
How to screw up your life by getting promoted - volandovengo
http://blog.thestartuptoolkit.com/blog/2012/12/how-to-screw-up-your-life-by-getting-promoted/
======
orofino
My wife and I save for a trip around the world by avoid "lifestyle inflation"
which is what I've heard this referred to in the past (possibly from the
Millionaire Next Door[1]). Each time we received a raise, we would increase
our trip savings.

The easiest way to describe it is that we lived paycheck to paycheck. Neither
of us would be disciplined enough to follow a strict budget, but we can easily
avoid spending the money if it isn't in our accounts. So, each month, we had
money withdrawn for retirement, trip savings, 529, and house savings. We
increased this amount until we were just scraping by with just enough money
each month. This meant I could buy whatever I wanted, so long as we'd have
enough money at the end of the month to "pay ourselves".

I'm fond of this method, though I haven't found many others using it. I think
typically, if people are disciplined enough to save money, they're able to
follow some kind of budget.

A word of warning: Be sure not to be TOO aggressive with this, we almost
certainly were. We were living off less than 30% of our after tax income.
Remember, you should enjoy yourself while you're making money now, not just
save it all for the future.

[1]: [http://www.amazon.com/Millionaire-Next-Door-Thomas-
Stanley/d...](http://www.amazon.com/Millionaire-Next-Door-Thomas-
Stanley/dp/0671015206)

Edit: formatting, link

~~~
JoshTriplett
> We were living off less than 30% of our after tax income. Remember, you
> should enjoy yourself while you're making money now, not just save it all
> for the future.

If you can live off of 30% of your income, the future becomes a lot closer:
you can retire in ~8.8 years. (Or round it up to 10 or so and you'll have even
more income during retirement.)

Try <http://networthify.com/calculator/earlyretirement> if you want to fiddle
with savings rates and find out how long you need to work. Notice that the
number of years depends solely on the savings rate, not on the total salary.

~~~
jpdoctor
That calculator is a terrible way to go about it: They are missing inflation,
which will have a large effect on your expenses over time.

There are other problems too, but that one alone make it worth looking
elsewhere.

~~~
nilkn
The 5% return rate for investments is taking inflation into account, actually.

~~~
jpdoctor
Even if you limit it to the investment return: It is ignoring variation in
return for that level of return, which is a terrible way to do long-term
planning.

~~~
nilkn
Agreed, that is the main problem with this plan. The 4% withdrawal plan is
increasingly less likely to work the longer the length of your retirement. If
you retire at age 65, the probability is low enough to not generally worry...
but if you retire at 30, you might want to think twice.

I'm sure somebody somewhere has calculated or estimated the probability of the
4% plan lasting for a given number of years. I'm curious what the results
were.

~~~
jpdoctor
The "4% plan" is a way to explain the problem for your avg Joe who can't do
math. It's a nice rule of thumb (often you'll see 3% even) but doesn't leave a
ton of room. Just look at the current environment if you need an example: Lots
of people who retired in the 90s are getting killed on their principal.

Sensible planning involves calculating the probability that you will not
outlive your assets: Portfolio planning will pick points from the so-called
efficient frontier, and then often run Monte Carlo simulations to get a handle
on whether the expected variation will put you in the poor house.

BTW, this is usually where the 3-4% plans arise from. People will make an
assumption about return+variation, and then see what withdrawal is likely (but
not guaranteed) to avoid outliving the principal.

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tjpick
> Building something interesting requires a surplus of time and money.
> Salaried jobs provide neither.

Standard negatory bullshit. You should be able to achieve building something
interesting, using someone elses time and money. If you can't, maybe you've
got an attitude problem, not a job problem.

~~~
hkmurakami
Also perplexing was this assertion that salaried jobs don't provide a surplus
of money, when the vast majority of entrepreneurs fund their projects and
endeavors through a salaried position either held concurrently or in the past.

~~~
sliverstorm
Lies! Our heros would never sully themselves with something as filthy as a
_salaried position!_

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unreal37
Ah yes, the trap of a higher income.

Probably better to take the higher paying job and don't raise your standard of
living. Adopt an automatic 25%+ of your income goes directly from your
paycheck into savings. For a two income family, one spouse's paycheck pays the
bills, and the others goes to savings and doesn't get touched.

~~~
jfoutz
Kinda like Herb and Dorothy. <http://www.imdb.com/title/tt1227929/>

------
gaboom
The inflation is better focused on the life, not the lifestyle. I don't put my
paycheck in the bank account and have set money withdrawn for my investments.
I put my paycheck in my investments and have set money withdrawn for my bank
account. I fight hard to make money for my future, and I know that's exactly
where it's going. I keep strict records of my work time, and set a time limit
on my job, then build myself outside of work hours, investing time in
developing myself. If I prioritize some nice things that I want to spend on, i
need to be patient, or it comes out of something less important. I find that
careless expenses can be more of a burden than a pleasure, so keeping spending
equal helps me improve my lifestyle, rather than inflate it.

------
sliverstorm
_Building something interesting requires a surplus of time and money. Salaried
jobs provide neither._

What? A salaried job is literally a company converting some of its money into
time. It may not be _your_ surplus of time or surplus of money, but that
doesn't mean you aren't building something interesting.

------
tkiley
On solution to this problem is make sure your social circle is weighted with
people who spend money in the quantity and manner you wish to spend it.

I don't think I would ever naturally consider a luxury sedan a necessity, but
if all my friends had them, I would begin to suffer from lifestyle scope
creep.

My wife and I surround ourselves with people who do not spend large amounts of
money in traditional ways. We don't budget, but according to mint, we live on
just over half of our income.

------
aplusbi
>Building something interesting requires a surplus of time and money. Salaried
jobs provide neither. Unless the job itself is your dream, stay the fuck away
from them.

Yes, it's advisable to just start off with time and money.

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hkmurakami
_> Strong people fall for this trap. It’s poisonous._

"Trap" is the keyword here, in that it's set up by someone other than
yourself. Your colleagues (esp those more senior to you) in these industries
will purposely coerce you towards a higher maintenance lifestyle so that you
will have an increasingly difficult time escaping.

------
Yhippa
I've observed this time and time again in my friends. One of my buddies and
his wife graduated from a top-10 MBA program. His wife recently needed to get
a new car and she wanted a Honda Civic which is a car that's got a decent
balance between price and utility. He convinced her to get a luxury sedan
because being seen in the company parking lot with that is a big no-no.

Another friend increases spending in proportion to income as well. Bigger
house, new car, fancy toys. Babies get spoiled with way more than we grew up
on.

It's a sad phenomenon. This is "Keeping up with the Joneses" disease. If
instead of spending all your money keeping up you become disciplined with your
spending you can retire early. And these people certainly don't love their
jobs. How could you pass that up?

------
moonlighter
I call that the "IV drip". The monthly check is the drip, and it keeps you
sleepwalking... doing busywork, and the years keep flying by.

