of a dent in the overall savings.

    1. It’s a good way to look at it. I’m only using the 1/10th rule for car buying as an example of attitudes of the middle class blowing themselves up and widening the gap. The reality is, I could highlight similar comments on several more subjects.

      Perhaps I will!

  49. 10% rule. What happens when this poor person buys a $4,000 lemon? What happens when the “reputable” mechanic they took it to before purchasing does a crappy job, or misses something? What if they don’t know all these important considerations, because everybody isn’t smart like you and haven’t acquired these life skills. A lot of people like the safety net a warranty offers. Price isn’t the only consideration. Peace of mind is a big one.

    1. What happens if you wake up one day and get hit by a bus? All we can do is hope for the best every single day.

      I get greater peace of mind knowing that I’m growing my wealth and solidifying my ability to take care of a family and my parents than driving a fancy car. Perhaps things will change in the future, but as of now, this is my priority and I hope this is the priority of many.

      I have great peace of mind with Moose and he is 14 years old.

      1. Peace of mind also comes from having an emergency fund before even buying that car (just in case it is lemon). That way I can cover any repairs that may be needed after I buy it (by its own fault or at the fault of a bad mechanic). Emergency funds make car repairs only an inconvenience of time versus scrambling for time and money should anything happen.

      2. Well that’s great that Moose is a good car and all, but a lot of people don’t have a Moose. Maintenance on a vehicle can take a back seat to more pressing financial concerns and be completely forgotten about by some people, especially if they’re not as mechanically inclined or didn’t have someone in their life to show them what to be concerned about. You kind of proved a point with the external factor, as well. Some people have ailing family members that they take care of. Can we also assume that the IQ bell curve is everyone’s fault as well? That we could all be Einsteins if we tried hard enough, and that every single factor that goes into intelligence is within our control? Because if not, then can you really blame stupid people for making stupid choices? For some people $4,000 is a lot of money, it might be their entire savings, and seeing it circle the drain in a bad vehicle purchase might be the end of the line for them in whatever they were pursuing, whether it was a job, school, or some other plan they had envisioned.

        You had a lot of good advice, though. I’ll take something away from what you said, but I can’t blame all the poor people out there for being poor and all the stupid people out there for making stupid choices.

  50. Cindy @ GrowingHerWorth

    I love this site, don’t ever change how you write! I feel like I learn a lot when I come here. I am the person earning $45,000/year who never thought they could get ahead. I’ve made all the mistakes you talk about. But I’m finally starting to turn things around and get ahead. I owe a lot to you and a handful of other blogs I read daily.

    I really don’t understand why people freak out so much on personal finance writers. You can learn a lot, even if you don’t follow every piece of advice. We’re all individuals, in different situations, and have to adjust things accordingly. Take it or leave it. It doesn’t mean it is bad advice. Personal responsibility, people! It’s my own fault I don’t make more than $45,000/year. It’s my own fault I don’t have more in savings. I made choices that put me in this situation. Learning from others has helped me align things more with my own values. But I still have to live my life according to my own wants and goals. Why hate on you for making recommendations? It’s why I’m here!

    1. It is a curious situation isn’t it Cindy? It’s not like I’m forcing anybody to read my content unless people sign up for my RSS e-mail feed, or folks search for topics on my site.

      You have a great attitude Cindy, and it’s that attitude which will get you far!

  51. I’m pretty amazed at what some people actually spend on cars. I make around $80k and thought I was splurging to the fullest when I bought a $25k truck, a year ago. Still believe it was a huge splurge (but I use it for projects and fun). But I have limited my “rent” to $250 a month due to renting out my live-in duplex and live on $600/mo outside of that. Making it very easy to sock away $2k+ a month for retirement and non-tax advantaged savings.

    The fact that so many people (I’m sure there were many more) responded in this way, is truly scary. All of these people need to take a trip to a 3rd world country and see what “roughing it” actually is. I’d suggest Nicaragua, it’s the beautiful country that opened my eyes.

    1. mysticaltyger

      I absolutely agree with you that these entitled whiners really should go to any 3rd World country….even one of the relatively better off ones like Chile. The middle class there lives on much less and yet they are just as happy or happier than middle class Americans. That’s because they emphasize the things that actually make people happy…family, friends, good relationships and de-emphasize spending money as a form of recreation.

  52. The First Million is the Hardest

    Changing our attitudes as consumers can go a ways to help improve the financial situation of the middle class, but the wealth inequality problem in this country runs far deeper than that. The trends in executive pay vs average employee pay over the past 40-50 years shows that the system is broken. We can all do what we can to improve our financial situation, but driving a cheap car and investing every last dollar we can still isn’t going to bridge that gap.

