I’m a pretty fortunate person who lives a pretty fortunate life, and our annual household income at $160,000 is high compared to the rest of the world. However, we are still pretty frugal — we cook at home, drive old Hondas and do home repairs ourselves where possible.
We put away about 20% of our income into retirement and college savings. We have more than $1 million in retirement funds. This was mostly on a cop’s salary, as I was a stay-at-home mother. My husband is now retired, and I went back to work.
“‘How are these other people affording this luxe life? And if we stay this frugal, will we wind up rich, but too old to spend the money?’”
I see people with less money and bigger expenses (student loans, giant mortgages, credit-card debt, etc.) living a much more lavish life than we do. Our kids say that our small — but cute! — house is embarrassing, and people here in the suburbs see us as poor.
Are we missing the boat? We wanted to save aggressively for retirement and our kids’ college costs. But should we be redecorating, going to Cancun and Disney World and getting takeout every night instead?
How are these other people affording this luxe life? And if we stay this frugal, will we wind up rich but too old to spend the money? I don’t begrudge anyone else enjoyment and high-end stuff. I just wonder if I’m doing this wrong.
Thank you sincerely for reading my letter. It helped just asking this out loud.
Wealth does not mean that you drive a Tesla Model X Plaid TSLA,
Have you missed out? I think you probably already know the answer to that question. You didn’t miss out on the memories of dinner at home with your family or taking holidays in your old, much-loved car, or by being able to rest your head on the pillow at night, safe in the knowledge that, despite not being part of the 1%, you managed to accrue $1 million in retirement savings and keep your living costs low. Your house is, no doubt, filled with memories. Good for you for not feeling the pressure to constantly upgrade to a bigger pile.
How are people affording their lifestyles? Some people, particularly those in the tech sector — which, unfortunately, has suffered widespread layoffs in recent months — have enough to play around with while maximizing their 401(k)s and putting aside 12 months of expenses for a rainy day. But they don’t represent the majority of Americans. In fact, the personal saving rate — meaning personal saving as a percentage of disposable income — fell to 2.4% in November from 8.9% in November 2019, before the coronavirus pandemic.
“‘You didn’t miss out on the memories of dinner at home with your family, or by being able to rest your head on the pillow at night, safe in the knowledge that you managed to save $1 million.’”
Sure, wealthier people are paying more taxes: Some economists say the personal saving rate could be falling as more investors pay capital gains taxes on stocks they sold in the last year. Still, “excess savings” — the amount households saved versus what they would have saved had it not been for COVID-19 and the resulting job losses — hit $1.7 trillion by mid-2022. And $1.35 trillion of that was held by the top and third income quartiles. To put that mid-2022 figure in context, in the second quarter of 2021, excess savings stood at $2.26 trillion.
But some say the recent loss of jobs in the tech sector does not bode well for those who are only living for today. Tom Siebel, a billionaire serial entrepreneur whose latest title is CEO of C3.ai AI,
Ignore your friends and neighbors who are living it up at Disney World. The Disney vacation site Mousehacking said its baseline Disney World DIS,
Call me old-fashioned, but I’d rather book an Airbnb ABNB,
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