Tag: six figures

working for a salary - a bad deal?

Office Politics: A Rise to the Top

Chances are you’ll never be rich as an employee. If you work for an employer, chances are that you get paid a fixed amount and it is increased every year. Chances are also good that you are being paid in money, which is subject to inflation. The result is probably that your real wages are probably stagnant. In fact, in the most recent “boom” (2000-2007) the median wage in America actually declined (and before that it had been stagnant for 20 years). The real estate boom was a false one, not based on increased wealth or productivity, but on leverage; everyone borrowed money to make money. But unless you worked on Wall Street in a revenue-producing position (investment banker, etc.) it’s doubtful you saw an increase in your real wages.

I calculated my own raises year over year during the time I was still receiving a salary. My best year was a 62% raise, and my worst was a three-year tie at 4%. The 62% raise was an exception to the rule. I left a stable job in a small Southern city, Memphis, and moved to the gargantuan metropolis of Moscow and received, in effect, hazard pay. The actual raise in real terms was even more, because I didn’t have to pay US taxes on it. It was early in my career and my wages increased thanks more to changes in location than anything. I entered a field as it boomed. I moved to Russia as it boomed. I moved to New York it boomed. Then I switched to consulting

Over the last 5 years I worked as a salaried employee, my average annual raise was 5% - so my salary rose 27% during those five years. For those 5 years, the inflation rate was approximately 18% (inflationdata.com). Therefore, my real purchasing power increased approximately 9% over 5 years. This is not tremendous growth, despite the fact that I already had a six-figure salary – so the numbers looked good even if in reality they weren’t that impressive.

If you had an investment that had returned no more than 9% over five years you would probably dump it. Isn’t your career an investment of sorts? I am a consultant and I (usually) work for an hourly rate determined in a contract signed with the client at the beginning of a project. My rate fluctuates due to several factors: demand, the overall economy and even my own interests (for example, I hurt my rate by tending to refuse jobs with business travel involved). But I have a lot more control over that rate than I ever did over my salary.

I was a senior manager when I snuck out of the workforce and into consulting, so if I went back, I would probably go back in as a senior-level manager or a very junior executive. I know from talking to various that I make significantly more as a consultant than salaried people at a similar stage in their career. Granted, I have higher expenses (health care, insurance, etc.) but on a net basis I still come out ahead, and considering salaried people don’t get paid for overtime I get paid a lot more if you compared hourly salaries. The difference is when you hit the executive level, where there has been no wage stagnation in the last couple of decades. Between 1989 and 2007 (latest data I could find) executive salaries rose almost 107% while overall wages remained flat.

So while you might eventually hit the big time executive salaries, chances are good that you won’t, and your raises will likely not top 4%. Realistically, given the economy, raises in general seem unlikely – I’ve seen a lot of data indicating that pay cuts are becoming common. Another consideration is time: to make it as a junior executive requires pulling long hours trying to prove your worth to the organization and putting in face time. But if you work in a salaried job and love it and feel you have what it takes to make it to the executive level – go for it.

But if you are expecting to become rich as a salaried non-executive employee, sit down and calculate your raises over the last five years. Then honestly assess your chances of becoming an executive at what you do, because that’s the only way to become wealthy as a salaried person. I think you’ll find that while being employed can maintain your standard of living, it’s unlikely to make you wildly rich. That may be your comfort zone – not everyone wants to go into business for themselves. You may like your job, and if so, good for you. But unless you’re planning to put in the effort and hours and politicking to become an executive, chances are good your wages won’t ever make you wealthy.

AttributionPhoto credit: Some rights reserved by Alex E. Proimos

networking is not about quid-pro-quo

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Quid-pro-quo means “something for something” and in a capitalist society we’re trained to think about this rule governing almost all transactions, both commerce and personal. Just as we expect to hand over $1 for a pack of gum, the guy selling the gum expects to receive that $1. Most people say “I love you” with the expectation that it will be returned with “I love you, too.” Very few transactions escape the quid-pro-quo “law”: maybe doing things for your children, or working overtime for your employer (but even there, you might argue you’re hoping to keep your job in exchange for unpaid work).

But networking isn’t (exactly) like that. You can’t expect someone to return something of equal or greater value every time you help someone through networking. If someone puts you in touch with a new client that generates six figures of income for you, do you owe that person a six-figure client? Do you owe them anything? No, you don’t, but you do owe someone something. At the risk of sounding like I’m using a movie to establish my point, you have to pay it forward.

If all networks operated on a quid-pro-quo basis, many people would find large networks a full-time job. The advantages to helping out newer members of an industry or smaller businesses would be minimal, because you couldn’t count on them to return your help quickly or easily. That’s not how a network should work, though. You’ll often read in career advice books/blogs/columns that you should give help in a network (or on Twitter or whatever the social media darling of the day is) without expecting an automatic equal return of the favor. That’s true to a point: you should give help without expecting a return of the favor from that person, but you do have every right to expect a return of the favor from the network as a whole. It may not be immediate - and it certainly may not be obvious - but that return over time has to occur to make the network worthwhile.

