I’ve been thinking recently about the difference between wealth and income. More specifically, the phenomenon that you can have an extremely high income, yet not be wealthy and you can be wealthy without a high income. Throughout the recent economic downturn, there have been stories of people who once had huge salaries, but now are … Continue reading
I’ve been thinking recently about the difference between wealth and income. More specifically, the phenomenon that you can have an extremely high income, yet not be wealthy and you can be wealthy without a high income. Throughout the recent economic downturn, there have been stories of people who once had huge salaries, but now are stretching to make ends meet. And then I read an article about HENRYs. What is a HENRY you might ask? I had never heard of this term either. HENRY stands for high earners, not rich yet. What strikes me about this acronym is the yet, as if everyone who has a high income is destined to be rich, when clearly that is not the case.
In my first job after college, I worked in an environment where there were a lot of people under the age of 30 making an insane amount of money. And while I was never one of those people, it gave me some insight as to how you could have an income well into the six figures, or even higher, yet not have a lot of savings. The following three traps make it hard build real wealth:
Assuming you will always earn a lot, or even more
It’s so easy to fall into the trap of feeling like you do not need to save now, because you will earn even more later down the line and can start saving then. However, lifestyle creep happens and tomorrow never comes. There is no easier time to save than the first year you are making a bigger income. Start saving then and keep up the habit for life. Then you can be a higher earner AND wealthy! There’s also no guarantee that if you lose your current job, your next job will pay the same or even more. While it is nice to imagine, prepare for a less lucrative future. Or for a scenario where you no longer want the big job with a big income.
Thinking that you work hard for your money so you deserve all the finer things in life
Most jobs that pay well do so because they require a lot of sacrifice: a lot of time at work, time on the road, or extreme stress. As a result of this sacrifice, you want to ‘treat’ yourself. Again and again and again. You work all the time so you need to have someone clean your house, you deserve a weekly massage, you must have take out. Why do you have this high pressure job if you can’t have a designer handbag or a fancy sports car?
Once you have built some savings and are on your way to becoming wealthy you can start spending a little more. But in the beginning, save as much as you can. And if you do ‘treat’ yourself, pick one thing, not everything.
Keeping up with the Joneses
If you earn a big fancy income, you most likely work with a lot of people who also have big incomes. And if you use your big income to buy a house in a fancy neighborhood, your neighbors probably make big incomes too. The guy next door has an X5, you need one too. Your co-worker buys his wife-to-be a diamond rock, you need to do the same for your honey. High income work environments often come with a lot of peer pressure to spend big on material possessions.
The good news is that you don’t have to have an insane level of income to become wealthy. The key to building wealth over time is to live within your means. And if you are lucky enough to be a HENRY save as much of your income as you can for the first few years. There’s no guarantee the salary will continue and, with such a high income, the ‘yet’ should come sooner rather than later!
*Need some inspiration to save, read about a plan to retire by 40!
**Photo by arghmonkey
Where’s My Trust Fund? turns six months old this week. I’ve been thinking about what I have learned over the past six month and also how much my finances improved. I’ve been most shocked with how much my finances have changed as I always felt like someone who had their finances in order. Here are … Continue reading
Where’s My Trust Fund? turns six months old this week. I’ve been thinking about what I have learned over the past six month and also how much my finances improved. I’ve been most shocked with how much my finances have changed as I always felt like someone who had their finances in order. Here are a few of my thought as I think back over the past six months:
Getting a blog up and running is much harder than I ever imagined
Getting a hosting site, picking a name, figuring out a design. So many things to do before you even think about writing a post. Without the help of Mr. NTF I do not know how I would have done it all.
Coming up with regular posts and having people actually read your blog is even harder.
I have a new respect for full-time bloggers and especially for people who find the time to post 5 or more times a week while also holding down a day job and having a life. Not only are there some great blogs out there but they have comment after comment after comment. Amazing. Another thank you to Mr. NTF for being my official Editor in Chief. Do most pro bloggers hire an editor?
If I wanted to get a lot of readers through search, I should have picked a different name. However, I get a lot of interesting search traffic.
People find my blog through a variety of sources: word of mouth, other blogs, search. It’s interesting to see what search terms get people to my site. As I write more and more, it tends to be terms such as “crossover point” or “how to go from two incomes from one”. However, there are a lot of people who must be sorely disappointed when they get to my site as these were some of their search terms: “getting access to my trust fund”, “how do I sell my trust fund payments?”, and “what happened to my trust fund?”.
Being financially fit requires a little work on an ongoing basis
Getting your finances in order is not something you can do in a weekend and then never think about again, it requires ongoing work. Most recently I have started tracking our expenses after having gone a year or two without doing this. We also recently finished our will and I am about to start working on rolling over an old 401k.
Little steps can lead to big things
I was overwhelmed by the idea of starting a blog; how can you have a blog if you only have a few posts? However, I try to write a couple of times a week and slowly my archives are increasing and I actually have a full fledged blog here.
The same thing is true in the world of personal finance. I mentioned in my Goals For 2011 post about how I set up a ”2011″ account at ING. I have been putting our saving from the 2011 tax change, as well as any other additional money we have on a month to month basis, and it’s been fun to watch this pot slowly grow.
Thinking and reading about personal finance on a daily basis for the past 6 months has led to some pretty big changes in our financial life.