    1. I agreed. Part of it is structural and part of it is unwise personal choices. In the past few decades, structural is a larger factor of the growing gap of inequality in this country. The structural part is that over 60% of a company’s compensations goes to 10% of the employees (managements) and the remaining 90% of employees share the rest. The ratio for bonus payout is even worse, it’s like over 85% goes to the 10% and the remaining goes to the 90%. In addition, the perks and other stock options. Keep in mind, managements make these decisions. What can we do to help the growing income inequality? We need to admit there is a structural problem……..America was an economic engine of the world because of a large middle class of consumers making a decent income and paying there share of taxes when we destroyed the middle class we destroyed America. No jobs, no tax revenues and no consumers.

  53. You know I bought a new car used car for me last year, 2008 S65. It was expensive 50k, but I can do a really good job of rationalizing it. I earned about 250k last year, worth about 600k and just turned 27. I do a good job of saving at least 50% of what I make, so if I want to spend 50k on a car I don’t see a problem with it, I had the cash just sitting there. I agree with the 10% rule for most people but I think their should be an exception for high earners. If I were to die today I have no dependents or a spouse, no real purpose for my wealth. I don’t see them coming in the near future either. I am not a big fan of vacations with all the traveling I do for work. So I look at buying a nice a car no different than taking 3 vacations a year or other expensive hobbies.

    1. Cindy @ GrowingHerWorth

      Sam did write a follow up post saying 10% of annual income OR 10% of your net worth. If you have that much saved, why not?

    2. mysticaltyger

      That “no real purpose” for your wealth comment really stuck out like a sore thumb for me. The purpose of your wealth is so that you can walk away from paid employment any time you want, not to console yourself with an overpriced car because your job is a drag.

      When you aren’t tethered to paid employment, you have the potential to give to society in real and meaningful ways that rarely exist when you’re working for money. This is what creates a meaningful and happy life…for everyone, not having an expensive car….the happiness that comes from that is fleeting, for just about everyone…and your brain is not wired different from everyone else’s.

  54. First, if cars are your “thing”, then go buy what you want. While I drive a car with almost 300K on it, I don’t value a nice car. I spend countless hours commuting in it and I don’t care that other cars are more comfortable, have more performance, etc… But, that is me. I spend my money on other pleasures. To the naysayers, I do think it is okay to spend more than 10% of your income on a car, if you saved up the money first. With diligence, you can save for the car you want in 3-5 years. It’s all a balance.

    As for helping others…most people shun the help. Perhaps our approach to help isn’t correct. Or, they are not in the right place to hear it. I would love to help some of my family members and friends, but they won’t have it. People (in general) typically need to be shocked out their current behavior by a major event to make a lasting change. For now, I am waiting until others approach me.

  55. Ok, first off let me say hahahahahahahahahahahaha!

    I feel better now. Great post, Sam. People can be ridiculous. I think you nailed it in this post. The secret to why the bottom 60% never get richer is because they try to live like the upper 20% that are actually growing their wealth. While working, our household income topped out around $150k and following the 1/10th rule, we should be driving $15k cars. Boom – Honda Civic and Accord that were around that much brand new. 14 years ago. We’re still driving them and their combined worth might be $7000 if we could find some suckers to pay that much.

    In the meantime, we avoided spending much on rapidly depreciating assets (like cars) and instead threw all those savings into rapidly appreciating investments (like mutual funds). Rinse and repeat year after year and it’s virtually impossible to NOT grow wealthier over time.

    P.S. I like your tone too! :)

    1. I definitely had fun with this one Justin. I love the comments here, spicy or otherwise. Makes for great posts and entertaining discussion!

      $150,000 and a Honda Accord. Sounds about right to me. Not sure why folks are so bent out about Accords. I love em!

  56. I like your 10% rule. I wished I read that when I started my job back in 96. Sure the middle class isn’t doing enough to educate themselves, but I think the upper class needs to spend more money too. Why accumulate so much if they are not going to spend it. An easy way to achieve more wealth equity is to make the wealthy people spend more. If Warren Buffet and his friends spend 10% of their income on cars, it would really help the economy and the poorer folks.
    Oh well, you can only take care of yourself and a few people who listen to you. The rest of the middle class will have to wake up on their own.

    1. mysticaltyger

      I disagree on the need for the well off to spend more. Once you reach a certain point, spending more just does not add anything to one’s sense of well being. The other problem with the rich spending more is that people take their spending cues from people a rung or two higher on the economic ladder than themselves. They shouldn’t, but they do. So more spending by the rich would likely result in another debt fueled spending binge followed by another crash like the one we had in 2008 (and still haven’t fully recovered from).

