Category: Money and Psychology

What Income Level Do You Consider Rich?

Posted May.07, 2012 under Money and Psychology

Last week I wrote a post called, “Money Will Change You” which talked primarily about how the more we earn, the more our desire changes. For example, if you enjoy cars (like I do), you won’t want to be driving the same old Honda Civic when you get to earning a six figure income vs. half of that for example. Rather than buying another set of dress pants for work at $89.99 from Sears, now you’re buying $210 dress pants at Hugo Boss outlet. One thing that is certain though is that we react to wealth differently, those who work their way to accumulating wealth react one way and those who inherit wealth react another way.

A great example of one’s reaction to inherited wealth is illustrated in this comment:

I was in possession of $100k of inherited wealth at age 18. Freshly graduated with no life plan, I blew through it all in a little over 2 years. I’m not sure if money “changed me”, but I definitely became lazy and had NO APPRECIATION for what I had.

Looking back, I wish I had locked than money away until I figured out where I was going. I have started to bring in more money (now age 26) and I DEFINITELY have an appreciation for what I have now. One thing I have noticed about people who fall into wealth quickly is a true lack of appreciation for it. I had a few rich friends, and one of them literally told me “it doesn’t matter what I do, I’ll be rich anyways, so I don’t care.”

Instead of doing a followup review to my post, I was fortunate enough for Sam (Financial Samurai) for having already done a followup called, “Making Money Too Fast Destroys You And Everything Around You“.

Instead I’m curious to know, what income level do you consider well off?

Ever since President Obama took the stand and became the President of United States of America, he has specifically worked over-time to raise the taxes on single people making of $200,000 and families making over $250,000, because President Obama considers $200,000 to be rich. Earning $200K as a family or singleton is  a pretty nice income to bring in any way you slice it, and you are considered as part of the “Upper Class” in today’s modern society.

One thing that’s for sure is that even though I may consider $200K part of the upper class where I live, that same income amount is not considered upper class income in places such as NYC or Vancouver. Earning $500K in NYC can not be considered an upper middle class income, because the cost of living is atrocious, and if you’re a Manhattan resident you’re paying an additional 3% surcharge tax.

So, Why hasn’t President Obama been successful in increasing the taxes on the rich or why hasn’t Prime Minister Stephen Harper entertained the idea of a tax increase for the elite wealthy in Canada?

I think for two primary reasons one hasn’t been successful in raising taxes and the other hasn’t even considered raising taxes, because both countries depend on the elite wealthy and for the most part people mutually agree that $200,000+ incomes are not exactly rich. Furthermore, one can reasonably argue that no matter what tax implications are imposed on the rich, they’ll always find alternative ways to pay less taxes, so imposing taxes may not beneficial after all. Finally, the rich drive the economy in some form through job creation, exporting, and so on, and if they’re taxed further their motivation for new job creation will come to a stand still.

That’s my two cents, so rather than getting all political, I’ll let the politicians do their jobs, and I’ll get back to discussing what income level is considered well off.

The 4 Wealth Breakdowns

Income – The amount one makes in any given year from one or many different income sources. For example, I have three different income sources. I guess you can say I like diversification.

Capital – Some people earn very little but have a lot of capital, they possibly inherited some over time. As we all know Capital is considered accumulated assets or ownership.

Income/Capital Mixture – Probably the best position to be is to have a mixture of good income and capital. If you’re a home owner, and earn six figures or more, consider your self to have a good mixture of income and capital.

Inheritance -  If you’re lucky to inherit something from your grand-parents or parents, consider your self fortunate. The downside of inheritance is that it wasn’t worked for, therefore the appreciation level will never be high.

While the idea of being ‘rich’ sounds simple,  its actually a concept with many different ideas and viewpoints. Depending on your income level your idea of ‘rich’ might be different. The more income you currently have, the more additional income it will take to consider yourself rich.

Not all is doomed though. You can still get to a rich level with some careful planning and smart work. Notice I didn’t say hard work, because nothing has to be hard if you’re smart about it.

Steps To Richness

Traditional Sense -  There’s no secret formula to getting rich. Everyone can create their own journey or you can take the traditional route through simple saving and investing. Even as little as 10% of your income invested over 30 years and you’ll be set for the rest of your life.

