I suppose a lot of this comes down to how much "wonderful" you want, and where you’re willing to sacrifice for your "wonderful." 

What’s possibly the best benefit of writing and podcasting to all of you? The best benefit of working with real-life clients?

The stories.

The emails that readers and listeners send to me. The nitty-gritty details we uncover when developing a client’s financial plan. You guys sharing what’s going on in your life, and then asking: what should I do here, Jesse?

Because we’re all captives of our own brains and our own lives. We only get to see so much.

I can’t begin to explain how my perceptions of money, earning, spending, investing, etc. have changed from hearing hundreds and hundreds of your examples.

And today, I want to share a simple concept that’s been noodling around in my brain. I’m calling it “a wonderful life.” And I’ll challenge you today to really dig into what you consider to be your “wonderful life.”

But this idea starts with a simple premise:

Even multi-millionaires and the top 1% of earning households struggle with *this* personal finance fundamental. Oooh…the suspense!

Whereas other households (no matter their place in the wealth spectrum) who manage to get *this* fundamental correct…it allows them to take off like a rocket ship.

Stop Burying the Lede, Jesse!!!

Ok – what’s this hyped-up fundamental?

You cannot “outgrow” or “out-compound” a poor spending habit.

I can point to countless stories of people in the top 10%, top 5%, top 1% of all earners in America…

And they’re basicially living paycheck to paycheck.

It doesn’t matter how much you earn.

If you spend it all, you’re listless.

Some Real Numbers

This bad habit occurs across the entire wealth spectrum, but the stories resonate most deeply at the upper levels.

For reference, here in upstate NY, a typical striking example might be two working adults, with children, earning $300K, $500K, $700K per year. Those salaries are in the 90th, 95th, 99th percentiles across the USA. 

Some of these families save 20%, 30%, or more per year – amazing! 

But some of them are living paycheck to paycheck. 

I know you might be thinking, “That’s crazy, that’s wrong, that’s exaggerated, that’s baloney, there’s no way it’s possible…like…how often do you have to eat out at restaurants to outspend a $700K salary?” 

Well, dining out isn’t the problem.

Depending on where you are on the wealth spectrum, it’s:

• Nannies, housekeepers, personal chefs, landscapers, personal assistants – outsourcing time-consuming tasks is common.
• Private schooling and tutoring, private coaching, music and dance lessons, exclusive summer camps, college planning and test prep. 
• Second homes at the lake, or the beach, or the mountains. 
• High-end airfare, five-star resorts, travel concierges.
• Nice cars, nice boats, jewlerly and art.
• Country clubs. 

These are families with half-million-dollar salaries living near other families with half-million-dollar salaries, and to them, this is just everyday life. 

All the families send the kids to private school. All the families belong to the country clubs. All the families have a cottage at the lake. It’s archetypal “keeping up with the Joneses.” 

But if that family can’t also afford to save 15, 20, 25% of their income, they are falling behind in the long-term.

The Math That Really Matters

When we think about retirement planning and things like the 4% rule, the money that you earn does not matter by itself. It only matters relative to the money you spend. 

Show me a family earning $200K but saving $100K per year (an enormous 50% gross savings rate), and I’ll show you one of the most financially stable families I’ve ever seen. 

Contrast that with a family earning $500K per year and maxing out a single 401(k) at $23,500 per year, or a 4.8% gross savings rate, and I’ll show you a family living a lovely life, but stressing their finances to the maximum. Perhaps they realize they’re stressing their finances, which worries them. Or maybe they’re blissfully unaware of how far behind they’re falling.

One thing I do know for sure, though… it’s very, very, very hard for these families to remind themselves and remind their children that they’re living a charmed life. “This is water.” It’s hard to see life for what it is when you’re so immersed in it. It’s hard to see the picture when you’re inside the frame. 

So many people don’t feel wealthy. They don’t feel like they’re in the top 10%, top 5%, top 1%. Their children don’t feel like they’re living one of the statistically best childhoods in the history of humanity.

It’s hedonic adaptation. We get used to things feeling good, and then it just becomes the new normal. That’s why we must, must, must derive our satisfaction and purpose from other sources in life. If our joy is tied to having a bigger house, a nicer car, playing on a more esteemed golf course, opening a nicer bottle of wine, subtly showing off a more expensive watch, sending the kids to a better summer camp, summering (“ugh…summer as verb?!”) in a more exclusive spot on a more remote lake…that’s a hollow existence. 

This isn’t just my opinion. It’s a fact.

And, getting back to financial planning, no amount of compounding can magically turn a piddly savings rate into enough money to retire. 

For example, let’s consider someone saving only 4% of their income, and then assume their investment can compound at an astronomical 12% per year indefinitely. This person needs 37 years of those unrealistic investment returns to healthily retire. It’s a crazy hypothetical, and it still takes 37 years to find success.

But now let’s look at someone saving a very healthy 25% of their income, assuming an overly conservative 7% annual rate of return. They could healthily retire after 26 years. This is someone who starts in their 20s and retires by 50. And this doesn’t assume any use of Social Security! 

But How Much “Lifestyle” Does That Cost?