Look at how you help people in your network, be it social, professional, educational - whatever. If you aren’t receiving at least equal value back out of your network compared to what you put in, your network is broken. There will always be those who take more than they give, but on whole the network has to provide more value to you than you put into it. If it doesn’t, get out.

Of course value can be companionship or fun, not something as quantifiable as clients or services. But value has to be there. If you find yourself putting more of yourself into any of your networks - and I’m including ‘social media’ such as Facebook or Twitter as well as traditional networks like professional associations, churches or friends - then maybe you should consider finding a new way to spend your time and effort. If it doesn’t make you money, then it should be fun. If it doesn’t make you money and it’s not fun, why are you doing it? There are many other activities you could be doing that make you money or let you have fun instead. Go do them.

photo by ** Maurice **

a farmers’ market is just an outdoor mall sometimes, and links

I wrote this post Saturday noonish, after returning from a morning out at the farmers’ market. I’ve noticed that far too often the term “farmers’ market” is thrown around when the event is actually more of an arts-and-crafts fair. This one today certainly was. I only saw two booths actually selling produce. Most of the vendors were selling seashell earrings, craft breads, birdhouses made out of salvaged wood, and so on. It’s a lot of fun, and it’s enjoyable for the kids (lots of music, balloons and this weekend, Easter Eggs). But going to one of these so-called “farmers’ markets” is no more than a trip to a mall. It’s outdoors, and it’s more pleasant, handcrafted stuff than the plastic-and-polyester junk at a mall, but it’s still people trying to get you to drop money on junk you don’t need.

Links of the week:

Defense Beats Offense: I agree, for the most part, but to use a football analogy all the defense in the world isn’t going to help you when you’re losing. If you’re deeply in debt - I’m talking six figures - you may need to play some offense and increase your earnings, or you’ll spend a long time waiting for coupon clipping to save you. I’m not saying you shouldn’t, but if you start a side business and establish a new wealth stream, you’re going to pay it off faster than you can by pennypinching alone.

Seth’s Blog: First and never: I don’t link to Seth much - he doesn’t need MY help - but this was insightful, I thought.

Use Less Soap and Detergent in the Washing Machine: Referencing an article in the NY Times, this caused some habit changes in my household, too.

Know your limitations when you do it yourself: Definitely. It took me as long to put crown molding in one room in our old house in Jersey as it took a skilled craftsman to do the rest of the house.

Postpone College In Order to Pay For It With Cash?: Maybe not postpone, but if you have to take out more than $40,000 or so in today’s dollars, you would be better off either (a) going somewhere less expensive or (b) postponing college and working instead. Incurring more debt than your expected first year’s salary is, frankly, stupid.

6 Things You Need to Know Before Buying Your Next Car: I hate buying cars, to be honest - I dread the whole process. Part of my problem is that I seldom manage to pay attention to tips…

Four Hour Work Week by Tim Ferriss Reviewed: I’ve reviewed the Four-Hour Work Week too (see “the four(ty) hour workweek | brip blap“), and it’s a book worth reading. Whether you agree with it, or aspire to that lifestyle, is up to you. I aspire to it but I don’t work enough to achieve it.

Breaking Up is Hard to Do: Transitioning Well from One Job to Another | Million Dollar Journey

How to Make Extra Money with Your Brain: Your brain is, of course, the main instrument of wealth-building unless you’re a pro athlete, and even then I’d argue that the difference between a run-of-the-mill pro athlete and a star athlete is probably linked more to the brain than to pure physical prowess.

Should You Do a Roth Conversion?: I’ve been debating this, but my conspiracy theory brain always kicks in: I do not believe that in the 2040s, when I’d be withdrawing from a Roth, that they will still be tax-free. I think our brilliant leaders will find a way to penalize “rich people” who have bothered to save money in their “fancy tax shelters” and we’ll see means-based withdrawal taxes. You just wait and see. It’s coming, sooner or later, for ALL retirement savings. The middle class “rich” who relied on the honesty of the government (seldom see those four words in a row, do you?) will see that all of these promised benefits will be jettisoned to take care of a war with Canada or Myanmar or whoever’s playing Eastasia that year (we have always been at war with Eurasia, Winston). End rant.

Thoughts on Tipping Etiquette: Why Should I Tip?: Because it’s expected. Why should you hold open the door for able-bodied women, or speak quietly on your cell phone on the bus? Just cause.

Is Your Budget Making You Bitter?: I don’t budget, although I probably should, but I live a frugal enough lifestyle combined with making a fair amount of income. I try never to let myself regret things like a nice evening out. If you have the ability to enjoy a pleasant evening out, enjoy it at least once in a while. It’s like dieting - once or twice a year you can have a piece of chocolate cake. It’s not like having a heroin addiction where you need to swear off cake (or eating out) forever.

Highest Paying College Degrees: I’m always surprised that engineering hangs in there at the top in various forms. Having spent the last six years on Wall Street and seeing the wild salaries there, I’d assume finance would be at the top, but I guess for every Gordon Gecko there are 2,000 Johnny Banktellers who make $30,000 a year. I’ll tell you one thing: I wouldn’t bet against an accounting degree for a money maker, though.

photo by NatalieMaynor

Assessing What is Important in Your Life

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By Curmudgeon

You may have read on Steve’s blog a few weeks ago that I spent time in the hospital for a potentially life-threatening condition. It was my first time overnight stay in a hospital since I had my tonsils removed, almost forty years ago.

