Spending less than you make

I recently connected with an old friend who runs a large advertising agency. After catching up on family and career, we began discussing retirement. This is a common topic among my peers who are approaching the end of their careers. Some are contemplating stepping down, some are trying decide how long they need to keep working, and some have been given a gentle shove out of the workplace. But all are concerned about what happens next, and whether they've put enough money away for another two or three decades.

My ad agency friend was no exception. He told me he'd been thinking about retiring, but wasn't sure if he'd be able to afford it. I broached the subject of money, and asked if he had a sense of how much he'd need to retire comfortably. He sighed, and said he didn’t think he had sufficient savings put aside. Then he truly shocked me.

He told me he'd been earning roughly $1.6 million a year in his current job.

I almost fell out of my seat. "How can you not put away a big chunk of that money every year? I asked.

He frowned slightly, and said, "It's not that easy."  

With some trepidation, I asked him to explain how it could not be easy to save money when you're earning over a million bucks a year. 

"To start with," my friend began, "half of it goes to taxes." I nodded and pressed him on the remaining $800,000, and his answers were surprising. He had a big mortgage on his house, and another mortgage on an expensive vacation home. He had a small prop plane. Two kids in college. Two vintage motorcycles on top of their four cars. A timeshare in Hawaii. A sailboat. And they just spent $50,000 on a cruise during the summer. 

He estimated his average monthly expenses at $60,000.00.

There's a book called "Younger Next Year" written by a physician named Henry Lodge, that focuses on how to stay vital as you age. It has seven rules for living a healthy life, most of which are straightforward. They include exercising six days a week, serious strength training two days a week, and, of course, eating the right foods. But one of the rules is less obvious, and it resonates with me deeply: spend less than you make.

This sounds so simple, but in truth it's quite difficult. A vast number of people live paycheck-to-paycheck, so it's nearly impossible for them to spend less than they make. But what about those who make a good, or even, great living - like my friend at the ad agency. Why is it so hard to keep socking money away and avoid the temptations of wealth?

I know that in my case, there was always pressure to upgrade. When I moved from New York to California, I had to buy my first car. Being a frugal Midwesterner, I bought a base model Honda Civic with no power steering and no air conditioning, which I quickly regretted. Things got worse when a woman who worked for me remarked that I should be driving a nicer car, since I had the title of vice president.

I wish she'd never said it. I found myself feeling embarrassed to hand my car keys to the valet parkers at a nice restaurant. I didn't want clients to see what I was driving. I started rationalizing the purchase to friends when I gave them a ride. I felt like a little bit of a loser, and couldn't wait to upgrade to a more luxurious car.

And so it begins.

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