  57. Take heart Sam, i think your site is great and i pass along your articles to my three sons as extra tips to increase their wealth. I grew up on a farm and never had much guidance with wealth accumulation when i was young (all self taught). If we can pass along guidance that avoids our mistakes our next generation should have an advantage to start generating wealth earlier than we did. I am already well into generating my 2nd million in net worth and hope my kids do even better.

    I too buy only used vehicles with generally over 80000 miles. If you do the math for service and repairs vs payments with lost value for new purchases, higher insurance, etc… its a no brainer to buy used.

    Having a saving mentality is a lifestyle choice. Our house is a 1970’s single level house. My wife and i go to goodwill, thrift stores and garage sales on weekends and furnished our house with antiques from our treasure hunts (and had fun doing it). We use coupons and look for bargains. Other people may say were rich and cheap but we laugh and call it thrifty and smart.

    Please keep the articles coming!! Thanks

    PS: i had a chance to meet one of the richest men in the southeast (he owns Chickfillet corp) and he and his wife live in a 1950’s single level house. ;)

  58. Interesting post, Sam. Unfortunately, we live among people who don’t mind financing anything and everything and making monthly payments for the rest of their lives. I currently drive a 2007 Dodge Caravan, and while it’s not flashy or fancy, it’s paid off and has been for some time. I would estimate it’s worth about 5K, but who cares? I’m driving it until it dies. To hell with the expensive fancy cars with payments. My opinion is that if you cant pay cash for it then you can’t really afford it.

  59. Done by Forty

    This post is a home run, Sam. I am about to launch a financial coaching business, and I am having SERIOUS doubts because the people I am giving services to for free, in beta, are not improving all that much. We talk, look at spending, come up with plans to cut out ridiculous waste (cars are a common topic), but the weeks and months go by and there isn’t much improvement. I am finding that while coaching and advice is good and all, change is hard to implement in others.

    I am finding a sad truth: just about all my readers are the people who least need financial advice. At least you have a wide enough audience that you’re getting the message to the people who need it. I get the feeling that, within my circle, we’re all preaching to the choir. Hell, we are the choir.

    1. Done By Forty:
      I think you are experiencing the same thing personal trainers experience when they first start out. Their clients have the best intentions on changing habits and improving, but they just don’t have the staying power to see the results. Improving ones financial situation is a very very hard thing to do…and most people aren’t willing to put the work in to the see the results (which are usually further out than the client can visualize).

      It will just take a little while to find a way to weed out the clients that don’t want to work at it (every business has their tricks for this). Better yet, at some point you will be able to self select the client you want to work with, as your books are already full!

    2. Good luck on the new business!

      The best ones are those who are really seeking help and who come find you. It’s hard to help someone who doesn’t want to help themselves, so I don’t bother. Let me know how it goes!

  60. Thank you for this post, I always forget people are still stuck in the rat race mentality. It seems a lot of the commenters are stuck in “month to month” mentality and will happily work 40+ years of the best ages of their lives to retire with no money and poor health. My coworker makes 30 to 50k more than I do and I saved more money than him last year because he blew it all on things like a BMW 335, guns, etc.

    The comment you re-posted about how a car is a “little thing that makes you happy,” makes me particularly sad. Someone who thinks 20k is a “little thing” needs a serious bop on the head, and if they’re relying on a car to make them happy, I feel sad for them. That person also said that “proper investments” have done poorly over the past few years… there’s no arguing with that kind of person. I have barely scratched the surface of investing, and it’s easy to look at any index and say “holy moley, if I had bought stock in 2008 I would have made a boatload of money!”

    Anyway, thank you for your interesting posts. For the record I pulled in 100k last year working my ass off traveling around/outside the country 130 days of the year, and bought a 2004 civic SI for $8500. I would have kept driving my 1994 Acura Integra, but living in CA you know how strict they are about smog laws and it wasn’t going to pass. I bought my Integra in college, 2005, for $3000.

    1. Civic Si! Nice. I had a 1997 Civic once and LOVED it. Wish I didn’t let it go.

      After about the 10-15 year mark of work, I’ve noticed a lot of REGRET from folks who didn’t save. And that’s b/c it gets depressing to think they’ve got to work that much longer to be free.

  61. Sam,

    I read many articles on personal finance from many different websites. The comment sections are usually my favorite part.

    The main complaint I read about is the authors don’t give advice for the”average guy,” people in the 30k to 50k range. The 1/10th car buying rule advice is about as good as it gets! Follow it, and you”ll be in a better financial situation. Don’t follow it and you won’t. Simple, straightforward, easy to understand.