Watch & Learn – Watch those above you and learn from them, and if you’re lucky enough to have someone close to you, use them as a mentor. The key here is to learn from someone who’s wealthy already. There are millions willing to tell you how to become wealthy, and are not wealthy them selves. Ironic eh?

Mr. or Ms. Independent – You’re in control of your future, and there will be a lot of haterz along the way. They’re part of life and they make it more interesting. The income you earn right now is a choice you make. Can you earn more? Find an alternative income source? Upgrade your skill set? Those are all choices too, and you make the choice whether you do anything or nothing at all.

Inherit – It helps that if you were born to wealthy parents. Essentially the wealth will be passed down to you through time. And if you were unlucky to have wealthy parents, simply marry into wealth. I’m still on the lookout for this one. :)

Discipline-  Find your own discipline and you’ll quickly find that the greatest rate of return you will earn is on your own personal spending. Being a smart shopper is the first step to getting rich. Yeah you have to give things up and that doesn’t work for everyone, particularly if you have a family. That is reality.

Invest in YOU -  Discover  what your hobbies, interests, and passions are. Find the one you love the best and get a job that supports your goal.

Be Daring Through Being Different – Don’t base your decisions upon what everyone is saying or doing. You can be the average , which is what everybody else is doing. In order to be above average, you need to do your own thing and not be a follower.

I’ll conclude by ending with this…

I’m always on the lookout to maximize my income and increase my capital base. I also strongly believe in diversifying my income, hence the three different income sources I carry. Personally $200,000 is not rich where I live, but I consider $200,000 as upper-class. If you live in NYC or Vancouver, as I mentioned earlier, $200,000 is probably not even considered upper-class, so you have to get creative in other ways  in order to live a modest life.

The beauty of getting rich is that it doesn’t require hard work as much as it requires working smartly. Income levels are a consideration of one person, and if you’re fortunate enough to find a life partner that you can partner up with, that goes a long way to giving your family further stability.

Wealth starts in the mind. You have to be dependent upon yourself instead of relying on others.Incomes change, whether you decide to stop working or life decides for you. The income you earn directly influences your capital, but than again so does the life you live and the friends you have.

The best piece of advice that I can give you, and this coming from someone who’s not rich -  just be your self. Do your own thing, be your own person, create your own path and don’t compare your self to others. In life there will always be some that have more than others, because that’s what makes life so interesting, we’re all not the same.

What income level do you consider rich?

Eddie

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Money Will Change You

Posted May.03, 2012 under Money and Psychology

What is it about money that drives us crazy? We work hard for it, some of us kill for it, some envy it, some hate having anything to do with it, most of us look down our noses at it, and yet it’s a tool that makes the world go round. Money, as we know it, has it’s positives and negatives. Whether we like it or not, we all have some form of a relationship with money.

Money changes people, and people who strive hard to reach their goals may suddenly find themselves wealthier than they expected. However, most who reach some form of wealth forget that money is a by-product of success, and not the primary objective. This change happens partially because money and the leisure opportunities it brings foster new levels of introspection on both sides.

Money affects us in every possible way. It affects the way we act, think, react and most importantly it affects our mood. When I was in some serious debt, my mood sucked. I was edgy, worrisome, desperate and a nut case. Our moods are strongly tied to our earnings. I know this first hand. When money is coming in steadily from my three income sources, which in my case happen to be my my commercial cleaning business, full-time job and this blog – I’m on a high. Something along the lines of a laughing gas high.

One might argue that money is laughing gas for most of us in its ability to dissipate anxiety and send our spirits soaring. Money speaks to our sense of freedom, and our wish not to be held back by anything or anyone. Although you can travel on a plane in economy class, it’s much more cushy to ­travel by private jet.

When I was grappling with financial challenges, either as a student and my early twenties, there was not a heck of lot of time or incentive to ask my self if my life was being fulfilled. Lack of money created its own kind of stress. Even though I rarely showed my money problems, I managed to live a decent life in my late teens and early twenties. I enjoyed finer clothing, owned a car and lived life to the fullest.

