Discover more from Fs I Give - BowTiedF'er's Financial Advice (And Other Rants)
Making More Money Is ALWAYS Financially Beneficial
Your Froogal Gooroo Is Playing on Your Emotions If They Say Otherwise
This stack is titled “BowTiedF’er’s Financial Advice (And Other Rants)”.
Today’s post you are in for a treat as I am going to give you a rant about financial advice. A two'fer from F’er if you will.
My absolute most hated personal finance (PF) twitter take is the one below:
This is honestly one of the most profoundly stupid takes in personal finance twitter. But it gets repeated over and over in many different forms.
Yes you should save more. I am saying that upfront and getting it out of the way. Yes, saving more is going to help you grow your wealth. The more money you make, the higher your savings rate should be and that much more $ you should be saving and investing…I will put it in quotes now just so there is no confusion:
“You should save more money to grow more wealth. Do not make a high income and waste it all”.
But these tweets about making less and saving the same dollar amount being preferable? They are full [redacted] and you never go full [redacted].
[Note - I red boxed in on the tweet that is is sent with Zlappo. That is a service that will find your best tweets and recut and resend them. Therefore, this is one of the tweets that got the most likes previously so it gets sent over and over in different forms.
If you read the comments on these tweets, you will see a ton of people agreeing. These people then go and misapply concepts in support of the logic. They do the maths right (sometimes). But miss all the important aspects…
So these nonsense tweets about making less and having a higher savings rate being better get a ton of likes. Mostly from people who don’t make a lot of money and want to believe the story that if they save extra hard they will come out ahead of higher earning peers. So zlappo and tweet hunter and the other dozen of these programs keep periodically tweeting these takes out into the never ending circle jerk that is ‘telling poor people to save more’ PF twitter.]
Yes - I am being harsh. But there is a reason for it. These tweets prevent people from reaching real financial freedom…
F’er Why So Much Dislike For These Tweets?
The implication of the tweet is that you are better off making less and then just trying really really really hard to save more vs making more and saving the same nominal $ amount.
Later on, I will show that even the core premise is incorrect. The person making $200k and saving $20k is better off in nearly every way than the person making $100k and saving $20k.
But for now lets ignore the real math, and focus on the surface level message. “It is better to make less if you save more”.
This is one of the most counterproductive personal finance (PF) messages out there.
It encourages people to be cozy with mediocre or poverty level wages because they can just be more froogal. People cling to this message because it is easier.
It is the same low IQ logic that says “I don’t want to win the lottery because [insert made up number]% of lotto winners claim bankruptcy”…Apply that logic to other awesome things…
“I don’t want to play in the NFL because 25% of players get injured”
“I don’t want to own a business because 80% fail”
“I don’t want to have sex with a super model because 1% of sex ends with a penile injuries”
“I’d rather make less money & save more” is the same low IQ thinking as “I don’t want to have sex with a model because sometimes sex ends in a ruptured penis”
-Gam Gam and her dirty old drunk lady mouth
Living Your Ideal Life
Your goal should not be to shrink your ideal life down to fit some poverty wage.
Your goal should be to identify the life you want and find a way to make income to support it.
And no. That doesn’t mean you need to live in some $40 million mansion with lambos. (Although if that is what you do want, go after it).
What is my ideal life:
Able to buy good quality items without concern
Getting good & healthy groceries and meals
Go on vacations without needing to save and budget
Not work so many hours I don’t spend time with my family
Live in a nice modest house in a very nice neighborhood in a nice town
Never need to stress about a potential bill or purchase
Let’s say I can acheive the above at $150k a year living cost. What are the 2 options?
Make $250k+ a year so I can save money (25%) and live the life I want OR
Make less than $150k a year and start trimming things we enjoy because they aren’t ‘neccessary’
Yea, making eggs is a lot cheaper than bringing a family to our Sunday Morning breakfast restaurant at $80+ for a meal…but that is such a nice family tradition and time spent together.