It’s worth asking…

If the first family is spending 96% of their income, vs. the second family spending 75% of their income, surely the first family is living a better lifestyle along the way?

Yes, to some extent. But, at least to me, not nearly enough.

Let’s say both families are very high earners, grossing $500,000 per year. 

The first family saves $20,000 of that and they’re paying ~$120,000 in taxes, leaving behind $30,000 per month to spend. 

The second family saves $125,000, pays $95,000 in taxes, and therefore has about $23,000 per month to spend. 

Sure, there’s a significant difference between $30,000 per month and $23,000 per month.

However, I contend that these are both substantial numbers, and in most places in the United States, you can live an wonderful life at either of those amounts.

It’s just that one family is going to work until their mid-60s, at least, and the other family will retire at 50, if they want to. Two wonderful lives, but 15 years different in terms of financial independence and retirement.

What’s Your “Wonderful Life?”

I suppose a lot of this comes down to how much “wonderful” you want, and where you’re willing to sacrifice for your “wonderful.” 

Here’s what I mean…

My rural hometown buddies and I grew up playing golf on a cow pasture that any honest golfer would give a D+ rating to. After those years there, my bar for golf is pretty low. 

Coincidentally, Rochester, NY, is somewhat of a golf mecca, boasting a very high frequency of highly rated courses, especially considering the city’s relatively small population and generally unfavorable weather conditions. For whatever reason, we have a lot of golfers and a lot of really nice courses. 

I could join a C-level golf course, much nicer than the one in my hometown, but by no means world-class, and expect to pay around $2000 for the year. To me, that would be a wonderful and luxurious perk in life. 

I could join a B-level course, dropping ~$10,000 on the initiation fee and ~$500 on monthly dues. To me, that would be an exorbitantly nice perk in life.

Or, I could join Oak Hill (if they allow me in…strong TBD on that). It’s regularly rated one of the top 25 courses in America. It has a one-time, up-front initiation fee of $100,000+, and would easily cost me $2000+ per month forever onward (including all those Rochester months with snow on the ground and no golf.) I’ve been there, in the clubhouse and on the course, a few times, and this place is amazing. There’s no other way to put it. It’s world-class in every way….including the costs! 

Now, I want to go back to that idea of, “a lot of this comes down to how much wonderful you want, and where you’re willing to sacrifice your wonderful.” 

Golf is fun! But I’m not that big of a golfer. And I have pretty low bar for “nice golf.” For me, I can easily say, “I don’t need to pay the money that Oak Hill would cost…”

However, I’ll admit this….I have always loved spending time in the woods and on the water. 

Could I see myself, someday, spending an inordinate amount of money on a house located in the woods, in the mountains, by the water….preferably all three?! In the Finger Lakes? Or in the Adirondacks?

Yes I could.

It’s a long-term goal. A dream. It’ll take us a long time to get there, and a lot of good decisions along the way. And I think…I think…I’d really enjoy it. 

There would also be a lot of possible “off ramps” along the way, in case my family and I decide a lake/woods/mountain house is no longer as big a prioirtiy as we’d once thought it was.

My point is….that’s a decision we’re making in pursuit of our “wonderful life.”

And you certainly have your decisions and priorities in your life, in your financial plan.

And whether you’re just starting out, or you’re earning $1 million per year, or you’re about to pull the retirement trigger…you must ask yourself:

• What’s your version of “wonderful?”
• How much are you willing to pay it?
• And what are you content sacrificing along the way to achieve it?

Lessons Learned

The lessons I learn from the “cautionary tales” from readers, listeners, and clients is that some people truly struggle with those three questions.

• They aren’t quite sure what their wonderful life looks like. Or perhaps the spouses aren’t on the same page. Or perhaps the kids want a little too much wonderful, as maturing kids are wont to do.
• They don’t realize what their wonderful costs.
• And they certainly haven’t considered what they’re willing to sacrifice to increase the chances they live that wonderful life.

And by “sacrifice,” it’s (usually) not that big of a deal. It’s decisions like:

• We’ll send the kids to the local public school.
• We won’t have a second home. Maybe we’ll just rent a lake house once a summer for family vacation.
• We’ll fly coach.
• We’ll drive a Hyundai.

In other words, one person’s “sacrifice” is often simply “the way that most of us happily live our lives.”

In Closing…

Some of you read this and thought, “Oh my gosh…that’s us!”

Others thought, “What in the world is Jesse talking about? This is alien behavior.”

All I can say is: it’s real. People all over the wealth spectrum can spend too much in pursuit of the wrong things, and all of us can learn something useful from their cautionary tales.

Thank you for reading! Here are three quick notes for you:

First – If you enjoyed this article, join 1000’s of subscribers who read Jesse’s free weekly email, where he send you links to the smartest financial content I find online every week. 100% free, unsubscribe anytime.

Second – Jesse’s podcast “Personal Finance for Long-Term Investors” has grown ~10x over the past couple years, now helping ~10,000 people per month. Tune in and check it out.

Last – Jesse works full-time for a fiduciary wealth management firm in Upstate NY. Jesse and his colleagues help families solve the expensive problems he writes and podcasts about. Schedule a free call with Jesse to see if you’re a good fit for his practice.

We’ll talk to you soon!

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