    I believe the negativity is a direct reflection of society”s entitlement attitude. Let them drive there 370z to work, while you drive moose to the beach!

    As the great Charlie Sheen says, WINNING

  62. All I could think about while reading this post is: “I’m jealous”.

    On my blog, I get readers who already “get it” and have rethought their priorities. Therefore, I’m helping them, but only incrementally. On the other hand, all of this hate is proof that you are reaching a wider audience! I bet there are plenty of readers out there who are actually rethinking their decisions about car purchases right now!

    How great is that!

    Congrats on the success (each one of those hateful comments is like a little trophy)!

    1. Yeah, preaching to the choir is definitely not as fun. Group think results. I love different perspectives since there’s really no laws behind personal finance. Everybody has their own way of doing things.

  63. Sam, I think you touched a nerve with your post because car-buying is much more of an emotional purchase than people give it credit for. In the United States at least, we have a whole mythology built around the open road, freedom, etc. Just watch any car commercial during the Super Bowl this year.

    So when reasonable heads tell people that all that matters with a car is reliability, value retention, and safety, it upsets the people who tie up their identities with what they drive. It’s like trying to tell a bride to spend less on her wedding!

    I think the key for car types is to offset the purchase with reductions in spending in other areas — food, housing, travel, etc. If you want a car you can’t afford, the money has to come from somewhere else. Unfortunately, lifestyle inflation tends to expand in all directions at once. That’s how we get into trouble.

    Thanks for the post.

    1. No prob Tony.

      So much about money IS emotion. What if we could tap into our childhood emotion and recreate that feeling of love for our first bike again though. Wouldn’t that be neat?

  64. I think one of the biggest reasons people can’t save and invest is they spend too much money on their house. If you max out what you can qualify for it leaves very little room for saving money. I maxed out my first house and never saved much. Now I spend about 10% of my income on my house and I can invest in rentals that bring me more money and increase my net worth.

    1. People CAN save and invest even if they have high housing costs. I am prime example of that. By the age of 23 I was already on house #3. I had sold house #1 and established #2 as a rental. With little money to spare the only real avenue I had available to me to grow my measly savings was the stock market. My first stock purchase was 4 whopping shares of Disney at $153! Laughable to a big spender, but that was all I could afford. Almost 22 years later, I still have my Disney stock, and it makes me smile to be able to share my story with others, especially those like myself who are not educated. My advice: start with small investments and make lots of them along the way. My little Disney investment is close to reaching $900, and I am hoping to leave it to one of my granddaughters someday, who will in turn watch it grow and pass it on. What a hilarious legacy that would be to leave behind. Oh, and I retired at 45. It can be done. ; )

  65. Sam,

    I actually find many of your posts to be very well thought out. That doesn’t mean that all of your concepts will fit the needs of every reader, but I think you do a great job! I also enjoy reading the different comments. I think overall it is helpful to have different viewpoints out in the open (as long as they are basically polite).

    I was researching some of these real estate prices in the Bay Area yesterday and discussing them with an appraiser buddy (his brother lives down in Sunnyvale).
    Anyway, with a median priced home in the Bay Area going for about $548,000 (December 2013), and median income of about $68,000 or so (Bay Area wide), he felt the price levels made no sense at all. A healthy market should be around 2.5 x median income. If you add a premium for living in California, maybe 4 x median income.

    I’m also seeing news reports about people all upset about Google buses and private security guards. It just seems like an unhealthy social economic environment at this point. There seems to be a serious lack of low income housing, and the challenges of living a middle class lifestyle are very high. I can see why you might have a front row seat to wealth inequality.

    In any case, I would really like to see high schools include some basic personal finance classes as part of their curriculum. It amazes me that a 19, 20 year old kid can’t handle a checking account, etc.

    That said. The Generation Y kids that I’m observing seem to be relatively sensible about consumer credit use. I’m very optimistic about this generation.

      1. My appraiser buddy is saying that prices are actually climbing in Chicago and Zillow may not be accurate. There still appears to be a large inventory of foreclosed properties in some neighborhoods. I’m sure this would pull down the aggregate numbers.

        My experience with the Chicago real estate market (four decades) is that as a whole, it is normally stable. You just don’t get these very large swings in pricing.

        Pricing got a little too elevated around 2004-2005 (like the rest of the country) and then over corrected during the 2008 recession. I’m actually happier if pricing stays lower in order prevent large tax increases (if possible). In any case, I think the current prices are fair. I would expect around a 4% average appreciation over the long term.

        I’m fine with that. My homes are for living in and enjoying life! Stocks/small business are for investments.

