Why So Many Rich People Don’t Feel Very Rich

I like that you made a distinction between large and extremely profitable companies, because large companies often still pay their CEOs extreme salaries even when performance falters.

Case in point, Robert Nardelli at Home Depot made $123.7 million, excluding stock option grants, over 5 years from 2002 to 2007, while the company's stock price faltered. He was essentially fired and still got a severance package of $210 million. (http://en.wikipedia.org/wiki/The_Home_Depot)

Dick Grasso is another that comes to mind.

People aren't ignoring it. The two things aren't related to each other. Alex Rodrieguez makes so much money because tickets to see him play cost so much (especially compared to what it cost to see Babe Ruth).

For the situation to be the same Rodrieguez would need to be making the same as Ruth (inflation adjusted) but the managers to be making 100+ times more money.

What's actually happened is prices have gone up. The difference you see is that certain professions have much better representation to ensure they get their share of the increased profits.

EDIT: A bit of point clarification.

    5. Become a top developer at a big software company.
    (A variation on 3. You probably won't earn $100 million, but you could definitely earn $1 million. )

    6. Become a top performer in entertainment (music, sports, movies).
    A fun fact ignored by most people: it isn't just CEO pay that has skyrocketed over the years. Alex Rodrieguez gets $33 million/year, at his peak Babe Ruth got (inflation adjusted) $1.1 million.

I think that was the point of the article. If you actually get close to the brick wall in your profession, you'll meet people who've gotten past it. And suddenly, what seems like an enormous amount of money is just the tip of the iceberg, and you're left wondering what these people have that you don't.

I don't think this is true - all the traditional "low risk" professions have this ability: doctors, dentists, lawyers, investment bankers and fund managers. $300k+ is not unusual for a mid-level person in these industries. Senior people in these industries will hit $1m+ pretty easily without having taken on any significant personal risk. A lawyer 3-4 years out from law school in a large firm is going to be sitting on $200k+ already.

Eventually it's making more on its own than you're putting in.

This actually takes a long time.

It is difficult to balance lifestyle, income, and savings as you start to ramp up your salary AND your lifestyle. If your salary doubles between 20 and 30 and then again between 30 and 40 your savings does not change. So even if your saving 20% of your income every year you are not going to be able to safely retire at 80% of what you make at 40. Unless, you get a salary bump and don't increase your lifestyle.

Take it further; someone that sees a 3x gains from 30 is going to need to save ~40% a year to avoid a lifestyle drop. Meanwhile your friends are all raping up their spending and possible over extending.

I'm currently reading The Investor' Manifesto* and it seems I am very lucky to have money to invest in the market. A bear market is a boon for young investors.

By the way, this book is awesome. I regret not reading it earlier. Derek Sivers plugged it on HN almost a year ago (http://news.ycombinator.com/item?id=1026296) and his reading notes are available online at http://sivers.org/book/InvestorsManifesto.

Obviously, this doesn't need to mean spending 5k on the biggest TV, and doesn't mean outstretching yourself on a huge mortgage for a McMansion. But, if you save a little less and tactically spend on things that will make you happier I think that is definitely worth it. This isn't a huge defense of "stuff," but I think it's also okay to lose some wealth to gain happiness. I personally like spending money on travel/experiences. There was a lifehacker article about that yielding increased happiness.

Link: http://lifehacker.com/5608980/spend-on-experiences-instead-o...

It’s certainly understandable that when you then feel burnt out after six years of stress the thought of leaving must be very attractive. It’s still a bit strange that Obama makes a reference to his modest compensation.

I don't think that's borne out by the stats. As I recall fixed costs essentially flat-line as a percentage of income somewhere south of 200k, up until you reach the "don't look at prices anymore" brackets. Also, I note that it really doesn't take much more disposable income to add flashy consumption. Five thousand dollars is easily two annual trips to Hawaii, which -- while not remotely a trivial amount of money -- really isn't that hard to sock away at 300k vs 80k. And two additional annual vacations at 300k is certainly going to look like 'whimsical' to the guy making 80k who takes one real vacation a year.

So I'm wondering if we aren't having a disagreement on definitions. And when you say 'hawaii on whim', you're thinking about trips approaching the opulence of the "don't look at prices anymore" brackets?

I think the term disposable income gets misused a lot. People don't see the money they spend on the BMWs, or the part-time nanny, or the private school, or any number of everyday luxuries as a use of disposable income. But they are every bit as much as those trips to Hawaii.

Er, how? Assuming a very optimistic 4% return after inflation and taxes, that's only $7k/year.

I'm guessing for a million you could do better.