Yea, we don’t need the local organic-farm beef, pork, chicken, and eggs that are 2-3x more expensive than the conventional items at the big retail grocer. But it is tastier, presumably much healthier, much more humane (we visit the farm) and it supports the local community.
Yea, we don’t need to pay up for the special suite on vacation - especially since my kids just spent an hour jumping in a puddle outside the fancy room instead of going to the character dinner we reserved and I just lost a deposit for (just a random example, definitely not something that happened the other month)…but staying in the resort limits the decisions around transportation, meals, and additional entertainment so mom & dad can have a relaxing experience too.
O and I am paying the absolute min on our student loans, car payments, and mortgage while doing the above.
Can you imagine the horrors of your PF Gooroos over the above? Splurging? Not paying down debt?
But our savings rate is ~30% too. And every year our savings rate increases dramatically. How?
We have hit the point in life where we are absolutely content. Our life expenses have hit our inflection point where year-to-year they don’t increase much while our household income continues going up.
Above is a simplistic view - but you should set your target income above this inflection point for youself. The point you are living the life you want and you don’t have much to spend each additional dollar on. Then you save it.
The numbers are different for everyone. Maybe my curve starts bending at $150k and get really flat after. Maybe someone else likes the finer things in life and their bend is at $300k and the tail isn’t as flat, meaning they would need to make a lot more money. Maybe your froogal gooroo really does live in the van they claim and their curve is at $20k (though they can’t explain why they shill affiliate links if that is really all they need)….But as a generalized shape this is accurate.
More on this topic in a future post.
So You Disagree F’er, But Is the Original Tweet Wrong?
Yes.
Even if you disagree that these tweets make people lazy, it is also flat wrong.
If you make $200k a year and waste a ton of it on some absolute foolish thing, you are still better off than someone making $100k a year.
I am going to rapid fires these as they should be fairly self-explanatory:
1) It is easier for the $200k person to stop spending than for the $100k person to double their income
The $200k person decides to get serious they can cut all the non-discretionary spending. Whatever stereotypical vice you attribute to this irresponsible high-income person buying…bottle service, fancy clothes, Tom Ford cologne, cocaine, whatever….they can stop and instantly bump up their savings rate.
Guess what. (Ignoring taxes) The $200k person can save $100k a year and spend $100k a year and is still consuming more and saving more as a percent (50%) and total ($100k) amount than the person making $100k a year was (20% and $20k).
Better off in every measurable way…
“But F’er, nuh uhh, because the person with $200k a year purchased a bunch of liabilities like watches and cars and…”
2) Just Sell Liabilities and Downgrade
Yea. Not glamorous.
But PF gooroo twitter pretending this doesn’t happen is silly.
Guess what, when I had kids and realized what was important, I sold my motorcycle (not worth the risk) and went from a nice big new truck to a slightly used economical SUV (that 100% looks like a minivan).
I know people who sold sports cars in their 30s when they decided to start saving.
Hell, you can go to poshmark and find people selling all their expensive shoes and purses because they would prefer the money.
Yes, you aren’t getting all your money back. Not even close. But you can take your $800 a month car payment down to $200 pretty easily.
So lets take an extreme example. Person spent $200k over the years on liabilities and sells them for $10k. They lost $190k, which is a sunk cost. But also they just made $10k today. They made 1/2 of what the $100k person is saving in the whole year, just by undoing some prior poor choices.
And now we are back at #1 where the $200k person is spending more reasonably and saving a ton more.
“But F’er, nuh uhh, because the person with $200k a year purchased a big house with a fixed mortgage payment…”
3) Hard Asset Accumulation
Sure, the $200k person has a bigger house. Lets say an entirely larger house.
The common recommendation is for your mortgage to be ~25% of your gross salary.
So right off the bat, the higher income person can afford a more expensive house. But let’s say they really went crazy, and their mortgage is 35% of their salary.
Yup, even buying more than the recommended house, making $200k a year leaves you with significantly more disposable income after paying for your house.