        1. I just think it’s telling that Chicago is at THE BOTTOM of the list in terms of perceived appreciation in the country. Whether it’s -1.5% is besides the point since everything is relative. There has to be something wrong to be at the bottom.

          If I was a college graduate looking for work, I would look at the comparison and worry.

          1. Well….. New York City is second from the bottom with a -1.2. I think many of the cities in middle America are underrated. For a variety of reasons. I do believe there is some kind of cultural bias. It’s actually rather amazing because almost all the cities in the Great Lakes area are very liberal (both politically and culturally).

            Anecdotal evidence that I have seen, indicates that college graduates are getting jobs (high paying ones) in Chicago. In fact, it seems like many people move here from Michigan and Ohio. The economy is very diverse and this is city is considered an Alpha+ global city.

            Other than the cold weather, it’s a wonderful city to raise a family (actually kids love snow). There is always something to do here. Honestly, if you can’t find something interesting to do here, you really have problems.

            The lakefront is beautiful and there are 26 miles of public beaches and bike trails (and volley ball nets at North Ave). And the food is excellent. Young people enjoy living in the Lake View area. Around Wrigley field and within walking/biking distance of the lakefront. The museums/shopping/architecture. It’s wonderful.

            I have been here or have had family here forever. This city is always reinventing itself. No…. I’m not worried. We are better off not being discovered!

      2. Kristy Clark

        I hate to butt in, however, I am a commercial real estate appraiser and we can not stand Zillow. Most appraisers can’t stand Zillow because the site is truly inaccurate. Just thought I would throw that out there since you bring up Zillow a little bit.

          1. Kristy Clark


            Sure. Are you planning on getting into commercial real estate appraising or a different career? I will be happy to answer any questions that I can.

            1. Hello Kristy,

              Thank you so much for getting back to me so quickly, and I must apologize for not following up with my questions from week and half ago.

              I’m actually seriously considering a new career move as a commercial mortgage broker.

              I realize that there isn’t a formal program/designation to become one, however from my research it seems that taking courses in appraisal/underwriting should adequately prepare oneself? If you know of any mortgage brokers do you happen to know their background (e.g. appraisal/underwriting)?

              I’m familiar with Co-Star/Scotsman Guide and Appraisal Institute/MBA.

              Any thoughts or inputs would be highly appreciated. Are you in appraisal yourself?


  66. i totally agree with the premise of your 1/10 rule, but i do have a nitpick. i think it’s financially savvy to invest in a lightly used and highly fuel-efficient car. cutting the recurring cost of gas by ~50% is a pretty tangible and measurable benefit. it’s often going to be more expensive over the long run to keep an older car running when you factor in fuel and repair costs.

  67. I remember seeing a study one time which suggested that the average sitcom in the 1970’s portrayed a household income of (inflation adjusted) ~$75M. Dad went to work and it was a single income family. Today’s average sitcom portrays a household income north of $300M and nobody ever seems to work. A beautiful example of this in action can be seen in Sex and the City. The lifestyle led by Sarah Jessica Parker’s character in the show is not commensurate with the average income of her character’s career as a freelance writer. Across popular media we have indoctrinated Gen Y and Millennials for entitlement and a low work ethic.

    I honestly think you could write a book about the lack of fiscal discipline in the United States. To some extent it originates in ignorance (or never having been taught) and to some extent I believe it is a cultural imperative to consume.

    I am not saying I am perfect. When I was 23 I bought a luxury vehicle that was about 40% of my annual income. But, seven years later, I am still driving that car.

    1. As someone who had a lot of free time for almost 2 years, I can assure you that A LOT of people hang out and don’t have to work. I think it’s partially b/c we’ve got a great gov’t safety net now. But I also think it’s b/c there’s a lot more wealth out there than we know. Generational wealth. Trust funds. Inheritance, etc.

      Doesn’t matter what time I go out in SF, there are loads of folks drinking coffee, hanging out, and living a life of leisure.

