It'd be interesting to see how savings rate correlates with income, both across groups and as one individual's income rises over time. I suspect that you'd find some correlation (though probably not as much as you'd expect) across the whole population, but when tracking an individual, their savings rate probably will remain largely constant whether they're making $30K/year or $300K/year.
People with low incomes have little choice but to budget responsibly or go into crippling debt. Once you get into the habit of spending responsibly, it’s easy to continue that habit even as your income rises. You’re used to making what you earn go a long way.
On the other hand, if your attitude is, “yeah, maybe I’m not making much now, but I should totally be making fat stacks in a couple years,” then your poor spending habits are likely to continue. You’ll go into debt with the expectation that you’ll be able to pull yourself out of it as your income rises. But living beyond your means is a very hard habit to break. You start to rationalize: “hey, I should have a much better lifestyle making $100k than I did at $50k.” Except, well, you weren’t really living off $50k; you were living off $50k plus a lot of high-interest credit.
Not at all, poor people waste their whole paychecks on lottery tickets and such all the time. They just end up never having any savings.
If you have no savings, then it’s very likely you’ll still go into crippling debt eventually; at best, you’re staving it off until retirement. At that point, cheap credit is probably not going to be as readily available.
But I get your meaning. Yes, there is definitely an in-between where people can spend their entire income without accumulating immediate debt (social debt and future debt not withstanding).
All of them, all the time? More than other people? Evidence?
As someone who used to spend all of their money, overdraft and credit cards and now lives far below their means I don’t think my experience is that unusual. People who save in their teens or early twenties are pretty far out of the ordinary; I’d bet as their incomes increase the proportion of their incomes saved increase too. Consumption smoothing across the life course is how ~80% of people act, modulo having to save for expensive consumer durables. People borrow or save less when young than old.
1. If you're a single person, even in the Bay Area, I have no idea what you're spending that money on; and
2. In 10-20 years when those same people are no longer a "culture fit" I wonder if they'll rue their frrivolous ways.
So being poor or being close to it affects people in different ways IME. For some, this means spend as soon as you have it or it'll just go away (eg there is a noticeable uptick in large TV purchases around the EITC). Others will live ridiculously frugally. Some will be super-driven. Others almost defeatist.
In my case there was a time growing up when we were "poor". This is Australian "poor" not American "poor", which is a whole different thing. I don't mean homeless either. Just money was really really tight, as in baking bread because we couldn't afford to buy it, that sort of thing. This actually wasn't obvious to me at the time.
Many who have been "poor" IME never escape the feeling that even in times of bounty everything may still disappear tomorrow. There is much less sense of security. I really think this is one thing that many people who have always had money just don't understand. And I don't mean "wealthy". I just mean they never grew up in an environment where they had serious money worries.
Anyway, the income potential in Australia in software is substantially lower than the US. I was fortunate enough to get a job in Big Tech (NYC) some years ago. I noticed that I'd feel "bad" when I "wasted" $20 on something, like a shirt I didn't end up liking.
A few years ago I ran the numbers on how much I'd saved since coming to the US and honestly I was shocked, as in up until that point I had no idea just how little of my income I was actually spending. And this is a holdover from that psychological lack of financial security. To put this in perspective after paying all living and food expenses, my discretionary purchases and so on that I was still saving 30-40% of my gross income (including 401k). I'd say my income is pretty typical for Big Tech, nothing extraordinary.
Thing is, I actually have no idea what I'd the rest on if I decided to live paycheck to paycheck. So when I hear stories like yours I'm honestly befuddled.
I have serious trouble spending money. I just feel so bad spending $15 on a movie ticket or buying t-shirts more than $10. This despite earning well into six figures, in NYC as well.
Growing up with shortage has fucked our psychology.
So if I were looking at how to maximize my take home income and retire in the shortest amount of time and I was just picking a place on the globe to do this, I'd pick Seattle, hands down.
It's not hard to do. Most people think nothing of spending $100 at the bar on a weekend, but do that every weekend, that's >$5000 which is a chunk of change even for well off people.
It's amazing; it's like they are under some kind of spell and can't see right before their eyes, just when it comes to this.
Frugality and being content with what you have goes a long way. People should stop comparing themselves to other people.
That explosive emotional combination of greed and envy is behind so many bad financial decisions.
As software developers, we have pretty analytical minds. It's kind of absurd if we don't place some occasional focus on simple things like personal finance and retirement planning.
I think its because there is such a gully between middle class and upper class in the bay area. I make low six figures and the next bracket is so far away that I just feel kind of meh about it.
I think this behavior is hugely detrimental and I'm actively trying to change it, but its what I notice as status quo for my peers and I.
Have been fortunate to fly international business/first/suite class + stay in some really nice hotels.
Any time you spend over 100 dollars you should be aware of what your balance looks like. It reminds you to step back and not be careless if you just literally got paid and you are already eating well into your funds.
I also setup weekly balance notifications for every Friday. Another simple hack was opening up an American Express savings account. I put at least 10% of all paychecks straight into that account. This ensures I save and the APR is like 2% or something way more than any other savings account I have. Taking money out is a slow process and there is no debit card. Keeps me from being careless as my savings builds up.
Lastly my company had a stock program I would buy shares and sell them once they went longterm and invest into dividend yielding ETFs stock. This has allowed me to build up side income.
Took me a few years to stop and think about these things and form a strategy for myself. If you wanna save smarter any time you get a raise put that extra income straight to a savings account and let it build up. Everyone should have SHTF money.
Would you say that they are in that 40%? Or is it a different case?
Do you understand how much money that is? Compared to the rest of the world population, I mean.
Please don't tell me these people cannot food and rent.
For a family making $50k a year, that's very different.
Plenty of billionaires became billionaires in the first place by investing aggressively and using debt to build something. And once the music stops, or the table turns, that might all crumble if caught off guard.