~~~
jpdoctor
Yeah, but there are days where I wish I could have taken the blue pill.

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kosma
I quit my well-paid, normal, boring job two weeks ago because I realized I
fell into this kind of trap. It's been just two weeks and I already cut my
spendings in half - no more expensive stuff when cheap would suffice, no more
electronic toys which have zero ROI, no more spending just to make myself feel
better. No more buying _stuff_ because I'll be traveling a lot soon and just
won't be able to take it all with me. I actually ended up putting lots of
stuff on eBay because I realized I won't need it anymore.

When you get a paycheck every month, there is _zero_ motivation to save. When
you know there'll be _no_ paycheck, you finally get your brain going and you
start inventing ways to make money instead of slaving away.

~~~
Evbn
You can save some effort by using a well regarded way of making money: getting
a paycheck.

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smtddr
I might be crazy, but because of this I never negotiate salary. When it gets
to that part of the job offer, I just tell them what I'm currently making and
leave it to them to decide a reasonable increase. As long as they actually go
up, I always accept.

~~~
Evbn
You are severely underpaid, my friend. Surely you can think of a better
recipient of your charity than the owner of your company?

~~~
smtddr
glassdoor.com would disagree with you.... sorta. =P

------
hakaaaaak
I swear that I've read this before on HN.

------
michaelochurch
I'm going to relay the depressing news that's behind this dynamic. Many
Americans think of business as a risky, exclusive endeavor because "it takes
money to make money". What's missed in that is that holding a job _also costs
money_. Lots of it, although the costs are sometimes indirect. You have to
live in an expensive location, although you're not getting _nearly_ enough
utility (in most cases) to justify paying to live there... except for the
better jobs there. If you're serious about your career, you can't do your own
cleaning: two-career couple and you need a maid. If you have kids, your bosses
will ask where they go to school and it will affect your promotion chances. If
a professional job pays $400k, there's absolutely no way you can keep it with
less than about a $300k (pre-tax) lifestyle, and that's if you're really good.
(The untalented need $500k to keep that job.) In fact, the major reason why it
pays so much is because that is the economic cost of doing what the job
requires (living in an expensive area, hiring a maid so you aren't distracted
by chores). The vast majority of Americans' expenditures (aside from basic
necessities) is put toward (a) recovering from negative emotional effects of
work stress, and (b) meeting the social expectations necessary in order to
succeed in one's career.

What we'd expect based on our knowledge of markets is that people would have
to spend $1/year to keep a $1/year job. However, some people have a talent for
managing money and saving. If they make twice as much, they save twice as
fast. Instead of making $100k (post-tax) and spending $80k, they're spending
$160k to keep a $200k (post-tax) job. The more they make, the more they save.
No surprises.

However, the financially untalented are the ones who have to spend $120k to
keep a $100k job. If they get promoted, they'll be spending $240k to keep a
$200k job. They'll burn twice as fast.

This is a deeper problem than people think. It's not just about "discipline"
or will. There are people out there who are just severely below average in
financial sense and, while they can play the social gymnastics necessary to
get the $500k+ jobs, they can't make $1.00 without spending $1.10 (at any
income level).

~~~
rdouble
A professional job that pays $400k is being a dermatologist in New Jersey.
Even after the nanny and $600K house you are still putting away $200K a year.
Your husband's $100K hobby job as a stay at home dad/computer programmer can
be used as a slush fund to take care of the parents and keep him entertained
with a new iPad every other year. Most high earning situations are not really
like an adaption of a Bret Easton Ellis novel.

~~~
moocow01
Just to break this down a bit for you at 400k/year, your take home after taxes
and extras will be somewhere in the ballpark of 18k/mo.

Your nanny will be around 2500/mo - down to 15.5k

Your 600k house will be around 4300/mo - down to 11k

Malpractice insurance / practice fees is anyones guess but lets be reasonable
and say 2k/mo - down to 9k

So were down to saving 9k per month but then there is all the other stuff,
food, electricity, entertainment, kid expenses, clothes, etc etc. Id say this
usually amounts to about 3-4.5k per month ($100-150 per day) for someone who
expects to live decently well.

Anyhow nobody is going broke in this scenario but our rich dermatologist is
"only" saving 4-6k per month amounting to about 50-70k per year. Not horrible
but not the extravagant wealth that you might expect. Note that I was also
pretty nice to our hypothetical doctor - in this scenario they dont even have
any student loans or a fancy car.

~~~
greeneggs
That's $4300 in a mortgage, not rent. A large portion of it should count as
savings, not as a living expense.

~~~
jvoorhis
In most situations your home is a liability, not an asset.

