Big mortgage + 2 big car loans + private school for your kids + sports for your kids + the expensive yearly vacation you’ve been taking and don’t want to skip + name brand clothes for your kids + meal services, etc, etc. And sure maybe student loans in there, credit card debt, maybe medical debt, care for extended family members. It’s super easy to blow through a 250K salary (which is not 250k in your pocket each year.)
> It’s super easy to blow through a 250K salary (which is not 250k in your pocket each year.)
As someone in that side (if I made 180k post-tax, I would be living paycheck to paycheck - I became aware of it because I'm funemployed with a big spreadsheet), it is not at all poverty, but it is more of a cashflow quirk when they say this.
They're saying their outflow matches their in-flow, but not that all of it is actually being spent (the mortgage at 2.5% is equity).
Not having a bunch of cash in the bank or merely maintaining a 100k rainy day balance isn't paycheck to paycheck, even though these people might describe it so.
So the people who make 250k who live "paycheck to paycheck" are actually sitting on top of a big comfort cushion which they are loathe to remove for financial cushion. That is okay if it is a deliberate choice instead of a "save face, keep with the joneses" peer pressure to keep spending.
This is not even remotely comparable to actual poverty where the floor is fast approaching you if you miss a month.
These articles can be described as feeding some people's "more money can't fix money problems" and some other's mistaken belief that spending everything you get is what paycheck to paycheck means. Also totally different if it is debt you are paying off instead of actually spending.
Also a hit-piece on the "earn and spend" millenials, which is somewhat fair because I don't know if I could be this affluent in my retirement, the way the economy is tilting.
What's different about this generation (esp in the UK where I live) is that they're becoming reasonably asset rich but they feel poor day to day. This is because they spend a lot of their income on mortgage payments (much of which is equity) and they're auto enrolled into pretty decent pensions which also is a building asset (but not one that they 'feel').
Getting things you can certainly afford on credit (which may be the right decision given low rates plus high inflation) compounds the problem.
You're going to buy a car for 40k after a year of saving. You spend 11 months looking at a big number building up in your account thinking 'hey I'm rich' or you spend 12 months with 'no money in your account' feeling poor. But the outcome is the same. Cheap credit creates many situations where credit is better than cash - so will make the feeling of 'no money' worse.
more realistically for most people than private schooling and expensive vacations are day care and routine medical bills (as opposed to debt). Day care costs some families nearly what I spend on rent, and that's just for standard run of the mill understaffed day care services, not private/in-home or specialized care. Medical expenses get insane very quickly, with many people spending hundreds every month on medications alone, but add recurring costs like dental, vision, and mental health services to that and you can blow through huge amounts of cash every year.
Most people in the US were already living paycheck to paycheck before the pandemic which ate into what little savings they had or forced them into credit card debt and now sky-high prices are putting even more pressure on people's budgets. It'd be crazy if the number of people living paycheck to paycheck wasn't expanding.
And all these people look at the man living within his means and think he's "doing it wrong" because he's piling his family into an old Ford Taurus and wearing Walmart jeans instead of spending twice as much for a Camry and Levis.
My parents don't live where my career is, where my career is its too expensive to buy a home even at my relatively high salary until you've saved for 10 years. Had I stayed where my parents are geography my career would have stagnated and peaked 10 years ago. Where there are good jobs and upward mobility home prices are also high with a high barrier to entry ($250k+ down payment).
Americans also often don’t have the same relationship with their nuclear families. In India, and from what I’ve heard Europe and AUNZ, it’s not uncommon to live at home and commute to university and sometimes after. That’s anathema to the American model. 18 and you’re out the door.
Many of my friends’ parents financially cut them off when they graduated high school, and/or immediately moved out of their town to a lower tax area (and these are upper middle class folks). So that safety net of weathering the storm in a hometown may not always be there IME.
so, you are saying, because of social reasons, entire generations are literally wasting money because "muh child is past 18?"
wait, let me get this straight. i don't get "Many of my friends’ parents financially cut them off when they graduated high school," i've read this a lot of times. does this mean the parents force the children to stand on their own feet and not extend to them financial support or do you mean they cut them off of their money as is. don't these people know about inheritance?