Perhaps you'd only be at the lower bound of the numbers I gave but the point still stands that compound interest is what is making the rich richer.

Further, in the US, once you have a net worth of a million dollars, you qualify as an accredited investor, opening up a plethora of new investment opportunities to you.[1]

[1] http://en.wikipedia.org/wiki/Accredited_investor

As usual it depends on country. In Australia the standard savings rate is around 4% at the moment. I can go to my bank and get 6.2% PA term deposits on a 7 month term.

Let this be a lesson to other grad students out there: save like heck, 'cause you never know when there's going to be a gap in your funding, or a change in its level.

A) Paying for your own healthcare B) Saving for retirement C) Saving for buying a house, a car, retirement, a wedding, future children, or other large purchases? D) Paying off your loans for undergrad?

Because my girlfriend and I are 22, make over $100k, have less than $30k a year in expenses combined, and still feel a little "tight" on the budget. But we're both maxing our 401ks to the company match, paying for our healthcare, and paying down our student loans (over $60k) in 3 years. Plus saving for a house, and maybe even a little wedding and a vacation. $100k goes quick.

Note that we both drive 6 year old cars and have no plan to replace them, rent a relatively small apartment and keep our expenses below $2.5k a month combined which is pretty good. I don't feel poor by any stretch of the imagination, nor am I complaining, and the situation is improving steadily as we pay down debt and have more cash, but the saving really puts a crimp on how much "fun money" I have.

We are currently (again with 2 people) putting over $3k a month into savings and paying down debt which are prudent decision but don't feel all that fun and don't really make us feel any "richer".

Make $100k while your neighbors make $75k - rent is $800/month.

Make $100k while your neighbors make $125k - rent is $1500/month.

Conversely, if other people earn more money than you, you're going to have to work longer to pay for someone else's time.

While I wouldn't argue that humans are rational utility maximizers, this result doesn't call that into question in and of itself: there could easily be utility functions which depend on relative status or position, rather than absolute material wealth.

Resolution does become an issue (I agree that showing the change from 99.5 to 99.9 is good and a linear scale makes seeing those points harder). A way around that is to have the graph scroll left to right -- which should be easy given that it is an interactive JS/flash graph widget.

This is the mindset that makes high income people feel poor. You can get a vary nice gas stove installed wihtout looking out of place for ~10k or you can spend ~100k and get the same thing but shiny.

Firstly I try to be frugal. Some people think this means cutting coupons for everything and not spending any money on fun things, but really it just means not spending money on things you don't care about, so that you can spend money on things you do care about instead. The exact categories there are different for everyone and will change over time and as your situation/environment changes. For me, I chose to give up the car so I could have more wiggle room wrt general spending money (eating out, coffee), and could afford a new laptop and glasses. Other people will bring their own lunches and coffee so they can afford a vacation, or cut down on buying electronics so they can live in a nicer place. Sometimes I fail at frugality -- recently I've spent a lot of money on videogames that I don't really enjoy and won't play much, when I already have unplayed ones and games with lots of leftover replay value. So for the next month, I'm not spending any money on videogames, and after that I'll try to think more carefully about whether I'll enjoy a game and whether I actually have a small enough pile of games to get around to it soon, rather than whether I can afford the game. Because for any individual game, the answer to that question is always YES, so it's not a helpful question to ask myself. You mentioned you drive nice carS -- does this mean you own/lease more than one at once? You can only drive one at a time, so unless you have a family with seriously incompatible schedules or are a hardcore car aficionado, that might be something you could "afford" rather than something you truly need/want.

Secondly I try not to own too much stuff, especially stuff I don't use. Owning stuff costs time and money, but we don't always see that because the costs are hidden and sprinkled around all over the place. If you're using your big house mostly to store a big bunch of stuff you've accumulated, you are paying your hard-earned money to heat your own personal junkyard. When you move house, you pay to move the junk. When the junk breaks you pay to fix it or to replace it -- because by keeping it you've already convinced yourself you "need" it, even if it's something you never/rarely use or whose function could easily be replaced by some other tool you have. So I try to purge the things I own regularly, keeping only the things I use and want. I did a big purge last summer and I'll probably do another one this spring. It can be hard, especially if you've been raised to believe that owning stuff is a good thing, or that "you'll never know when you need it", but it feels really good when you're done. This doesn't mean I live in a minimalist apartment with no stuff, of course. It just means I have a somewhat-smaller, carefully-curated collection of stuff -- stuff I'm consciously willing to actually heat and move and repair and replace.

Sorry if getting money advice from a poor college student seems insulting/silly. It probably is at least a bit silly, but it seems like you and I (and lots of others) have the same problem on different scales, so the things that help me might help you, if you want.