It was a seminal moment in my life; I had never had a health scare before, and as such things go, this one was fairly serious. Among the contributing factors where the stresses of my day job, which at extreme levels can produce damaging enzymes that wreak havoc with internal organs. My typical work week over the last two years lasted eighty hours, including weekends. I did too much, drank too much, and kept my stresses inside, until my body cried enough.

Steve has a wonderful post that first attracted me to his site – 8 Steps to a Six-Figure Career. Through my day jobs, freelancing, and independent consulting, I’ve made six figures since 1992. Last month, I suddenly came to the realization that a six-figure income was a poor goal to strive for if it were killing me to achieve it.

So I quit the day job, which was the source of 80 percent of my income. I am now entirely dependent upon independent project work for my income. I don’t know how I want to spend the next ten or fifteen years of my working life, but I do know that it’s not going to be as an office slave, working for The Man. My plan is to spend at least through the middle of next year working on discrete projects no more than forty hours a week, until I figure out what I want my future to look like.

In one way, it is easier for me than most people. I never got into the race to have the most toys (well, I did own a classic Corvette, years ago), and year after year saved around a third of my gross income. Money is not a problem, although I would prefer keeping the portfolio largely intact until later in life.

However, in other ways it is more difficult. Unlike Steve, I don’t have a discrete and definable set of skills in a single recognized field. Over the last 20 years, I’ve had a number of different jobs in several very different career fields. No recruiter would touch me for contract or permanent work.

Also, I am not a sales person. My social skills are probably below average, and while I have to spend a lot of my time interacting with others, it takes a bit of energy and focus on my part. Yet I have to market my difficult-to-define services, write proposals (I’d always undervalued my independent work when I didn’t have to make a living off it), and close deals.

Well, a month later, it seems to be working out just fine. It turns out that I know more people than I thought, and others are reaching out to me with offers of projects. I have several thousand dollars worth of short term projects over the next month, and later in January begin a medium term contract that by itself should make up for most of my forsaken income, while working far fewer hours.

Even though it puts me on the road for another possible six-figure income in 2010, it’s not a goal, or even a desire. In planning the tradeoffs of your life, don’t trade off your health for money. It’s a bad deal.

photo by Untitled blue

expanding your means

“Most people would rather live within their means rather than expand their means.” – Robert Kiyosaki, Retire Young, Retire Rich

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Most of us would rather be rich than poor. Rich may not mean monetarily rich – it may mean experiences, family, friends – but generally wealth enables the accomplishment of many other goals. How can you do it? You can save. You can invest wisely. You can reduce debt or decrease expenditures. The hardest way to get rich, but the only way that really works, is to expand your means. You have to earn more than you spend, consistently and constantly. You have to expand your means.

I get frustrated reading about achieving wealth by cutting out lattes. Sure, you can be better off if you don’t waste money on Wii’s and lattes. You’ll achieve your goals sooner if you invest in index funds instead of speculating on stocks. You’ll be richer, sooner, if you choose a good career that allows for upward mobility. You’ll win out – in today’s America – if you choose a public-sector job that guarantees benefits. Sad, but true.

But one thing that most people will never try is to increase their “means” past their primary income. It’s hard. I struggle to do it. If I asked you to generate, tomorrow, an extra $10 cash in hand, could you do it? Even if you make six figures a year, could you figure out a way to generate $10 above your normal daily haul? It would be difficult for most of us. Most of us would rather watch Lost than attempt it.

Expanding your means will make you wealthier than saving money. If you save $5, you’ve saved it once and you’re done. If you come up with a new business model that makes you an extra $5 today, and might – might! – make you an extra $5 tomorrow you’ve created a new income stream. Making a tiny bit more will change your life far more than saving a bit.

Kiyosaki’s phrase is telling. Most people would rather live within their means… and they’ll pay for it in the long run. Don’t kid yourself: it’s tough to live within your means. With the onslaught of advertising and “keeping up with the Joneses” it’s hard to resist the Wii’s and the Kindles and the latest fashions and the gourmet foods. If you can, kudos to you. I think I have so far, but it’s a constant struggle. But it’s akin to health: if you can avoid heroin, you’re in better shape than a junkie. It doesn’t mean you’ll live to 100. To do that you have to excel – you have to beat the norms, the average and the mean. Don’t think that skipping the morning latte is enough. You have to make that extra effort to create more wealth. Sitting back and “not buying” is not enough. You have to go out, and make more. You to create wealth, not just avoid spending.

photo by matze_ott

You Call This a Career?

By Curmudgeon

shadowtree

This coming fall I celebrate (if that is the right word) 30 years as an adult professional (for an idea of what that means, watch this). In that time I have held eleven jobs, and have been unemployed a total of seven weeks (one of which was intentional). Of those eleven jobs, I’ve failed at two of them, was no better than mediocre at two, and was good to damned good at seven. For the last eighteen of those years, I’ve had my own LLC and side business that has brought in anywhere from a few thousand a year to the high five figures.