>and/or immediately moved out of their town to a lower tax area
this one, specifically in india is literally never a concern. taxes are same across the entire country so no one even considers this
>So that safety net of weathering the storm in a hometown may not always be there IME.
correct me if i am wrong but i suppose there are two things at play here. parents' insistence on always being right and not taking care of their children however old (when they have the resources nonetheless) as a sign of "american way" and the children thinking "i will stay at a homeless shelter rather than go back to my parents home because muh privacy, independence"?
Disclaimer that it's a spectrum, so what's true for one family isn't true for another.
But yes, historically a large proportion of WASP (White Anglo-Saxon Protestant) families in the US are very individualistic, and of the mindset that once when you graduate college, (barring a grace year or two), you're expected to rent/own your place. Apartments exist as a place that are more affordable than condos or homes. Inheritance exists, but that's considered as only a "when the oldest generation dies" sort of thing.
I do find this trend feels like it dovetails with a greater percentage of estranged kids/adults, and isolation for the oldest generation. Quite a lot of estrangement is necessary; this isn't a judgement on that choice, merely commenting there may be more friction under the surface leading to that mindset.
I mention the first line because (quasi-) immigrant families (like mine) are a lot more of your mindset. Makes far more sense to save, and there's less cultural taboo with multi-generation households.
> does this mean the parents force the children to stand on their own feet and not extend to them financial support or do you mean they cut them off of their money as is. don't these people know about inheritance?
More or less, yeah. In America, you are expected to be your own person when you turn 18. That almost always means having a job and paying for a place to live, even if it means flipping burgers and renting a room at mom and dad's house.
Though, I've been reconsidering that expectation with all these articles over the past few years of parents helping their kids with down payments on their kid's houses. Now there's parent plus student loans.
Inheritance? Many older adults also live paycheck to paycheck and are drowning in debt, and might explain how eager some parents are to kick their kids out. In America, inheritance usually only happens when both parents die, but many kids won't see a penny of inheritance.
One thing to note is that there is no “one” American culture. What’s true in one place may not be the reality 50 miles where you but can be true 100 miles where you are.
even remote first workers in tier 1 and 2 tech markets are going to have better developed networks than those in relative backwaters. i think few europeans appreciate how geography influences outcomes in north america. if you live in mobile alabama or toledo ohio you have to really work to compete for jobs with someone in new york or san francisco or even a second tier city like raleigh durham or toronto.
Many jobs, like mine, are not able to be fully remote.
And yes, geography does really matter now that half of the US is making basic women's Healthcare illegal. No amount of money would drive someone to move their family to a place where basic Healthcare is denied for every woman.
Do you think this was a worthwhile trade-off? Would life be that much worse back home near family, with a stagnated career owning your own cheaper home?
you can earn 100k, blow 90% of that for rent/mortgage and general living expenses in a big city or get to live with your parents and earn half while saving much more.
maybe that doesn't appeal to a lot of people, they look at the CTC as opposed to your net savings
My hometown had zero programming positions. The next town over had 1 company that required programmers, at about $9 an hour. So I went to college 300 miles south where the small cities are.
Because of the above, this hometown is also nearly 100% inhabited by the kind of assholes and do-nothings that never grew past highschool, the entire town is run by an entirely homogeneous clique that quite literally would rather it still be the jim crow era, and many locals still had klan hoods in the attic.
After talking to some people, I've realized many people live in vastly different worlds than I do. People making significantly less money then me spending more than 2x on their rent versus mine.
I have "expensive" hobbies, but that mostly entails a high upfront cost ($2-3K) for gear that will last a decade minimum, so its not a huge issue.
What the hell are (somwhat rich) people doing with their money? I'm confused since I don't know what there is to spend big money on. Health care is a thing, but I assume high paying jobs have somewhat decent insurance that shouldn't bankrupt you immediately. There are only so many $20K watches and $75K cars you can buy before it just becomes pointless.
First, the idea that the only way to spend 150k (post tax in CA) is expensive watches and cars is pretty ridiculous. A half decent accommodation will run you 30k if renting, or more like 60k for a mortgage at todays rates for a median cost SFH. Add in various insurance payments, car and home maintenance, the odd medical bill, etc. and you can spend the 90k remaining without any “luxury” purchases at all. Certainly you don’t have to but…
Second and more importantly, they are spending on whatever the fuck they want. You do realize you’re going to die, yes? There’s no way in which saving more than your neighbor is “good”, morally or otherwise. Maybe by saving more “now” you have a more comfortable “later”, maybe you don’t — the former may be more likely but isn’t guaranteed, and you should not judge someone for having a different risk profile than you.
