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jellicle

It's simple.

Make $100K, live near people making $90K = rich.

Make $100K, live near people making $110K = poor.

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It's not that simple. It's more like

Make $100K, meet basic expectations for standard of living with $20K to spare = feel comfortably well-off

Make $100K, do not meet basic standard of living expectations = feels poor.

Have enough money to blow a few million investing in startups just for the learning experience = rich.

The catch is that living near people making more is likely to raise your standard of living expectations (but does not have to). Also, the cost of a particular standard of living is determined (roughly) by the market rather than its worth to you. For example living in Cambridge, MA costs more than living in Hudson, MA, whether you actually value that or not.

I argue that living in Cambridge indicates that you value living in Cambridge, or at least moreso than you would living in Hudson, give or take the cost of moving.

Cost of moving can be very significant, in many ways (not just financially) and often people are reluctant to do it. That means you often have to make a guess as to what you're going to value a year or five (or ten) from now. And often, you have to make that decision under pressure, or make lots of tradeoffs and wind up paying for things you don't value in order to have the things you do. In other words you might have chosen a location in Cambridge because that was the only place that had the amenities you wanted, and its proximity to Harvard and MIT is coincidental.

And not only do your values change, but the environment changes too. The place you choose to live now may change significantly.

I definitely noticed this in grad school. For a few years, I had a $30k fellowship, when the normal stipend, which all my friends made (and which I made the other years) was around $20k. I felt like I had more money than I could reasonably spend, saved about $5k of the excess, and splurged about $5k on what seemed to me to be luxury items, like fancy beer and trips. From my perspective I was, if not wealthy, at least well-off. Supposedly $30k is on the lower end of lower-middle-class, but it didn't feel like it. (Granted, it also helps that I don't have kids.)

It's really so sneaky. Before I started school, I worked full time and I was still living paycheck to paycheck. I started school, with an obviously lower part-time salary, and I'm now comfortable adapted to the new salary (have money to burn and everything).

Yup, this hits the nail on the head. I was in the same situation- I lucked out into a very nice fellowship whose stipend the first four years of grad school started out one or two kilobucks higher than the standard level, and (amazingly, for a grad school stipend) went up a little bit each year. By the end, I was almost at $30k, and felt like a millionaire compared to friends who were on the school's standard stipend scale. Of course, during the fifth year, for various reasons, the fellowship's funding agency adjusted their stipend scale, at which point I discovered that there is a very real difference between making $25k and $30k. Even better, my funding ran out entirely a few months ago, so the last four or five months of my PhD have involved living off of my savings from the previous five years and the odd bit of consulting income.

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.

Well at $30k, were you:

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".

I believe there have been psych studies to this effect. Asked whether you'd rather make 110k when everyone else is making 80k, vs. 140k when everyone else is making 200k -- assuming prices remain constant, which is economically dubious, of course, but hey, it's a thought experiment -- and most people choose the former.

Here's another study to that effect: http://www.telegraph.co.uk/science/science-news/3315638/Rela...

"But the most the exciting finding was the influence of another factor: how the rival player was doing. Activation was at its highest for those players who got the right answer while their co-player got it wrong. But participants who got more money than their co-players showed much stronger activation in the "reward centre" than when both received the same amount."

This has a lot of interesting implications. For one, the classical homo-economimus model of humans as rational utility maximizers is further called into question. For two, it highlights the hedonic treadmill effect. No matter how much you earn, as long as you're comparing yourself to someone who makes more, you're unlikely to be satisfied.

I think it's important to point out that this kind of behaviour is rational under some perspectives, particularly evolutionary ones (dodgy though their explanatory power may be). It's more important, genetically speaking, to be somewhere near the apex of your social group and thereby get more valuable reproduction opportunities, than it is to be materially comfortable on some notional absolute scale.

It's more than economically dubious, it's outright false. If everyone else is making less than you, then whenever you buy anything whose cost is mostly personal service, it'll be cheap in real terms (i.e. the amount of time you have to work to buy one hour of someone else's labour).

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

It strikes me that this is the difference between wealth in the past, and wealth now.

A medieval king was vastly wealthier than me in his ability to command other people's time. But I am vastly more wealthy than him in my ability to command nature, which means I have access to much better medical care, communications, and entertainment opportunities than he had.

For one, the classical homo-economimus model of humans as rational utility maximizers is further called into question.

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.

or:

make $100k, spend $85k = happiness

make $100k, spend $101k = misery

The spend side is highly dependent on those around you.

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

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

This is true for way more than rent, too. Gas is another obvious one, but it's still just scratching the surface — prices for a huge range of things rise subtly (or not so subtly) in more affluent areas.

Anyone who lives within their means suffers from a lack of imagination. -Oscar Wilde

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