Is this a typical career today? I have no idea. But I would like to do several postings for Steve over the coming weeks of some things I’ve learned in the process.

Today I’d like to focus on failure. When I say that I’ve failed at two jobs, I mean that I’ve gotten criticized, demoted, fired, and in one extreme case, sued.

What did I learn from these failures? First, I learned that I can’t predict them. If I am going to change jobs and go into a new company, even if it’s in a similar role to what I’ve done before, I will always run the risk of failure. Hopefully it is a small risk, but there are many unknowns.

Is it me or what? That is the seminal question. Well, certainly it was in some part my doing. I lacked engagement at the two jobs at which I failed.

Could I have been engaged? That had to be my failure, right? If I’m getting paid six figures (in one of the cases), my employer has the right to expect immediate engagement and productivity. Well, I think in both cases there was an institutional aspect that contributed to my failures.

Fundamentally, in both I lacked an awareness of the culture of the organization. For different reasons, both were cultures with which I couldn’t adapt to. In the first, it was a culture of surprise and attack. In the second, it was a culture of blame. I lacked the skills to respond effectively.

I can’t criticize either, and perhaps I am being harsh in my assessment, but it is certainly true that they were organizational cultures that I lacked the ability to adapt and respond to. Should you wish to avert such a failure, you need to be perceptive to the culture of your company, and whether your own personality is compatible with the way that your employer works. If not, flee while you can.

I do know that failure can be averted, but you need inside help. In my current job (at which I am damned good), my boss asked me to support the firing of a colleague. I refused, and instead delivered a strong defense of her work. Although I didn’t know it at the time, that defense not only saved her job, but also changed the way our senior management perceived her efforts and results.

The moral of that story is to know the people that you work with, their strengths and weaknesses, and more important, what they contribute to your goals. And know what is in their hearts, if you can. If they can make a difference, go to bat for them. And maybe hope that in the future someone does so for you.

But in the course of 30 years, make no mistake – you will fail. It’s not a badge of honor, but nor is it a scarlet letter. If you are reaching, and trying new opportunities, failure is a certainty. You need to let some time pass, and soberly assess and learn from the lessons. But more immediately, you need to move on.

Photo by kevindooley

guest post: age is a state of mind

Today’s post is another contribution from brip blap’s most frequent guest writer, Curmudgeon. I like the list he incorporates in this article, and I’m doing alright on 3 of the 4…:

Young & Old, Let's Get it On!
I am fifty years old. More or less (and it is not less). I’m gainfully employed at a full-time job (the last time I changed jobs was just under a year ago), in what might be considered a middle management position, with a salary hovering around six figures. I also have my own business that brings in perhaps half again that amount of income. I live in a moderate-cost area of the United States, and this income is much more than sufficient to take care of my needs and wants. I work largely at home, but have to be somewhat visible to both my employer and my clients, so I get into a car once or twice a week, and an airplane perhaps once a month. More often, I get on webcasts.

Most of the industries I’ve worked in have been volatile. The one I am currently in is most definitely in decline; employment in the industry as a whole has probably shrunk by about a third over the last decade or so. I have certain skills that make me more valuable in this industry, but they also require that industry to pay me more than the average bear. My current employer laid off over ten percent of the company at the end of last year, but my job is secure for at least the foreseeable future.

In a recent post, Steve wonders if his resume is being rejected for new employment because he has, well, too much experience. That has prompted me to answer his muse in some fashion. Have I at all suffered from age discrimination? I have no idea. My standard resume lists jobs going back to circa 1980 or so; the hair that I have left is approximately fifty percent gray, with no artificial coloring. I am certainly a candidate for such a response.

Interestingly enough, though, most people guess my age at almost a decade less than my true chronological age. Perhaps some of that is due to genes (I can guarantee that none of it is due to Botox), but I would like to posit that most of it is due to a high energy level, willingness to question my own beliefs and experiences, and perhaps most important, willingness to learn radically new things. I Twitter (though not under the Curmudgeon sobriquet), have several hundred LinkedIn partners, and IM with dozens of people that I have never met over the course of a week.

My boss is fifteen years younger than me. Does that make me inferior to him? Of course not; it merely means that we have different career paths. I respect him for his position, and he has come to depend on me for my knowledge and experience.

What is the lesson for those of you here who are aging, gracefully or not? Try these:

  1. Keep an open mind. If you don’t honestly consider new ideas and incorporate the good ones into your point of view, you are old whether you are 20 or 70.
  2. Learn something new every day. Don’t skip a day, no matter how miserable you feel.
  3. Exercise regularly and vigorously. It’s not that hard if you set up a routine, and the more vigor that you show in your exercise, the more you show in your job.
  4. Treat everyone as an equal, and with respect. The executives will think you’re one of them, and the twenty-somethings will die for you because no one has ever listened to them before.