Singe Family Homes are the huge luxury here. Never in the history of mankind have people lived in single family homes, or they did when the family. consisted of 10 to 15 people including elders, not when the family is roughly 4 people (parents + 2 children).
The square foot / person is huge and leads to lots of issues around transportation (hello cars !), so the cost on society is massive, especially if you factor in private gardens, which are basically private pieces of land that cannot be used for anything - and aren't that ecologically beneficial.
Lower you housing expectations to a 1500 sq ft apartment with no private garden (but with a park nearby) on a 10 story building and you have something that actually allows for efficient public services and is economically viable for an average person. Of course, rich people will still be able to afford private houses, but that should be the exception, not the norm. The median SFH shouldn't be the reference.
Housing is usually the biggest expense someone has. Asking for luxury here means that you'll have to compromise on everything else. Being reasonable will free budgets for a lot of other things.
> A half decent accommodation will run you 30k if renting, or more like 60k for a mortgage at todays rates for a median cost SFH. Add in various insurance payments, car and home maintenance, the odd medical bill,
Disregarding medical bill, yes, if you spend your money on luxuries, you will have less of it.
> Second and more importantly, they are spending on whatever the fuck they want. You do realize you’re going to die, yes?
Ok, so, clearly people are spending their money, which is why they are paycheck to paycheck?
More income will result in higher expectations. Bigger house, more expensive car, branded clothes, eating out in fancier restaurants, etc. Some stuff you can hardly avoid like a mortgage.
I think most single people would have an easier time being frugal, but if you have a partner good luck with that.
And if you have children you are stuck in the ratrace to send them to the most expensive schools and out of school activities.
If you would earn 250k, would you live in a trailer and take the bus to work?
I can hardly blame people. We are constantly bombarded with ads to buy buy buy. Max out your creditcards, invest in crypto, buy a boat, buy a car, fly around the world for holidays.
Before you know it you cannot get out anymore, no matter what your income is.
What the hell are (somwhat rich) people doing with their money?
Housing obviously. Many rich people like having big, nice houses/apartments. Some even want to have a second house somewhere nice. Travel and similar experiences can easily burn basically as much money as you want. Schools can also be super expensive. Eating out can also set you back a lot if you're into that sort of thing.
Food is an enormous expense unless you spend an enormous amount of time doing it all yourself which gives you less time to make $$ and still is expensive especially with the perishable ingredients and failed concoctions
On a side note, we really need to start using post-tax/take home pay instead of pre-tax. In fact, I think most people would find it way easier to picture things on a monthly take home basis rather than a yearly one.
To be absolutely clear I am not disagreeing with you, but... how on earth would you create a useful definition of post-tax/take-home pay that allows for comparisons between people?
DCA, FSA, transportation, 409(a) deferred compensation, etc. It's mind-boggling how many ways there are to mess around with your paycheck.
If we want to keep it, remove all deductions/credits, adjust the rate to something realistic (e.g. 5%) and make the IRS responsible for sending an annual bill to collect.
Totally agree. Automatic tax withholding from your paycheck makes it way to easy to forget how much big brother is taking from you. If we all had to write the IRS a check every quarter, the pitchforks would come out.
Can someone provide insight on how $250k earners find themselves in a paycheck to paycheck situation? Is it like mortgage + student loans + healthcare?
I think for many people living expenses tend to go up in proportion to income.
Bigger mortgage, fancier car, eating out. My mate got a decent payrise, the first thing he did was buy a $50k second-hand sports car. And that's after he just bought his first home with a $700k mortgage. So he's gonna be paying all that off for a loooong time.
Glad he's happy but I never understood the whole sportscar thing. They go vroom vroom just like all the other cars.
You might be surprised how well certain cars hold their value if you take care of them, even pretty low-end sports cars. Go look at listings for a vintage Supra, M3, even an 80s Trans Am Firebird. They're all selling for much more than they were originally purchased for. They may not be a good investment relative to holding a broad equity index tracking fund, but if you need to own some sort of car, they're a good investment compared to most any other type of car.
