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!
Recommendation To Build Wealth
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After you link all your accounts, use their Retirement Planning calculator that pulls your real data to give you as pure an estimation of your financial future as possible using Monte Carlo simulation algorithms. Definitely run your numbers to see how you’re doing. I’ve been using Personal Capital since 2012 and have seen my net worth skyrocket during this time thanks to better money management.
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It’s mind blowing how disconnected from reality you are.
Feel free to share what the real reality is.
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
Sure, here are a couple posts:
https://www.financialsamurai.com/three-home-buying-rules-for-all-to-follow/
https://www.financialsamurai.com/the-ideal-mortgage-amount-is-1-million-dollars/
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’.
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.
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).
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.
That would be an AMAZING experiment. I bet there’s a lot of truth to it.
There is a lot of truth to it. It’s not what you earn, it’s what you keep.
https://www.nytimes.com/1995/08/13/us/all-she-has-150000-is-going-to-a-university.html
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.
Your welcome Meghan! Enjoy that luxury vehicle and the extra money you have!
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.
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.
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?
Doh, let me look into it, as I noticed that happened too when I put in test@yahoo.com. Perhaps the good thing is that you are actually registered, and you will be getting my upcoming newsletter, so no need to worry. I’ll double check anyway. Thanks for the feedback.
* I haven’t sent out a newsletter in a while btw so maybe you’ll just get one this week since you already subscribe and hopefully confirmed.
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.
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.
Liz Weston over at AskLizWeston.com has pretty much said the same thing (and more) about this article. Have you seen her post, which I think makes good points about some of the unfair assumptions you make? While there is an awful lot to be said for saving wisely and living below our means, I think it is both presumptious and niave of you to suggest that the problem of income inequality can be solved by the 99% (never mind the lower 50%) exercising more self discipline when it comes to their personal spending.
Strange why should took the quote out of context and didn’t give me credit for where the “commentator” came from.
Laura, did you spend time reading this post?
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.
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.
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.
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!
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.
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.
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.
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?
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.
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.
Let’s see.. you have a job, a car, food stamps, and shelter. What more do you need?
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?
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.
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.
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.
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.
I like your optimism. At the very least, there will be a huge wealth transfer in terms of inheritance to Gen Y.
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.
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!
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.
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. :)
The worst is being responsible and getting taken down by the irresponsible. Then the responsible decide, hey, why not be irresponsible too and doom follows.
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.
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!
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.
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!
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.
Congruency.
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!
My main goal is to just put things out there and let people see different perspectives.
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!
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. :)
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
Thank for stopping by. I enjoyed writing this post. Makes blogging fun!
I drove my first electric car last month and loved it (Smart Car Electric).
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.
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.
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!
https://www.financialsamurai.com/tax-rules-for-buying-a-vehicle-and-deducting-as-a-business-expense/
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.
Hey there mate, how old are you now may I ask? Was your $240K in debt including of a mortgage? If so, don’t beat yourself up about that!
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.
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.
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.
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.
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.
Good job Alex!
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!
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.
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!
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.
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.
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.
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.
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!
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!