You can’t stop the forces of Time. But you can behave in a way that does you credit, no matter what your age. Give it a try.

photo credit: AlphaTangoBravo / Adam Baker

i saw what you spent last summer


Rich people talk about ideas. Poor people talk about other people. I doubt it would come as a surprise to anyone that successful people - and by successful I mean happy, or rich, or respected - concentrate on ideas and the future. Unsuccessful people - poor, unhappy, dissed - concentrate on what others have or don’t have.

I fall far more often than I’d care to admit into the “poor people talk about people” category, but I’m going to do it now. It’s easy, now that times are bad. Wondering how this family manages or that family doesn’t is an easy pastime, and it serves a purpose - in examining others’ failures and successes I’d like to get an idea of how I can achieve those successes and avoid those failures. People who looked like they were living the high life are reduced to desperation - after a layoff they seize the first available job with a massive paycut. Others who seemed to be struggling are calm, patiently waiting for the right opportunity.

During The Crisis (we can all-caps it now, right?) the distinction between the narrowly rich and the stable middle class is on display in stark black-and-white - with few shades of gray. I know much better today which of my neighbors are TRULY rich and which of them were just spending themselves into appearing rich. The lifting of the curtain surprised me. An old saying says that you can’t judge a book by its cover, and you can’t. I’m sure that many of our neighbors thought we were struggling before The Crisis. My old Pontiac sat in the driveway in the midst of Mercedes and SUVs. We have a punky little 21″ TV we bought with American Express Membership Rewards points.

But now I am nervous, but confident that everything will turn out alright, while neighbors seem to be panicking. I don’t think I’m gloating, although I’m human and probably am, a bit. I am no poster boy for frugality, for sure, but I make (well, made) six figures, didn’t buy things I didn’t need, and did my best to manage my money. I don’t have the latest phone. I took public transportation instead of driving and paying tolls and parking. I didn’t go into debt for anything other than my home.

I still lost work due to The Crisis, just like all of my neighbors. We will all suffer as the money dwindles - some sooner, some later, but we’ll all have things we’d like to buy that we can’t. It sucks, because we were all middle managers in the Wall Street world - finance managers, audit managers, salesmen, IT guys. None of us deserved to be beaten down because of the idiocy of our executives, but so be it - we lived and died by the sword. And in tough times, your financial weaknesses - which could be kept hidden in good times - are laid bare for the world to see.

photo credit: kimberlyfaye

associating with the ‘appear-to-be-rich’ folks

Should you make a cold-hearted effort to hang out only with rich people? In several of my favorite inspirational/self-help sources (Rich Dad, Poor Dad; Think and Grow Rich; The Secret - and before you get all snooty they are inspirational, not technical advice on money management) the idea is promoted again and again that you need to associate with people who encourage you in your pursuit of wealth. You should associate with people who have similar mindsets toward action and living below their means and focusing on wealthbuilding. Recently I’ve taken stock of some of our neighbors and friends and found them wanting in their behavior, but not in their example. Huh?

If you want to be around people who inspire you to wealth, who is better? Someone who is just starting out in life, with few assets - a horrible apartment, moldy furniture, a bank account in the teens - but a great attitude towards wealth? Or someone who has a wonderful, pleasant home, a nice car, a happy family - and a mountain of debt and a devil-may-care attitude about the future? It seems like an easy question for a second, but then I start to wonder: maybe it’s a good idea to hang around some people who outwardly have the life you want, even if you know they’ve built their castle from sand.

I have known people who had an amazing discipline about wealth-building. A married couple I knew always drank water when out and drank alcohol at home; they studied investing and researched the cost of living in different places, and even studied for second careers at night to advance themselves. But they lived in a dump. They ate the cheapest crud they could find. And this lifestyle became a habit, and as they grew wealthier (and they did, but not remarkably so) they did not alter their habit. Selfishly speaking, they did nothing to encourage ME in wealthbuilding. Their ideas of wealthbuilding were spartan and seemed without purpose - other than to accumulate wealth.

On the other hand, another couple I know live like millionaires. They are not, I know for a fact. They are deeply in debt and may even lose their home. Yet at the same time they have an enviable home (now). They are living a grand lifestyle (European vacations, nice cars, etc.). I find that being around them makes me want what they have. I know I could have it tomorrow if I went into debt, of course, and I don’t plan on doing it. I’m going to get my bling the old-fashioned way, by earning it. But at the same time, their “how can we make more” attitude is interesting, their lifestyle is inspiring and their contribution to MY wealthbuilding seems somehow greater than Couple #1. I’m not a grubbing materialist, either - by ‘enviable home’ I also just mean the location, the character of the home, the closeness to schools, and so on… not just their plasma TV.

I think while it would be ideal to be surrounded by people like me (no debt and firmly focused on wealthbuilding, living in the twilight world of consulting between corporatist and entrepreneur, making six figures with a stay-at-home parent), that population is pretty small. I sometimes suspect that the New York area is comprised solely of multimillionaires (in debt), the middle class (in debt) and the working poor and immigrants who don’t use credit and consequently probably have no debt (but scrape hard for cash). That means I’m left with some unusual choices for my master mind group in relation to friends and acquaintances. It also means that I have to consider that sometimes I may be better off hanging around people who appear to be wealthy, simply so the appearance (and hopefully not the core) rubs off on me.