Likewise with the house. While you probably shouldn't be saturating your entire take home pay with mandatory recurring payments, you're a lot better off spending on assets that hold their value than buying vacations and dinners at expensive restaurants.
This is yet another underappreciated difference between what "paycheck to paycheck" means for the affluent versus the poor. There's a big difference between spending all your money on nice houses and cars versus spending it all on rent that buys your landlord a house and beaters that require more in maintenance than purchase price and will be scrapped at best when you finish running it into the ground.
Those cars hold their value because they're toys that never rack up substantial miles and wear let alone hard miles. See also: Miatas
If you're going to own a car as transportation it will not hold its value. You an screech all you want about your commuter Camry/Accord/whatever but it's still dropping value precipitously, just slower than an Impala, which is basically a reflection of how the owners tend to behave.
Worse, because you literally hurl them through traffic at high speeds. If I had to put one of my most valuable possessions on wheels and park it at the grocery store, I would not make that item an especially luxurious thing
Mortgage and student loans play a part. A lot of it comes down to lifestyle choices and discretionary spending, essentially they are either bad at budgeting or sticking to it. I see this a lot in all generations to be honest, some want to say it is driven by the yolo mindset but I have watched the vast majority of people be bad with money my whole life.
> A lot of it comes down to lifestyle choices and discretionary spending, essentially they are either bad at budgeting or sticking to it.
I also know some people who are very bad with money and even some who are certainly living an unsustainable lifestyle in order to project the appearance of genuine wealth, but that is by far the exception in my experience.
Saying that it's lifestyle choices and spending habits doesn't sit right with me. I'm not saying that you are doing this, but there are some people who essentially repeat what you've said when what they really mean is something closer to "The dirty poors are living above their station and need to learn to stay in their place!".
It's a kind of mindset where you get ridiculous statements about how poor people could pull themselves up by their bootstraps if only they didn't buy iphones or avocado toast. It ignores so many other much larger factors like increased costs, wages that haven't kept up, the effects and impacts of poverty, and the fact that economic mobility in the US is dismal and has been for a long time.
I mean, it's certainly true that pretty much everyone could benefit from more education in managing personal finances. It isn't something most people are taught in school and much has changed over just a couple generations. Not to date myself too badly here, but my parents told me it was wise to put money in a savings account because it would earn interest and at that time, while still not the best advice, it was a whole lot more reasonable than it is today.
Millennials were the first generation of Americans where the majority ended up worse off than their parents and I think going back at least as far as Gen-X that trend has caused an increase in debit as people struggle just to maintain the lifestyle they grew up in.
I've also seen people more recently who don't believe that there is anything they can do to improve their situation, that home ownership is and will always be an impossibility for them, that retirement is a thing of the past etc. and that kind of hopelessness does seem to lead to reckless spending. Smart hardworking kids working 2-3 jobs, none of which give them any benefits, with little to no savings who spend a lot more than they should on convinces and momentary pleasures because they have zero faith in their future being any better than it is today.
There's a lot more going on than people yoloing their money away, especially when it comes to the very poor who in my experience are usually carefully watching where every last dime goes.
A 1 bedroom apartment I live in near work is about 3k/month with utilities. I don’t do the super expensive car with a huge payment thing but put those two together and you’re halfway there. Throw in some expensive vacations (gotta fly business internationally can’t be a peasant) and you’ll make decent headway.
Or maybe you are a dog owner so you rent a house so your dog has room. It’s fairly easy to do in a high cost of living area just to feel “middle class”
Music festivals and Vegas trips are also a great way to set small piles of cash on fire.
Many, many people will max out the house they can afford and pile 2 car loans on top of that. That right there can be 40-50% pre tax income.
We now have a public with only a fuzzy memory of what a real recession looks like. Thanks to the accommodative Fed over the last ~14 years and more recent COVID free money bonanza, people have been rewarded for blindly taking risk and conditioned to think that prices always go up.
A severe contraction with a jump in unemployment and no Fed bailout seems quite possible and might be a painful lesson for the overextended.
Most people are notoriously bad at saving money. It's fairly well known phenomena that large lottery winners and inheritance recipients also tend to go bankrupt (something like 1/3?). I guess even at the smaller scale - even making the money yourself - it doesn't matter. Once you size up your lifestyle and get acclimated it's very hard to reduce.