I paid of my student loans early. I’ve lowered our housing budget for our upcoming home purchase. Most importantly, I am much more focused on figuring out how we can get the most out of the money we do have and setting goals for the future. I am less concerned that we are living in a two-bedroom condo that we are quickly outgrowing, and more focused on the fact that we can afford our current house and will patiently wait to move until we find a house we are excited about that is within our budget.
Thanks so much to all my readers. I hope you feel inspired into action when you read this site and that you, too, are are in better financial shape than you were six months ago.
*Here’s a great post to read if you are thinking about starting a blog
**Photo by WebSuccessDiva
It’s February and winter is starting to drag on. My last few posts have been somewhat long and serious and I felt the need for a more light hearted post. So while this post has nothing to down personal finance, I hope you enjoy. If you are looking for something to make for your Valentine … Continue reading
It’s February and winter is starting to drag on. My last few posts have been somewhat long and serious and I felt the need for a more light hearted post. So while this post has nothing to down personal finance, I hope you enjoy. If you are looking for something to make for your Valentine this weekend, I cannot recommend this recipe enough.
I love all things Linzer. My dad makes an amazing Linzer Torte that I request most years for my birthday. I’ve been making this particular recipe since after college when I was living in Chicago. The recipe was from my roommate’s cookbook and I can no longer remember the cookbook, although I believe it was a Betty Crocker cookie cookbook. (J if you are reading, let me know and I’ll give credit where credit is due).
A few notes: Traditional Linzer Torte is made with almonds, so I think that would work well as a substitution if you prefer almonds to hazelnuts. This is a very rich cookie, so I always make them with a small cookie-cutter. Skinning hazelnuts is a tricky, somewhat tedious task. I have good luck rubbing the hazelnuts between some paper towel and a cookie tray.
Chocolate Linzer Hearts
1 cup (2 sticks) butter, softened
1/2 cup sugar
1 teaspoon vanilla
2 1/2 cups all-purpose flour
1 cup hazelnuts, toasted skinned and ground
1 1/2 teaspoons ground cinnamon
1/2 teaspoon ground nutmeg
1/2 ounce semisweet chocolate, finely chopped
1/2 cup raspberry jam
1 ounce semisweet chocolate, melted
Beat the butter and sugar in large bowl until light and fluffy. Beat in eggs and vanilla until smooth. Add remaining ingredients except jam and melted chocolate. Beat until well blended. Cover and refigerate dough 1 hour. (Dough will be sticky.)
Heat oven to 375 degrees. Roll one-fourth of dough at a time 1/8 inch think on ligthly floured surface. (Keep remaining dough refrigerate until ready to roll.)
Cut with 2-inch heart-shaped cookie cutter. Cut out centers of half the cookies, if desired. Place on ungreased cookie sheet. Bake 7 to 9 minutes or until light brown. Remove from cookie sheet. Cool completely. Put cookies together in pairs with about 1/2 teaspoon raspberry jam each. Drizzle with melted chocolate.
If you find the idea of saving for college completely overwhelming you are not alone. There are so many unknowns as to where and if your child will go to college and what market returns will be like up until that point. When I see that private college can cost over $50,000 today, my eyes … Continue reading
If you find the idea of saving for college completely overwhelming you are not alone. There are so many unknowns as to where and if your child will go to college and what market returns will be like up until that point. When I see that private college can cost over $50,000 today, my eyes glaze over when I think about what college might cost 15 to 20 years from now. If you have a newborn at home and want to pay 100% of costs at a private college, it is estimated you will need to save over $1000 a month for the next 18 years. Scary stuff. Here are a few things to help you put a number on the college cost question and think about whether some of your monthly or annual savings should start going toward future college costs.
1) If you are not currently saving enough for retirement, do not start saving for your child’s education until you are able to increase your retirement savings.
Your child can take out loans or earn their own money to help pay for college, but you cannot do the same for retirement. It is crucial that you put your needs ahead of your child’s in this situation.
2) Use a calculator to help you determine how much you should save on a monthly or annual basis.
How much you should save depends on several factors: the age of your child, whether you think your child will attend private or public school, and what percentage of your child’s cost you would like to cover. I really like the World’s Simplest College Cost Calculator on Savingforcollege.com, it is easy to get started and allows you to easily change all assumptions.
3) Once you have determined you are ready to start saving for college, start saving as early and as often as you are able.
The earlier you can start saving the longer you can take advantage of compounding interest and the less you have to save on an annual basis. If you starting saving $100 a month from birth you will have almost $45,000 by the time your child is 18, assuming 7% interest. However, if you wait to start saving until you child is 10 to start saving, you will have to save almost $350 a month to have the same amount by the time your child ready for college.
4) If you cannot save as much as you would like, remember even $10-20 can add up over time, and look for other ways to increase this amount.
If you are reading this and feeling overwhelmed, take a deep breath. This is definitely a situation where every little bit helps and saving nothing because you cannot save the perfect amount is not the best option. If you have no room in your monthly budget, add money when you are able. If your child receives gift money for birthdays or holidays, put all or some of this money towards the college fund.
Shortly after our baby was born, I opened a 529 plan at Vanguard. I am a huge fan of Vanguard and their large variety of low-cost investment vehicles. We are not saving enough to pay for 100% of the cost of private college, but we are saving an amount we can afford and hope to add to it over time. We have a coin jar in our bedroom where we keep spare change. This money now goes into the college fund as does money our child receives as gifts.
Have you figured out how much you need to save on a monthly basis? Have you started saving yet?
*Here is a post at Frugal Confessions about opening an Upromise Account