Not so long ago, $100,000 was the Holy Grail for wage earners; a coveted sign of arrival, success and wealth. When I was growing up I’d hear my parents say things like, “Well, they can certainly afford it – he makes six figures!”
Even today earning a $100,000 salary is something special and rewarding. In researching my new book, which is set for release next year, I found that the “happiest” group of retirees were those whose income had peaked at just over $100,000 per year in household income while they were still working. (The “least happy” group had a pre-retirement workings wages that averaged about $73,000 in household income.)
My findings jibe with other research that shows higher income is correlated with higher levels of happiness, but there is a point where happiness levels seem to level off even as a person’s income rises. So YES, money can buy you happiness…it’s just that the amount of happiness it buys you slows down significantly once household income reaches a certain point.
But $100,000 ain’t what it used to be. Inflation has taken a terrible toll on this status salary. It currently takes $279,000 to buy what $100,000 bought in 1980. Worse yet, prices for essentials like housing, medical care, gasoline and tuition have increased at many times the rate of inflation. And the taxes? Brutal. Count on losing 30 percent of your gross to federal, state and local taxes.
Bottom line: If you earn $100,000, after taxes you are bringing home about $5,800 per month. That can provide a cush lifestyle for a single, childless apartment dweller. But honestly, it’s not an over abundance of money for someone who is married with children in an urban area like Atlanta. A mortgage, a couple of car payments, an orthodontist bill and an annual vacation can really gut even a six-figure income.
You’d be surprised how many of those guys hacking away on the country club links are living paycheck to paycheck and/or grappling with significant personal debt. Here’s a great article from a colleague of mine, Ted Jenkins that discusses this very phenomena.
The truth is, no matter how much you make, if you spend above your means you are never going to feel financially free. (Check out my blog last week on how Don Draper has ruined retirement in America). A six-figure income doesn’t allow you – or require you – to spend with abandon on the outward symbols of status and wealth. Indeed, you need to live by the same rules as someone earning $29,500.
•Pay yourself first. This means setting aside money for savings and investment BEFORE you even see it. Payroll savings plans and auto-deposits are a good way to do this.
•Create a spending budget. Tracking your spending will be enlightening, to say the least.
•Set your goals. Determine what you are saving for and how much you need. Retirement? College? A retirement home in the mountains?
•Make a plan. Decide how much you need to save and how to maximize your return.
No matter how high your salary climbs, never forget: It’s not how much you make but how much you keep that ultimately determines your financial security.