But it gets even better. A house is something you can eventually sell (or access the equity). Historically houses go up in value and have been a major driver of wealth accumulation.
So what happens when the housing market appreciates 20%?
Yup, by owning a higher value hard asset, when the market goes up, you ‘gain’ a larger $ amount.
[Note - I used the zillow tool that tells you for a given budget what size house you can buy. The home price was even higher for the $200k salary, so this is conservative home value for that mortgage size]
And the equity in the home is a higher amount for the bigger house. When you have paid off 1/2 your mortgage the $100k person has $150k of home equity vs $350k for the higher income person assuming no market appreciation. Even if the the market doesn’t go up, the higher income person has a higher nominal amount.
4) Future Wage Increases & Savings
What about the future growth in wages & savings?
We assume both people in this hypothetical are comfy with their current spending. (ie-the $200k income doesn’t become more frugal and keeps spending $180k a year and the $100k income keeps spending $80k a year forever).
Both people get 2% raises a year.
The next year the $200k income earns $204k and saves $24k while the $100k income makes $102k and saves $22k….you see where this is going…
If the higher income person doesn’t have lifestyle creep, they will likely save a higher dollar amount in the future due to having their raises applied to a higher base amount.
[Note - You can quibble about this, but the general takeaway is having a higher base salary leads to a higher $ increase in salary for same % raise.]
5) Additional Buffer For Unexpected Costs
What happens if you have some unexpected major cost. Car accident? Family medical expense? Vet Bill? Doesn’t matter.
Priorities now shift. The higher income person has a lot more room to pay for those costs.
A surprise $50k cost happens, who is more ready to afford it?
That is 1/2 the salary of the lower income person. They are dipping into their savings. The higher income person can pay it out of cashflow.
6) Inflation Buffer
If you are a high-income person who is buying the finer things in life, maybe you go for the steak over the burger. You take the salmon over the cod. You enjoy the $100 wine over the box wine.
For simplicity, let’s assume the $100k income person saving $20k is likely already living pretty frugal. Buying in bulk, stretching their dollar, couponing, whatever.
What happens when inflation is double digits?
The frugal person doesn’t have much more room to cut. If inflation stays high, it gets harder and harder to maintain the same savings rate as life’s neccessities continue being a larger % of their salary.
Making $200k gives you the ability to downgrade more easily. Eat a little less steak and have more burgers instead. But you have a lot more built in buffer to maintain your savings rate with high inflation.
This last point is relevant now and one of my biggest concerns. If you are already living a lean frugal life on a low income, and your cost of living jumps 10%, what do you do? If you don’t increase your income, at some point you have to save less. You have no buffer which makes you fragile.
Summary: Making More Money Is Better
There is a quote I like to say, “you need to be a special kind of educated to be so wrong”. I looked it up and think it is from this actual quote:
“There are some ideas so absurd that only an intellectual could believe them.”
-George Orwell
The point is the same. You need to be a special kind of educated to reach such a [redacted] conclusion that goes against common sense. Only by making a religion out of the 50/30/20 rule and 4% rule and all these other heuristics, do you reach the conclusion that ‘saving $20k on $100k salary is preferable to saving $20k on a $200k salary’.
I think I beat this horse to death.
Personal Finance Gooroos will keep pretending that the world is full of high income earners who end up in poverty and people living on poverty wages that become millionaires. (Just a gross misapplication to the ‘millionaire next door’ concept.) And then have a self-congratulatory party with other froogal gooroos.
Most importantly, you as an informed individual, can choose the optimal path.
Make a bunch more money than you want to spend
Save a huge amount in both dollar and % terms
Build such a big nest egg you couldn’t even spend it in retirement if you tried
Live life with no financial worries
Because you can make a lot and save a lot…despite PF twitter pretending everyone who makes more than $50k a year is unable to understand personal finance…despite being successful in other areas of life.
Sad this even had to be written. Well placed quote from Orwell