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I watched The Secret again this weekend. It’s an entertaining movie. I know a lot of people criticize it for being a “lazy” or “greedy” way to approach wealthbuilding (“think about money and you will attract it”) but the more I watch it, the more I realize it’s right. If you sit around being negative and critical about anything - life, relationships, money, even your own health - you certainly won’t succeed at much. Negative thinking simply isn’t a productive activity. Just thinking more positively won’t guarantee much, either, but it does open you up to the possibility of success much more than a negative mindset does. Buy a copy or get it on Netflix or even watch the first 20 minutes on thesecret.tv. I think it’s worth it.

is college worth it? (part 2)

princeton college in second life

Note: Fecundity took a look at the spreadsheet I used to calculate these numbers and found one formula error and a couple of simplifying assumptions that she refined (she built a more realistic tax calculation, for example). None of the changes affected the conclusion, and in fact it tilted things a bit further in Paul’s favor, so I decided to edit the original article to reflect her changes. Thanks Fecundity!

As I discussed earlier, I’ve been wondering about the difference in wealth between college graduates and skilled non-college graduates. I decided to do a comparison of the two career paths, and see what those big choices meant for someone later down the road. Specifically I wondered if I could answer a few questions:

  1. Can the late start in saving by the college graduate be overcome through higher salaries?
  2. Does the lower earning potential of a non-college graduate mean that the non-college graduate will be required to “work until they die”?
  3. Who will be able to quit the rat race first?

Fred attended college for four years, taking out student loans. Paul got a job at 18, straight out of high school. I wanted to see whether college was worth it, and whether attending college helped or hurt Fred’s chances of getting out of the “rat race,” and whether Paul was facing an unbelievable uphill climb to achieve the same goal.

I made a lot of assumptions. Both men work until age 65. Tax brackets as of 2006 are used (15% to 33%). Both invest in accounts returning 8% per year. Fred starts college at age 18, taking out $40K in loans ($10,000 per year). When he finishes college, he pays back 5% per year ($2000) . He puts aside 10% of his after-tax income for debt and investing. He pays the debt first. He invests the balance of the money. His salary starts at $27,000 and increases 4.5% per year over his life (average annual wage is $80,947).

Paul starts working at age 18. He invests 10% of his after tax income, and has no debt. His starting salary is $8.95 an hour and over his lifetime his average annual wage is $44,895 based on yearly increases of 3.5%.

Here’s what happens. Fred contributes less than 3% of his after-tax income to his investments until he’s 32 years old. He doesn’t invest more than Paul does until they are both 42 years old! His tax bracket jumps to 25% when he’s 26, and by the time he’s 25 he only has $2,000 saved, or approximately 6% of his annual pre-tax salary.

Paul, on the other hand, starts earning and investing when he’s 18. He doesn’t reach the 25% tax bracket until he’s 35 years old. However, at age 35 he has almost $75,000 saved, 231% of his annual earnings before tax.

Fred starts to catch up once his loans are paid off. His investing, starting when they are both 42, is now approaching 1.6 times more per year than Paul. However, by age 50 Paul has $328,000 saved; Fred still only has $164,000. However, since Paul had 4 times as much saved as Fred at age 35, this ratio of almost 2 to 1 is a huge improvement.

As we approach retirement age, Fred is living a pretty good life. His salary is in the mid-six figures at age 60 ($143,000). Paul is making half as much ($76,000). Fred is moving into the top tax bracket, and socking away more than $10,000 per year in savings. Paul is still saving about $500 per month and is just preparing to move into the 28% bracket.

At 65, Fred is making $180,000 per year. He has over $777,000 in savings (4.3 times his salary). His savings in retirement will generate $31,000 per year at 4%, the rule of thumb used for retirement withdrawals for a sustainable amount assuming a normal US life expectancy (78). This means that he will have to live off 24% of his last after-tax salary, plus whatever government benefits or pensions or capital gains from selling his house that he can obtain.

Paul, on the other hand, has more than a million saved ($1,189,000). He NEVER saved more than $600 per month in his whole life. His final salary was $90,000. He will have $47,600 per year (using the 4% rule) to live on; still only 67% of his after-tax salary, but much closer than Fred to a reasonable amount.

Amazingly, Paul only invested a total of $177,000 over his 48-year working life. Fred invested more: $231,000. Yet Paul’s final portfolio contained 7 times more cash than he invested; Fred’s was only 3.36 times as much as he invested.

Paul ends up with $412,000 more than Fred. Paul, at age 65, has a far better chance of surviving in comfort off his $1 million portfolio and a lifestyle presumably suitable for someone who makes less than $100,000 per year. Fred, on the other hand, will struggle to survive if he maintains a lifestyle built around a $180,000 per year salary with only $777,000 in the bank.