It’s a proven fact that people think differently about when they have a million dollars in their bank account instead of an overdraft. For the happily married couples the different thought process can be enough to weaken even the strongest bonds. It’s no surprised that the biggest thing couples argue about is money. This money high has it’s on evil side, and if you have all the material things that you once believed would make you happy, and they don’t, you may begin looking elsewhere for your happiness. If you look around, read a few articles, Google a few keywords, you’ll realize that this theory is based on the large number of wealthy divorcees whose marriages appeared stable prior to the material wealth, but came crashing down after their dreams appeared to be fulfilled, but in reality it was smoke in mirrors.

But here’s the odd thing: Although money in itself arouses many emotions, such as admiration, then why do we despise people who posses enormous amounts of money? We suspect them of having come by it unfairly, of somehow not being “worthy” of their own wealth. I’ve caught my self doing this many times. For example, any time I come across the show “The Real Housewives of whatever city”, I’ll admit that the first word that comes to mind is gold-diggers. Call me shallow, but I’m being honest with you. Certainly not all of these women on the popular series are gold-diggers, and that some, very few though, work hard for their money.

What’s really interesting is the paradox to money. Despite our notwithstanding this negative bias on money, we as a society remain fascinated by the wealthy. Just last week, Globe and Mail featured a very interesting article; “Is Vancouver a cultural backwater? Just ask us about Real Housewives” which talks about the hype that this show has created across Canada.Canadians are talking about it everywhere, men and women. This begs an even bigger question; If the Real Housewives have the money, cars, fancy homes and lavish lifestyles, so why are they participating in the show? Obviously they’re missing something.

To concluded, I’ll put things into perspective.Frugality is dull and fatigue seems to set in almost as quickly as you can say recession. And despite a tough economy, struggling housing markets, and high unemployment rates, there doesn’t seem to be a shortage of wealth culture flowing around. The rich will continue to grow their wealth and their playgrounds, while we will stand there enjoying the show in a love-hate way.

Thank you, once again, for your support and loyal readership.

So, what are your thoughts? Can money change you? Do you know of anyone that money has changed?

Eddie

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Rich Are Never Rich Enough

Posted Mar.09, 2012 under Money and Psychology

What can you do with $196K annually?

That’s the question of the day. Earning $196K per year is a nice chunk of change and definitely puts you in the so-called One Per Cent—the top one per cent of income earners in Canada according to the latest Statistics Canada numbers.  To break down the $196,000 annual income further, it works out to roughly $10,400 a month, after taxes.

Earning $10,400 clean after taxes are pretty inviting numbers. Reality is different for most of us though. Majority of us are nowhere near in earning of the top one percent, even when combining our income with our spouse, if you have one.

So, why am I talking about earning $196,000?

Good question and my answer to that is simple – I’m using this article as a bit of a bitch session. Call me whatever you want, but we’re all entitled to our opinions.

Recently (as in last night) I read a pretty good feature article in Toronto Life called; Almost Rich. The long and short of the article is talking about how it’s expensive to live in the city.  And I agree, it is expensive to live in the city, especially if you’re living in a large metropolitan city such as Toronto, Vancouver or Calgary. Living the precious downtown life doesn’t come cheap by any means.

Despite a well written article, the meaning behind it nearly made me barf. I’m unsure if that was the intention of the authors, but if it was the case, kudos to you for nearly succeeding. The article talks about how expensive it is to live in the city by taking five top one percent income earning families, and sharing their stories of how tough it is every month to live in Toronto on $196K.

I hope you understand now what nearly made me barf. I do apologize for being so graphic.

I’ve always admired successful people, and their work ethic to continuously strive for a better life. These same successful people also pull in a good amount of money each month and shouldn’t feel guilty for earning $196k . However,  this article is a poor attempt at soothing the feelings of the middle class people.

According to statistics from 2007, Canada’s top one per cent of earners were at $169,000 a year, compared to our south of the border neighbors who were at a “not so surprising” $400,000. Whats interesting though is that between 1980 and 2005 the earnings of Canada’s bottom income group declined by 20.6 per cent,  all while top incomes rose by 16.4 per cent.

