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).
While I agree with the underlying point that most people grow their spending with their job, I strongly disagree that "it's not just about discipline or will". It really does come down to wanting less and buying less. I don't know in what absurd world you "need" to spend $300k to keep a $400k job, or even $80k to keep a $100k job. Nothing stops you from having a six-figure salary and living like a college student.
That represents one of the most critical financial lessons of all time: your salary and your expenses do not need to correlate, so don't let them.
There are two different mechanisms being pointed out, and it's important to understand the distinction.
The first is the tendency for your burn rate to drift up to match your neighbors. Even when encouraged by your neighbors being assholes about it, that is a matter of discipline; if your discipline is in the top ninety-whatever percentile, it is possible to stop yourself doing this.
The second is the fact that some companies attach to some jobs very high unpaid expenses that they dishonestly don't point out until after your working for the company, e.g. refusing to give you a high-paid job unless you drive to work in an expensive car. There's nothing to be done about that in the first sense; if they won't give you the job unless you spend much of your salary on these unpaid expenses, then they won't. What you need to do in this case is recognize such jobs, subtract the unpaid expenses from your after-tax salary, and make your decision whether to accept the job or walk away, based on your take-home pay after expenses, not before.
I don't follow your second point. In what situation would one be offered this position when they do not already own the expensive car, and after accepting it, how would they be coerced into buying such a car in order to keep their job?
Well if you look at what other people have been saying, one way this can happen is as a condition of the promotion that will get you the high salary you were aiming for.
> your salary and your expenses do not need to correlate, so don't let them.
Wishing it doesn't make it so. In a previous life I applied to a business consultancy in Britain. (Ernst & Young? Andersen? Can't remember. It was long ago.) To get you into the mood, they had a little quiz on their website. One question went like this: "You have worked 12 hours on a report that is due the day after tomorrow and are tired. Your officemates want to go for beers. (This is Britain, and "beers" means many beers.) Will you join them?" Of course you join them says the website, you are supposed to work hard and party hard.
These are the social pressures that michaelochurch talks about, they are very real, and what you do and where you live will affect your chances of promotion. For an insight I do recommend Karen Ho's "Liquidated", it's an anthropological study of Wall Street.
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.
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.
With the normal family deductions take home would be $20K in New Jersey. Chinese nanny is $1600/m. Mortgage on $600K house is $3000/m. No insurance fees for a derm. They are in high demand and insurance is covered by the practice. There is also property tax, which is very high in NJ. Probably like $20K a year somewhere nice like Princeton. I was too generous with the savings rate but it's still over $10K a month, not $4k. Plus, there's still your husband's salary.
Anyway, that wasn't really my point. My point was that the $400K band is also a lot of upper middle class jobs like medicine, where people shop at Costco and drive Toyotas.
> If you have kids, your bosses will ask where they go to school and it will affect your promotion chances.
How can your kids' school affect promotion chances?
I can understand buying expensive clothes, cleaning, expensive apartments etc. Although IMHO all this stuff does not really start to kick in before $150-200k.
This is such a profound statement with respect to our industry, and I think it represents an extreme opportunity:
I believe there is an incredible opportunity around providing lifestyle-support services that are NOT looking to gouge the people they serve.
Look at a service like Exec or even a service like Uber: both are fantastic, but both specifically target consuming all disposable income that they can from their userbase.
I think this is a short-sighted and limited model: there should be a lifestyle service that works on a percentage scale that is not seeking to maximize its immediate revenue from each and every user, but to help them maintain and grow.
If we look at the costs of the luxury and wanna-be-luxury sites, they are all myopic. None of them do anything other than appeal to the most base and traditional of consumerist norms: emotionally entice their target audience to spend their income on the service offered.
A parasite model.
Instead, imagine a company that offers a range of services based both on economy of scale, available resource by hour and user need.
Take the Tesla model: offer a luxury, yet newly innovative product which starts out as a high cost consumer item and work towards a more affordable, more widely available offering.
So you start a subscription service where you buy a block of available service hours. You can spend them on anything you want and switch it up each month.
Build a plan that started with an upfront payment for life evaluation.
* what is your situation?
* what are your goals?
* do you need your physical life organized?
* do you need a stylist?
* do you need an admin?
etc etc etc
You build out a profile of needs for N months - and build an intitial plan of action. From that baseline, you then have an available menu of services that the user can select from as needed. They do not have to use up their subscription hours and can accumulate hours for later/higher cost services later.
The company works to bring on 'task-rabbit' like folks for various tasks etc...
The goal is to allow people to focus on what they do without being gouged for premiums for any and every individual service they may need to maintain.
It's really sad that EVERYONE thinks that every service out there should net 100K+ (I took a cab to the airport and the COST to me as an individual was the equivalent to me paying someone $180K per year to drive me to the airport. (I can explain the economics of this in detail if you like..))
Exec is actually cheaper for cleaning than something like Merry Maids. Plus the workers get paid way more.
Uber is more expensive than a cab, but it did not come into existence because the founders wanted to gouge people who needed cabs. It happened because cab service in SF is so terrible, an alternative was desperately needed.
I was not really trying to say they are gouging people with Exec and Uber - what I am trying to point out is that the amount that one pays Uber and Exec is really high given the type of service the worker (cleaner/admin or cab driver) is performing.
As I mentioned, when I took a cab to SFO, I paid the guy ~$65 for my Uber ride which lasted 23 minutes. Now, I know that I am paying for a premium service and a one-off delivery of myself to the airport. But to contrast this, that was $65 to ride for 20 minutes in a car to the airport where I was getting on a Plane to fly me hundreds and hundreds of miles and my plane ticket was only $149!
I think that everything costs too much - and that people who drive cabs shouldn't be making ~$80,000 per year.
You can get to SFO for less than $20 provided you're willing to use a shuttle/van service. The premium is for a private ride that is direct to the airport. So it's definitely possible to get these types of services cheap you just can't expect the same level of quality as Uber say.
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).