Now Fred, of course, may have bought a house in a metropolitan area when he was 40 and now can sell it for hundreds of thousands in profit; however, I’m willing to bet that unless he was highly disciplined he still has a mortgage, and the chances of making over $400,000 in profits on a home are small (not impossible - but small). Fred may also have had access to tax-advantaged plans and matching programs through company 401(k)s and so forth that Paul might not have had. Even if all of these scenarios play out perfectly for Fred, he barely catches Paul. Even if he DID have $1.3 million saved, it’s still only enough to guarantee 29% of his after-tax retirement income.

So what does this all mean? Should every 18-year old skip college and go straight into the workforce? The short answer: no. Assuming that you did start earning at 18, you would need to be a highly disciplined saver, and not everyone is. If Paul didn’t start saving until he was, say, 29, he has only $665,000 in savings at age 65. Those extra 10 years after high school - when he saved only $18,000 - made an almost half million dollar difference at the end of his working life. Ask yourself how many people at age 18 can save 10% of their salary. They exist, sure, but realistically very few people have that discipline.

What’s the solution, then? I think if you go to college, avoid student loan debt if you can. How? Don’t go to an expensive school if a less-expensive option is available. If Fred’s student loan for $40,000 disappears, he has $1.3 million when he retires. Still not enough, probably, but $650,000 more than he would have had. That debt makes a huge difference.

A second tip is start investing early. Very small amounts invested early in your life will grow significantly more than the same amount (or an even greater amount) invested later. If you managed to save a few hundred dollars in high school, that’s far more significant than thousands when you’re in your 40s. Think about that - a tiny bit of sacrifice early on will make you richer than a much larger sacrifice later in life, when you think you have “too many expenses.”

A third lesson: consumer debt will cripple your chances of accumulating substantial savings. I assumed both men were exceptionally disciplined and never incurred any debt other than student loans (in Fred’s case). If either one had spent that 10% per year on credit card debt instead of investing it, their future prospects for quitting work before death plummet to almost zero.

A final lesson: even small amounts make a huge difference. Think again about this statement: “He [Paul] NEVER saved more than $600 per month in his whole life.” Isn’t that amazing? Not one month in his life did he ever save more than the cost of an iPhone plus accessories, or much more than digital cable plus cell phone service. He didn’t save thousands per month, just $600. If that’s not enough, keep in mind that was the absolute maximum he ever saved in a month! On average, he only saved around $300 per month over his life!

Here were my original questions, and the answers I discovered:

  1. Can the late start in saving by the college graduate be overcome through higher salaries? Not really, unless the college graduate’s salary is significantly higher or the savings rate is substantially greater.
  2. Does the lower earning potential of a non-college graduate mean that the non-college graduate will be required to “work until they die”? Absolutely not - in fact, if the non-college graduate is a disciplined saver, the opposite is true.
  3. Who will be able to quit the rat race first? Based on my model, the non-college graduate - but the real indicator is who starts saving the highest percentage of their income earliest in their career.

Don’t take too much of this as gospel. This was an illustration only, and of course a million variables come into play about spending habits, debt, housing, career growth, investing choices and so on. The purpose of this exercise was to challenge my context, and hopefully yours too. Don’t always assume that just because the college presidents of America tell you that you need college that you do. I had a lot of good times in college, and I wouldn’t trade them for anything. But don’t kid yourself - colleges are businesses that want your tuition to fund their foundations and football teams and new buildings and conferences and so on. They want you to take out big loans, because they don’t care that you start your earning life saddled with debt as long as they get their tuition revenue.

The moral of the story is that you shouldn’t believe a thing just because everyone else says it’s true.

(photo by MarkWallace)

8 steps to a six figure career

I have a job making well over six figures. I am not bragging but I’m not going to be overly humble about it, either, because I put my blood and tears into getting there. I spent 6 years in college obtaining two degrees (and starting a PhD). I spent most of my twenties working like a maniac in the professional accounting sweatshop industry, also known as the Big 4.

I was horrifically underpaid on an hourly basis - I was working 80 hour weeks when I was making $35,000 per year. I roughly estimate my earnings at the time to have been about $12 per hour. That’s not shabby - it’s probably a working wage in many parts of America - but it’s not exactly what you’d hope for if you have an advanced degree in accounting.

There was a payoff, though. The payoff came in three parts. One: I laid the foundation in my first 10 years for my current position. I view it as retirement in small. I worked hard and was “frugal” with my wage to earn a better “retirement” post-Big 4. I only have the “senior expert consulting” tag now because of the effort I put out for the previous 14 years.

Two, I got to see the world on my companies’ tabs. I traveled from 1996 to 2004 to every single corner of the globe. Some employers flew me coach, some business - I stayed in fleabag hotels in third-world countries but I also stayed in opulent palatial hotels and even in country estates and former palaces. I had to work like a maniac (meeting at 9 am in Frankfurt! meeting at 3 pm in Paris! report due by 2 am European time that night!) but I also got to sip martinis at the nicest lounges on four continents without spending any of my own money.

Three, I learned what the real secrets are to success as a corporate cog. Again, no pride in saying this, just observing what floated and what sank as I slowly, slowly floated. So from that, here are my eight tips to set yourself on the road to a six figure career.

