Why Don’t People With 6-Figure Income Live Like Rich People?
Clever Dude wonders whether he’s rich. He observed that families with 6-figure income weren’t living the lives of rich people. Well, converted to US dollars, I’ve got 6-figure. After tax. My family definitely do not live like “rich people”.
J. Money at Budgets are Sexy asks himself whether he’d be rich if he earned $150k/year. J. Money feels that if he brings home $150-200k, he probably won’t have to worry about money again. That’s not true. At least for me.
Living Almost Large ponders whether earning $250k/year makes one rich. Her answer is no, except… well, read her post and see for yourself. I don’t want to comment on the political aspect, but I totally agree with her that $250k/year doesn’t make anyone rich.
A 6-figure does NOT get you on TV
First of all, if we’re talking about rich people as in “those people we see on TV”… well… who are we kidding here, guys? A 6-figure dude, especially a LOW 6-figure dude, ESPECIALLY if he’s wise with his money, does not even begin to get anywhere near to being able to afford a lifestyle noteworthy enough to get featured on TV. Not in the US, not in Singapore (where I am), and not anywhere.
The guys and gals we see in CNBC High Net Worth or The Luxury Channel make so much more money than our typical 6-figure person, it’s not even funny.
One of their lower-end Patek Philippe or Vacheron Constantin timepieces can easily costs a few months of a 6-figure person’s income (a Nautilus costs about USD30k).
The Burj’s least expensive room can wipe out our 6-figure guy’s monthly income in less than a week. Even with internet discount.
To buy a Bugatti Veyron, a 6-figure income person has to save $100k yearly for more than 7 years… that’s IF we’re talking about Warren Buffett’s style of 29% annual returns.
In short, if we agree on the definition of rich as in “those whose lifestyle we see on TV”, a 6-figure income person cannot even begin to touch it with a 60-foot pole.
An ordinary increase in income doesn’t change your lifestyle
I think one important fact that a lot of people (including me until recently) don’t realize is this:
Your Lifestyle Does Not Move In Lockstep With Your Income.
Consider a Patek Philippe that costs $300k. Does it matter to you whether you earn 15k/year or 90k/year? No, right? You still won’t buy it, although you have sextupled your income. Likewise, to most people, three guys who makes 100k, 200k, and 300k/year probably don’t look that different from one another either.
Sure, no doubt the 300k/year guy has more disposable income than the 100k/year guy. But that’s not enough to make a drastic difference in lifestyle. The 300k guy doesn’t look 3 times as rich as the 100k guy.
The best explanation I’ve seen so far about this fact comes from Michael Masterson’s Automatic Wealth: The Six Steps to Financial Independence
“But what about the mansions, yachts, private jets?” I asked. “I still can’t afford those toys.”
“Those are just toys, ” he said. “$150,000 per year is all you really need to live a full, rich life. And here’s the interesting thing: This doesn’t change in any meaningful way when your income passes $200k, $300k, or $400k. In fact, it doesn’t really change until you are making more than a million dollars.“
(Images courtesy of kamalaboulhosn @ flickr and www.bugatti.com, in the order of appearance)
October 10th, 2008 at 4:14 am
You are exactly right… at a certain point, that money is just helping you get to your goals faster in my eyes. If you can anchor your lifestyle at a certain point and let your income continue to rise… you’re just getting down the road faster.
October 21st, 2008 at 10:47 am
I understand what you’re trying to say in terms of lifestyle improvements. However, on the other hand, a lot of wealthier people are self employed, and you can still benefit from the use of the company yacht or company plane without actually paying for it, or even being able to pay for it.