I mean healthcare and education are not a real issue for people making 250k$ since the ACA (unless they don’t educate themselves about how billing works), let’s be honest here.
Suppose that you live in Washington, DC, have a couple of kids, and aren't happy with the public schools. Put them in Sidwell Friends, and the tuition can be $90 to $97 thousand. Washington International School is in the same range. Then there's the mortgage, etc.
(Never had a kid either school, but am acquainted with some who have.)
I was there. Paying off student loans like a mf’er doesn’t leave a lot left over. Now I have no loans so it’s easier to save, however when you’re in a hole, the best thing to do is fill the hole.
A large percentage of people will spend everything they earn and then also spend every cent of their credit worthiness no matter the size of their cash flow.
I remember watching a show on the actor Nicolas Cage going bankrupt. He bought like 15 motorcycles and a $300k dinosaur bone.
I am sure some of these people are in unfortunate debt situations but a whole lot of them are on the Nicolas Cage version of financial planning for the future.
Paycheck to paycheck is relative. I’ve seen families bring in $500k/year and barely have any retirement savings. They go buy a home with a mortgage that’s $16k/month, a few fancy cars at $1000/mo each, childcare, maintenance on a home that expensive, and everything else that money is gone quick. They want to give the illusion of stupidly rich at the cost of spending every dime that comes in. Pretty common in every income bracket. Majority of people are terrible with money.
House down the street from me sold for a 5k/month mortgage (I live in a duplex). Now pop two $1000 car payments on there and you maybe have enough left over for food and some bills.
In other words status and trying to fit in is one hell of a drug.
Has there ever been a time when frugalness was cool?
Many of the people I admire the most have insanely old gear that they maintain and still use. Almost as if they would prefer to use what they already have as opposed to something new, what a thought.
If you spend everything you earn then you will be living paycheck to paycheck. No matter how much you earn. If instead you take 10% of your monthly after tax pay and invest then you won’t. Millionaires have gone bankrupt because they didn’t have the financial education/understanding needed to handle money. And in contrast, people who are not millionaires have build investment portfolios over many years that have given them financial independence. It’s all about financial intelligent/skills/literacy not about how much you earn.
I will just say that at this point in my life, making the "savings payment" every month from my post-tax salary is a relief and feel it is a sacred thing to see that money go into savings every month. It happened with getting lucky and being able to put a down payment on a reasonably priced apartment in a great area.
The financial system with its incentives (read: the currency itself) is basically tilted to that kind of money spending. The decoupling from the 'Gold Standard' in 1971 gave this a big boost.
So, essentially banks can create money (fiat ... borrowed from the expression from Genesis 1:3 fiat lux: "Let there be light") by simply inputting the number into a ledger (credit/debit). All the banks then settle between each other and finally with the Central Banks, here: FED.
For convenience I have skipped the fractional reserve mechanisms.
On top of that for "international settlements", there exists conveniently a Bank of International Settlement (BIS).
From that viewpoint "saving money on a bank account" is 'recursive' (an historic remnant still floating in a lot of minds from the time when banknotes actually denoted legally binding claims on fixed amounts of gold/silver) and highly discouraged and effectively penalized. If one understands the basic accounting/settlements mechanisms involved this becomes evident. Cash is 'inferior' money.
The whole argument about Bitcoin (which I'm not in favor of) as a "superior form" of currency or now rebranded as a "commodity"/"store of value" revolves around this crucial point/promise:
Saving money like in the old days. (The 'bible' exploring this topic is accordingly called the "Bitcoin Standard").
The kind of money spending encouraged, now, through fiat money and all its entourage discourages long term thinking and planning - reflected in the more and more fleeting life spans and decreasing quality of the products overall and by the current investing practices - and "robs" the vast majority of people by diluting the money supply, benefitting the few ones with basically unlimited access to "credits" (state, the "rich"). Historically, this "financial intsruments/leverages" allowed industrial large scale wars like WWI or WWII to be "funded" in the first place.
The direct etymological connection to the phrase used in the Vulgate (4th century Latin translation of the bible) I was trying to make doesn't exist. At most a weak allusion.
The latin word "fiat" ("let it be done") has different specific uses in English, I wasn't aware of, one of which is generally an arbitrary or authoritative command or order to do something; an effectual decree.[0]; which fits the bill much better (:
