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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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.
Totally agree. PERSPECTIVE is so important, which is why I wrote perspective posts when I travelled to Europe to investigate social, and why I’ve got a post on Capitalism and China coming up!
I recommend everybody go to India as well.
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.
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.
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.
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.
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?
What kind of work do you do?
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.
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.
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! :)
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!
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.
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).
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. ;)
Love it Steve! Thanks for sharing the articles with your sons. I wonder what your perspective is on the “Inheritance Talk” and how you approach your kids. Do they know their dad has their financial ducks in order?
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.
I think once we find a life partner, we REALLY stop caring about what we drive. You’ll still get lucky with your Caravan, so who cares?! :)
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.
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!
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!
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.
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.
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
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)!
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.
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.
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?
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.
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. ; )
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.
Prices have never really made much sense in the Bay Area. It was expensive when I first bought 10 years ago, and it’s still expensive now.
I forgot to ask you, any qualms about Chicago being dead last in Zillow’s 2014 housing price forecast appreciation of -1.5%? Any thoughts as to why this is?
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.
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.
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!
Here is a good link:
https://blog.lucidrealty.com/chicago_real_estate_statistics/
Looks like the recovery is well underway…. Just a bit slower. Employment level is up to about 4.5 million jobs. About 9.5 million people live in the metro area.
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.
Zillow is inaccurate. I just use it to find comps and understand the history of purchase and the direction of the market. There will be an upcoming post. And also, here is a post I wrote called, “You Can’t Trust Zillow And Its Estimates.“
Perfect! Thanks Sam! I will check out your other article too.
Kristy,
May I ask you some career-related questions in commercial real estate?
Pisces,
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.
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?
Sincerely,
Sam
samkim320@gmail.com
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.
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.
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.
This could also be due to flex schedules, remote work or the influx of internet entrepreneurs …
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.
Welcome new reader! Always good to hear new perspectives. How did you stumble upon my site?
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.
I’ve asked many of them to share their finances, but none do. Maybe my “subscribe to comments” button is broken. Or maybe something else is going on.
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 :)
Thanks Tyler. Like being a Ohio State fan and reading a University of Michigan blog. What do you expect indeed?
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.
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.
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.
The question therefore becomes, should we care about helping the 75%?
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.
Cheers,
Dutch
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?
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.
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!
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!
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.
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.
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.
Are you sure you aren’t miserable? :) Just kidding.
I never plan to pack it up. I’m having too much fun!
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.
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!
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.
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.
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..
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?
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)!
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.
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!
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.
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.
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. .
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.