      1. This could also be due to flex schedules, remote work or the influx of internet entrepreneurs …

  68. I am a new reader and I about fell off my chair when I read this article (as well as the original 1/10th article and comments). I.LOVE.IT. I think people’s irate reactions come from a place of absolute desperation to justify their decisions, mostly to themselves. My car is not 1/10 my income, in fact, when we purchased it (used Honda Odyssey) it was probably closer to 30% and I’m still paying it off 4 years later (ouch) but I accept that I certainly could have spent that money much wiser other ways. Lessons learned can be hard but worthwhile if you open your eyes to the possibilities. I have a big family so a mini-van is a must, but you can bet I will be keeping this 2009 van until it dies, and with only 65,000 miles, I hope it will be a long long time. My husbands ’05 Trail Blazer we bought cash in 2007 and also has under 70,000 miles and will be with us for many years! Do you agree that just keeping the vehicles is the best way to “undo” the bad choice? I owe about $8000 on the van but it’s worth almost $16,000 so I feel good about where I’m at with it, and it meets our needs and has many years left. I also wanted to add, that I think the biggest thing working against people achieving financial success and independence is that everyone accepts that it’s just “the way things are” Assumptions like “you’ll always have a car payment, if you work hard you deserve ‘it’, it’s just the way it is, I don’t want to live like a pauper, etc” are at the root of our undoing. I’m working really hard to shift my way of thinking and make lasting change that will help secure our financial future. For me, the first step is recognizing that what most people do is completely idiotic, not in their best financial interests, and not the yardstick to which we should measure ourselves or our decisions. I’m also figuring out, at the ripe “old age” of 32, that the single best thing you can do to lead a truly happy life is to stop giving a shit about what anyone else thinks – looks, clothes, spending habits, car, etc. All bad decisions come from doing things to impress others, instead of doing what we really want. Hell, most of us don’t even know what we really want because we’ve come to believe that what is “normal” looks like the family next door, or the people in the tabloids or beer commercials or whatever. I know I have a long way to go on my financial journey, but for me, not only accepting and understanding these truths, but deeply internalizing what they mean for me, is the first, and most critical step on achieving not only true wealth, but lasting happiness.

  69. Based on the examples you provided, I would say that we have no one to blame but ourselves for the wealth gap. Some of those examples displayed entitlement problems. They feel that they work and can afford it, so why not. Some of the people mentioned could be saving far more money if they didn’t have car payments in excess of $500 a month…which I can not imagine paying. My question to those people would be, what is your percentage that you save? Do you take vacations or complain that you can’t afford it? Life is all about the choices we make.

    My husband and I do very well for where we live, not extravagant income/wealth, however, he drives a $3,000 1998 Ford that he just purchased. I drive a nicer car because I drive more and I usually have two young kids with me. I do refuse to drive a beater until the kids get a little older. We paid cash for the mini-van I drive. I have been driving it for 5 years and will drive it until I feel that it is no longer safe. But it is a choice that I make. We do not want car payments and feel that cars are a complete waste of money, especially buying a brand new car off the lot. It depreciates the moment you drive it off the lot. To each his own I guess.

  70. High Five on the post. Disagreements I can understand but I don’t get people being offended by your advice. You host a financial advice website! What were they expecting? Also, you’re in a unique position (as a wealthier person) how people might get more bang for their daily buck. Keep pounding the virtual pavement Sam. Really love your site :)

  71. Seriously good perspective. The single thing to start bridging the gap is investing. It’s interesting that when these pollsters try to identify what sets apart the haves from the have nots, it’s stock ownership. Most of the gains in wealth since the last recession bottom have come through stock ownership. Many workers have benefited through their 401(k) plans. But, had they done as little as an extra $100 a month, how much better off would they have been.

    Like your “Moose” :) The wife and I have a 12-year old and a 7-year old and they’ve both done well (knock on wood)… and they’re both paid for. It’s not just the payments, it’s the licensing and insurance, too. When we lived in California, we spent more on insurance in a month than on gas.

    1. I just fear that when the investing party ends, then what? Will those who are undisciplined win since they have something to show for it? Or will they get crushed due to debt and an inability to hold off long enough for the bounce back.

  72. Super interesting and entertaining post. These responses make me wonder why some folks even read the material if they are defensive about current habits.

    There are lots of things in life that we can’t control, but the extent to which those of us born in first-world countries really do have influence over our ultimate financial destiny is undeniable. Without a massive shift in behavior patterns of the bottom ~75%, the inequality gap will only widen.

  73. Sam,

    I couldn’t agree more with your thoughts about people’s sense of entitlements. I work as an attorney in a legal department for a multi-national corporation and it’s amazingly difficult to find good support staff. Most people just seem to feel entitled to a pay check. We compensate our support staff very well (especially for individuals with a vanilla college degree or an associates degree from a community college) and their hours are basically 9-5 in a very nice work environment. Nonetheless, I’m continually surprised by the level of laziness, lack of initiative, bad attitudes, and jealousy towards executive salaries that I observe. (Incidentally, the executives have tons of education from prestige institutions, high IQs, work crazy hours with a lot of stress, and travel all over the world to less than ideal destinations.)

    By the way, I drive a 13 year old volvo wagon with 150,000 miles on it, whereas many of our support staff drive new cars (including BMWs) and complain about their finances and pay.


    1. Hi Dutch – Gotta love it when the support staff drive fancier cars than the senior employees!

      I told a junior colleague once to park his new SUV elsewhere. He was 22 and drove a $50,000 Acura bought by his parents. He asked why? I told him why would we pay him a year end bonus if at 22 he could already afford a $50,000 car?

  74. This should be a weekly column… Comment Commentary.

    Yes, I do think the inherent entitlement mentality and laziness of the average person perpetuates and adds to income inequality.

    If being a B student leads to destitute poverty, then everyone had damn well better be striving for As. I grew up middle class, so I can’t imagine going through all the trials and tribulations of poverty, but I can speak to effort. I worked my ass off to be an A student in life. Once you get to high school and college, especially college (or higher education), it’s on you, not your background. You owe it to yourself to be an A student in life to get out of the middle class.

    A lot of people look at CEOs and cry about their paydays. I agree that CEOs are overcompensated. They work, I mean real work. They give up their lives and sometimes their families for the company and the job. Is it worth $30M a year to the company? Maybe a select few deserve that type of compensation, but not roughly all of the Fortune 500. The golden parachutes are getting ridiculous as well, you fail, but still get $50M? Makes no sense. Successful CEOs, instead of roasting them on their pay, middle class people should be looking at their backgrounds. A majority of those people grew up middle class. Most of them started at the bottom, many times actually building the company’s products. They started off B and C average, but worked damn hard to become A students and worked even harder to become A+. That should be the take away of CEO compensation, not the absurdly high paydays.

    1. Yes I agree! Comment commentary! I had some good chuckles at your commentary above. People who need help the most can be extremely stubborn. I have family members like this and it’s like they don’t hear anything I’m saying when all I’m trying to do is help them recognize their spending habits are out of control. All they know how to do is make excuses- so frustrating!

      Hopefully one day the most stubborn ones will realize their sense of entitlement is out of proportion and let down their barriers to actually receive financial advice.

      Keep the posts coming Sam. We love ’em!

      1. Planet Earth, Planet Earth!

        Dang, to have $400,000 CASH and be unaware of our tremendous 4 year recovery must be interesting. But I can’t ever fault someone who has that much lying around. They gotta be doing something right!

    2. Not sure if I can do a weekly column, but once a month or a quarter, or when I’m feeling a little spritely could work!

      I don’t think a B student ends up in destitute poverty. I think a B student who tries to live an A lifestyle will eventually screw themselves up. Instead, just live a “B lifestyle” and all is good. Drive the Honda Accord instead of the Porsche. Live in the 1,600 soft home instead of leverage to buy the 3,000 sqft home. Live congruently with your earnings power is all.

      1. I was playing off what Cash Rebel was saying regarding a B student leading to poverty, but you got the idea. It doesn’t matter your situation, you should always be striving to be an A student, in everything.

  75. Please don’t pack it up, Sam! Posts like the 10% car rule are why I read your blog. But what do I know? My family of three grosses 160K, lives in a 2 bedroom under market in NYC and takes public transit, and we are far from miserable.

  76. Chaz@christianlifehacker

    Yeah, Sam, I think there will always be economic inequality, and it will probably increase – at least in the US in the near future.

    Heck, way back in 1897 Vilfredo Pareto found that in every country he examined the distribution of wealth was such that 20% of the population owned about 80% of the capital.

    The key for most middle-class folks is stunningly simple:

    Spend less than you make
    Manage the leftover money

    In other words, live within your means and spend less money on crap.

    1. Terry Pratt

      It’s easy for the average person with average income to spend less than they make.

      Please tell us how a person living on a poverty-level income might spend less than they make.

      IOW, Hack This!

  77. As always, it’s fun to hear your thoughts on the commenters who hate on your posts. You asked the question, do we have nobody to blame but ourselves for out financial situation.

    I guess I’d say yes and no. All else being equal, some folks want to live A lifestyles even though they only out in a C effort. However, if you come from an impoverished family/community, a lot of the advantages I take for granted just aren’t there. Maybe you can dig yourself out by being an A student, but maybe being a B student will lead to destitute poverty.

    1. It’s hard to envision a B student end up in destitute poverty b/c if you are a B student who is indeed in a poor financial situation, you’ll get help from institutions. “B” = Good. C or D student + poor financial situation on the other hand is a different situation. But of course there are cases for everything.

