Thursday, January 1, 2009

Life After Making Six-Figures

Before people get worried, no, I  do not have to figure out this scenario.  I usually browse the top headlines available to the right just to see what's going on in the world.  Often times something catches my eyes and I like to comment on it.  Today, there was an article about people who have had to learn to live after they have lost their six-figure jobs.  I am certain that all over the country, people are starting to learn to live with this reality.  A six figure job is a sort of status symbol.  It is for many, the pinnacle of achievement.  For most Americans, the belief is that your life will become much better and much easier if you can grab this brass ring.  People feel they have "made it" if they can do this, and they start living a much better lifestyle.

However, this is probably just a mirage for most people.  I can tell you from experience that your life does not just become magically better because you start making more money.  Many many people in the coming years are going to find themselves in this predicament because the jobs that are disappearing are not coming back.  There was definitely a bubble out there, and it will take years for us to recover.  Having been unemployed for months, many of these people have had to accept jobs that pay significantly less, often times as much as 70% less.  That requires a drastic change in lifestyle, or does it ...

The article got me thinking what I would have to do if I all of a sudden lost my job and had to take a much lower paying job.  In these tough times, it is not out of the realm of possibility.  So how would my life change if I had to accept say a 50% pay cut?

Well not much.  This is because I control two sides of my financial equation.  I control both the income side and more importantly, I control the cost side.   If you count the income of my fiance now, I have about quadrupled my income in the last 8 years of my life.  Have I quadrupled the cost side?  Not even close.  I might have increased my total cost by about double, but that's about it.  And that's a double from the meager livings of a recent college grad.  I could in fact live the exact same lifestyle I do today, cutting no cost, and probably live that way almost indefinitely.  I could take my own income to zero (leaving the fiance's there), and live off my savings for at least five years.  That's without scaling back.

However, I could just as easily scale back.  The biggest cost is easily the apartment.  I am now on a month to month lease, so if I reduced that cost by about 40%, which I could easily do, and got rid of one of the cars, which would be no problem since we only use one now anyway and I do not have a job to drive to in this scenario, I think we could actually live quite comfortably for quite a long time.  After I got over the initial shock and fear of losing my job, I am sure I could even turn the whole thing into a positive as it would give me time to pursue other things I'm really interested in.

So why have I done this?  Who in their right mind would prepare so well for a disaster scenario that is (hopefully) unlikely to happen?  Well, it comes down to the fact that I am by my very nature conservative and not willing to put my own fate in the hands of others, namely my employer or the economy.  It is just upbringing really as I saw first hand my family go from upper middle-class to barely scraping by.  You should never believe that disaster is not just one accident or one pink slip away.

Wow, that was kind of a downer to bring in the new year huh?  OK, got to write something much more upbeat next.  Probably will not be posting until next week, but I hope everyone had a great New Year!


  1. I for one have been paying off my debts, from highest to lowest interest rates. Life is a lot cheaper when you aren't flushing away interest payments every month. I only have 3 debts right now: car (2.9%), student (2.15%), and first mortgage (6.625%, soon to be 5.25%). I paid off the second mortgage, which had a 9.5% interest rate, about two weeks ago.

    Question is, are those first two even worth paying off early? The car payments will be done by September, and the student loans go for another 10 years or so. But at 2.15% it's probably more expensive to pay it off sooner, compared to putting the same money into a CD with even just a 3% rate. Going forward, I simply won't increase the amount of debt I have -- if I can't pay cash, then I can't afford it. Looking back, I would not have bought my condo, but the student loan and car purchase were fine.

    I was always a gadget whore, wanting the latest computer or home theater stuff. But nowadays I'm finding it easier to say "nah" when I think about buying a new receiver to power my headphones, upgrading to a new Intel Core i7, or I'm content simply window shopping for a new car on the manufacturer's website. Instead, when I'm looking to indulge, I just go and spend $8.99 on an MP3 album download from, or get a $2 track for Rock Band 2.

  2. Yeah, not having any debt is a BIG advantage for me. It allows me to control the cost side of my life a lot more. I think you have done a fantastic job of controlling that urge to just keep consuming. You are years ahead of most people.

  3. Ah, but just wait until you start having kids! It becomes much harder to control costs. Just as a six-figure salary is a sign of upper-middle class attainment, so to is starting a family. In particular, I am struck by the costs associated with child care. Approximately 40% of my salary in 2009 will go towards our nanny. I now spend a lot less money on leisure goods than I did in my 20s, but my overall costs are much, much higher. I think that the trick, as you correctly observe, is to ensure that your income and costs are growing proportionally.

  4. I don't consider planning for worst case scenarios as a downer. If 2008 has taught Americans anything, it's that we need to start thinking about reality in that way. Just because you earn 6 figures today does not mean you will indefinitely. One of my favorite sayings is "Nothing in life is constant except for change." I would have preferred learning this creed from my parents, but instead learned it from one of those editorials from my high school newspaper. Another I have learned is when bad things happen, they don't just rain but pour. Plan for worst and then some. You're already off to a good 2009 in my book.

  5. You make a great point and one I actually had not thought about much since I obviously don't have this situation.

    My fixed costs are very small. Almost all my costs are variable at this point since I do not have a mortgage payment or any children. So while it would be relatively easy for me to make this transition, I can imagine how different it would be with a family and a house.

    One of the things I've talked about with one of my friends is how I probably will not buy a house until I can buy one I want on only one income. This, I hope, will mitigate any chance of us having to adjust if the situation in this blog arises.