So, where do I stand?

According to a system on Macleans Magazine called – Rank Your Income , which ranks your income compared to the rest of Canada, my income ranks in the top 14.05% in Canada.

Okay, now that I figured that out, let me get back to my bitching session.

I do agree that living downtown Toronto is not cheap by any means. And that’s probably the only thing that I agree with in the article. Looking a little deeper, this article clearly depicts five families incurring massive amounts of consumer debt due to poor spending habits and a sense of entitlement.

Consumerism is the universal religion in North America, and it’s not just the upper class that buys into it. For us it’s just harder to poke fun at someone splurging beyond their means at a regular grocery store than at the new Loblaw’s (old Maple Leafs Gardens) store, where food prices are through the roof.

Living in the city and splurging will be tough for anyone, including those in the one percent bracket. So, I put together a quick list of splurging and broke it down by each family:

Scenario # 1 – Young family, two kids.

Wine – $400-$500/month – Sounds like a lot of wine to me. That works out $16.60/bottle per day in a thirty day month. One bottle per dinner I suppose? Either way it’s way too much. Quote: “We try to get the better $11 bottles, but they go fast“.

Cleaning Lady – $160/month – I suppose momma doesn’t like to get her hands dirty.

RRSP – $0 - Are you surprised? Quote: “We live month to month. When we have money left over, we go out.”

Scenario # 2 – Senior Couple

This is the only family with some sensible spending. It’s easy to see, since they’re living off of investments.

Gas – $150/month – Gas on Mercedes – Quote:  “We buy a new Mercedes every three years; it’s our big indulgence, “We always pay cash. This one was $80,000.”

Scenario # 3 – Single Dude

Groceries & Eating Out – $1,400/month – Quote: “I often order pasta at Grazie or, if I’m in a celebratory mood, North 44°. I buy better cheese and other exotic ingredients at Pusateri’s.”

Too big of a monthly food budget for one person? I think so. 

Wine – $800/month – Quote: “I’ll spend anywhere from $15 on a Rhône to $100 on an Amarone, and I open a bottle almost every night.”

Damn that’s a lot of wine.

Quote of Day:  “He tries to stay debt-free, but occasionally he splurges on travel or a big-ticket toy, like the $7,500 Royal Enfield motorcycle he bought last year. “People think I make a lot of money,”,  “but I lose so much of it in tax.”

Scenario # 4 – Family of 3 that immigrated to Canada

$1,000/year on furniture – How much furniture in a year does one really need?

$3,000/year on clothing- Quote:  “I don’t buy as many new outfits as I used to, since I have several nice suits I haven’t worn more than once”

Family# 5 – Family of Four

$1,000/month in clothing – Sounds a lot. How much clothes does one possibly need? Quote:  “I drive across the border to Buffalo all the time on business” , “I shop a lot when I’m over there, mostly at stores like Guess”

$400/month on Toiletries – That’s $4,800 per year on toiletries alone.

Not all is doomed though:

$,4000/year – Kids RESPs

$20,000year – RRSPs & Stocks

$1,700/year  – Donations

The city is an expensive place to live. Toronto and Vancouver ranking the highest in terms of how expensive it’s to live in the city in Canada. The problem isn’t so much how expensive it is to live in the city, but rather the people who don’t understand living within their means. I don’t begrudge anyone for a nice home, expensive car and fancy furniture, but if they think that living in the moment is more important than saving for the future, that is not the fault of an expensive city life.

Regardless of what your household income is you should always live within your means.What happened to paying off your mortgage aggressively or  topping up your RRSPs? I guess according to this article and people part of it,  living in the moment is more important than preparing for retirement.

Some of these numbers are truly mind boggling. $400 a month at Shoppers? $800 a month on wine? $3000 a month on clothes? The problem is not Toronto, Vancouver or any other expensive city in Canada,  the problem is and being too ignorant to budgeting and knowing the difference between needs and wants.

Using excuses such as; “A lot of my money goes to taxes” is just self pity. It’s no surprise to me that we hit a recession in 2008 and continue to reel from a near collapse. I enjoy reading Toronto Life, but articles like this make me wonder who the magazine is catered towards, the one per cent or the remaining ninety nine?