  1. Pick a good college major. Don’t major in English, or history, or poli sci. I’m sorry. It’s true. I love history. My dream major was either linguistics or Russian history, specifically early Soviet history (1917-1939). They still are my dream majors, for that matter. I got a major in mathematics, though. I wasn’t great at it, but I wasn’t bad, either. To this day, though, I get goggle-eyed looks from my finance colleagues when I say I don’t have an accounting degree - I have a degree in MATH! Just like that guy from A Beautiful Mind! I even studied exotica like chaos theory. No matter that I couldn’t explain any of it now - people are still impressed, which leads me to…
  2. Don’t get a job using your major. If you are accounting major #76 out of 100 in your new joiners class, you won’t stand out. If you are the only math major, you’ll stand out. Standing out early in your career is critical - if you don’t start to stand out until your 4th or 5th year, it’s too late (although keep point #8 in mind, too)!
  3. Get a graduate degree or certification. I got a master’s degree, but I just as easily could have gotten a CPA (Certified Public Accountant) or CFA or CFP or CMA, etc. etc. Again, you need something to distinguish yourself from the Bachelor’s crowd - I think my master’s has opened a lot of doors that would otherwise have remained closed. I can’t emphasize this point enough. I know there are people out there who became officers with only a high school education, or a mail-order college degree. You may even find that with the rise in online colleges, more and more people will get degrees online while they work. There are plenty of options for an online business degree as well. But at the end of the day, if you want to get into a six-figure career, it’s going to be significantly easier if you have a master’s or an MBA or a law degree or a certification of some sort.
  4. Take a ‘weird’ job. Early in my career (after about 2 years working) I volunteered to go work in Germany - but there were no openings in my company. I then proceeded to volunteer for a number of other assignments - odd ones around the US, in Europe, strange assignments like doing inspections of grain silos (yes, some clients are willing to pay accountants to verify how full silos are). All of my activity got me noticed, and I found myself winging off to Moscow with less than 3 full years’ work experience under my belt. To this day, it’s the first thing that anyone wants to talk about when they see my resume. Always. People are always full of questions, and I can throw out anecdotes that give me the appearance of being a confident self-starter because of my fearless decision. That one experience probably increased my lifetime earnings significantly, despite being (from my point of view) almost meaningless work-wise.
  5. Move to a big city early in your career. The simple fact is that in the 4 years I moved from a small town in the south to Connecticut to New York my salary increased by 200%. It was simply a cost of living adjustment, but that impressive salary growth creates an expectation in your employers. Big cities have more competition, higher costs of living and “fancier” jobs at corporate headquarters. These jobs may not be better but they usually do pay better.
  6. Shift jobs frequently - but not too frequently. The simple fact is that you’ll hit dead ends all the time. Sometimes they will be external (stuck working for a boss who won’t let you transfer to other departments for new opportunities) and sometimes they will be internal (you just can’t summon any enthusiasm for your current work). Use these as red flags to jump ship! You can get a reenergizing boost to your career, usually for at least a small increase in salary, by taking your expertise to another company that needs it. This also relates to #5 - it’s a lot easier to job hop in New York (hundreds of multinational corporations) than it is in Kansas City (a few). I’m not saying it’s impossible in Kansas City, but the circle of people in your profession will be smaller and eventually you’ll run out of options if you aren’t careful.
  7. Learn to sell yourself. This is an incredibly difficult thing for some people, and it’s hard to understand why. I’ll give you a quick way to get over it. Imagine something you really like: your favorite band, your favorite movie, even the bar around the corner that makes the best martini. Imagine that you’re trying to convince someone who’s indifferent to try listening to that band, or watch that movie, or try that martini. How do you do it? Can you imagine that enthusiasm in your voice, the excitement that you feel? Now take that enthusiasm and sell your favorite person: yourself! Make sure that you aren’t embarrassed to point out your strengths, or even to tell people how you are fixing your weaknesses.
  8. Learn to fly below the radar but do a good job. This advice flies in the face of a lot of career advice. I can state that at the middle management level, going down to staff, one thing and one thing only is valued - serving your master. Your master is your boss. Make your boss look good. If you make yourself look good, by extension you make your boss look bad, because you are stealing his thunder. Learn to perform solidly but quietly. Don’t dash into the CEO’s office with your hot product development idea. This may be the way to earn the CEO’s momentary interest but it will gain you a career-long dislike from your boss. If you want to have cheerleaders in your corner, stay on the sidelines. Have enthusiasm, cheer as loudly as possible, but don’t run out on the field and snatch the ball from the quarterback, your boss.

Think you can’t do it? You can! I have seen incredibly smart, personable, motivated people fail and dull, bitter people succeed. The biggest factor past the 8 steps above has always been a fervent, desperate desire to cling to the corporate bosom and keep getting that paycheck. It is amazing how quickly good people can fail when they realize they would do better following the white rabbit, and how strongly bad people will fight and scratch their way up the ladder to maintain their debt-ridden, consumer-driven lifestyle. I scratched and clawed for years to stay on the corporate treadmill, but finally realized I needed to step off. People constantly ask me what happened as if I’ve failed, but their opinion is unimportant. I took the first step to FREEDOM when I realized a six-figure salary isn’t important if it costs you your life.