      1. Terry Pratt

        Dunno where you get the idea that B students in a poor financial situation will get help from institutions. I was a B+ student (3.9) from a dysfunctional family and all the help I got was a New York State scholarship, which consisted of a base $100 yearly for books in order to attend a college in New York State. My dysfunctional family situation led to living with a relative who did not provide my support – my father did – and who filled out my FAFSA. My relative’s lower middle class income in NYC and his frugality and small-scale investments (about a dozen different stocks, based on the annual reports he received) made me ineligible for grants, so I had to work menial jobs and take out student loans to get through college. Ultimately I could not afford to go on to law school, and my political science was essentially useless in the Rust Belt recession into which I had graduated..

  78. I think about this a lot and it bothers me. How do you begin to help people when attitudes are so fixed? People tell me I should teach an evening class or be a financial planner, but I don’t believe I’d reach the people who really need help.

    I make $65K per year and don’t feel like I can afford a car at all. I opt for a $75/month subway pass even though it takes me 1.5 hours to work each way. I save $1800-2000 net cash per month not including 10% to 401k. I’m two years out of college, no debt, full six month emergency fund, $40k in retirement so far, house down payment growing each month. I’m doing alright. How do other people do it???? People make less than me and have families, they have houses, they have cars. I know I’m in a city with high cost of living, but so are many others who make less than I do. I’m know I’m so lucky, but if I were saving less I wouldn’t be satisfied. Is there really any way to help people who need it learn about personal finance?

    1. Hang in there Amanda, you are doing all the right things and it will quickly pay off for you. The only way to help those around you is by example. If you are recently out of college, it might take a while for your friends to catch on (late 20’s to early 30’s). However, by then they will all keep asking you…”How did you do it?” and from a financial perspective, you will have left them in the dust (but ready to share your wisdom)!

    2. It’s hard to help someone who isn’t willing to help themselves. The flip side as a PF writer is that at least folks did some kind of action (searched on Google) to find a solution or new perspective to a financial question.

      The best way to help society is to start with ourselves. If we are all good to go, then nobody would ever need to spend resources to help us out.

  79. Frugal Sage

    The fact so many people clearly missed the point you were making about the 1/10 of your salary to buy a car might be because it wasn’t worded in a way that would make such dunderheads understand.

    It’s simply a choice between wasting money on something that you don’t need. Or saving it for something better. It’s certainly a sad state of affairs that all of those commenters think that they can afford it and so should buy it. (in an ‘i have money hence i can afford it’ kind of way)

    My contribution to the gap, is in moving friends and family away from massively overpriced financial products into ones that are better suited to their needs – and cheaper.

    Conversely, (Without knowing the monetary dollar amount for each group), i’m personally trying to increase that top fifth up higher by working hard!

    1. Good job saving your friends and family money!

      I wonder though, is it necessary for spell out wasting money and what would happen if you use that wasted money and saved or invested it during good times? Hmmm.

      1. Sam,

        I think it is necessary to spell out the fact that the aspect of wasting money, or the opportunity cost. Especially since it sounds like your site is now attracting people from across the demographic categories.

        The reason some people want to be “rich” is so they can live the lifestyle that’s associated with being rich. That image is certainly a fallacy, because we don’t see lavish lifestyles being lead by most of the rich. And celebrities and such, while they have extreme cash flow, aren’t necessarily asset rich or net worth rich.

        If you devote a small paragraph to the “non typical visitor” that can help them understand that the goal is broader than having a nice car now, as an example, you may find a few new converts.

        Keep up the good fight.

  80. It is telling that most of those comments are from people who “already” made some “bad” decisions with regards to their car purchases and seem like they are just trying to avoid the realization that they could have been perfectly happy with less car and more financial assets/independence. Realizing and learning from a bad choice is difficult for most people and definitely holds a lot of them back.

    I tend to disagree though that the income equality is entirely the fault of those on the lower end. The people with power/money are definitely using it to gain more of both at the expense of everyone else. I don’t necessarily think raising taxes is the answer here (vote for smaller goverment & less taxes ;-) ), but definitely some stronger rights for people with more limited capital. For example maybe allowing individuals a much easier way to recoup all legal costs if they are proven right in defending themselves? This would go a long way to limit power of say Monsanto or other giant corporations abusing the legal system. Further reforms of patent system, along with higher penalties (and actually enforcing them) on companies that break rules or cheat people would also help. Anyway. . . waxing on here. .

    1. I definitely do not feel that the widening gap is the fault of the majority. There are two things at work here:

      1) Those who have the means and the knowledge are not doing enough to help others.
      2) Those who are falling behind are not doing enough to help themselves.

      Although I’m being called names here in some of the examples, I’m good hearted about it. I want to make lemonade and use such examples to highlight that we should be doing more. To put black on a white piece of paper to really see a difference.

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