I’m approaching my dirty thirties. I make less money than any one of these examples in the article, and I’m still happy with my income. I own a home, have a car and still enjoy nice clothes from Harry Rosen. I have a paid off credit card and continue to build up my savings. I lead a normal average lifestyle. These people are out of control.

I’ve always said this; Rich will never be rich enough.

Eddie

 PS: I highly advise you to read the full article. A worthy read for sure. Click here to read Almost Rich.

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Sense of Entitlement

Posted Mar.06, 2012 under Money and Psychology

I’ve always known that selfish, rude, arrogant and shallow people exist. When I truly think about it, I have the pleasure to encounter people like this everyday. Just walk into any Starbucks or Indigo and you’ll soon see people like this. Actually scratch that….you don’t need to look outside of your current circle. I’m certain that somewhere within your circle of friends you know a few people that are selfish and shallow. The same shallow and selfish people feel that they’re always entitled.

Despite knowing a shit load of people who feel the sense of entitlement, I’ve yet to realize how they got that way.  Aside from being selfish and shallow, now they feel entitled to this and that. Much of the reason why these poor souls feel entitled is because they developed an appetite for finer things in life  and the sense for having whatever they want, whenever they want it.

Reality that we live in is more realistic (to put it in polite terms). Very few people in today’s society have deep pockets for having whatever they want, whenever they want it. Think Bill Gates for a minute, except in Bill’s case his pockets are so deep that he can’t feel the bottom. Bill works hard for his money, made the wise moves, and most importantly knows the value of starting from the bottom to get to the deep pockets of having whatever he wants, whenever he wants it.

So, the question of the day is this; Where do you think entitlement comes from?

Most people in today’s society have some sense of entitlement simply because they haven’t seen any worst. Food every day, nice shoes, a car, two or three and a home bigger than they actually need. These people have never been hungry. Those who have never been hungry, never wondered where they’d sleep, always had everything at their finger tips or came from a wealthy family -  these people have a skewed sense of entitlement.

Insecure women (and men) who roam malls,  buy $7 coffee’s, read magazines such as People or Celebrity Gossip or watch a lot of TV are feeling the sense of entitlement. They look at a celebrity and say; “Wow, I love those jeans, I’m going to get a paid” and “They do cost $750, but I work hard and deserve them”. Deserve what exactly? We all work hard. If you were to ask 10 people if they work hard, all 10 of them would say that they do. One thing that they fail to realize is that the deepness of the their pockets and the pockets of a celebrity – another example of a skewed sense of entitlement.

When I was growing up my family lived in a two bedroom condo. I shared a room with my brother and we always made it work. Today I own a two bedroom condo by my self, simply because I didn’t want to settle for less. So, do I have a skewed sense of entitlement? Yes, at times I do. I’m not perfect and don’t claim to be.

Let’s look at cars.

Cars were looked at differently when I was growing up. If you drove a BMW, you did well for your self and were considered “fortunate” to drive a nice luxury high end car. Today, you have 19 year olds driving BMWs. Part of it has to do with affordability. BMW has made it extremely easy to enter their luxury market.Second reason is that parents are financing the same BMW vehicles for their kids because little Billy feels entitled to have a BMW, because his friend John has one.

Deep down I think we all feel some sense of entitlement at certain times in our lives. Unfortunately, as our expectations have gone up, our ability to pay for them has been seriously challenged.Fingers are often pointed to the younger generation for feeling entitled, and as much as this being true, youth are not the only problem. Age has very little to do with feeling entitled. Entitlement can be seen right across various age groups, including teens, young adults in their 20s, adults in their dirty thirties and mature adults above the age of 40.

Most of us work hard for our monies. Others are freeloaders who live off of family members and friends. Working hard for your money will give anyone some sense of entitlement. The trick is not to allow it to get your head. Looking to buy that BMW? Fine, there’s nothing wrong with that. Go ahead if you can afford it. Do it for your self and not to keep up with the Joneses, because we all know that keeping up with the Joneses is just smoke and mirrors.

What do you think about people who feel entitled?

Eddie

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