How to screw up your life by getting promoted | Hacker News Reader

How to screw up your life by getting promoted

blog.thestartuptoolkit.com

55 pointsvolandovengo50 comments

My wife and I save for a trip around the world by avoid "lifestyle inflation" which is what I've heard this referred to in the past (possibly from the Millionaire Next Door[1]). Each time we received a raise, we would increase our trip savings.

The easiest way to describe it is that we lived paycheck to paycheck. Neither of us would be disciplined enough to follow a strict budget, but we can easily avoid spending the money if it isn't in our accounts. So, each month, we had money withdrawn for retirement, trip savings, 529, and house savings. We increased this amount until we were just scraping by with just enough money each month. This meant I could buy whatever I wanted, so long as we'd have enough money at the end of the month to "pay ourselves".

I'm fond of this method, though I haven't found many others using it. I think typically, if people are disciplined enough to save money, they're able to follow some kind of budget.

A word of warning: Be sure not to be TOO aggressive with this, we almost certainly were. We were living off less than 30% of our after tax income. Remember, you should enjoy yourself while you're making money now, not just save it all for the future.

[1]: http://www.amazon.com/Millionaire-Next-Door-Thomas-Stanley/d...

Edit: formatting, link

I have to do this. 20% of my income after taxes goes to charity and savings. I live off the rest and any income left in my account at the end of the month goes to my electronics fund.

> We were living off less than 30% of our after tax income. Remember, you should enjoy yourself while you're making money now, not just save it all for the future.

If you can live off of 30% of your income, the future becomes a lot closer: you can retire in ~8.8 years. (Or round it up to 10 or so and you'll have even more income during retirement.)

Try http://networthify.com/calculator/earlyretirement if you want to fiddle with savings rates and find out how long you need to work. Notice that the number of years depends solely on the savings rate, not on the total salary.

More like 12 years.

If you retire in 10 years, you will need more than 25 years of retirement spending.

Nope, that calculator assumes you want enough retirement savings to cover your expenses indefinitely. The numbers do vary based on your assumed rate of return; a more conservative estimate would put it at ~9.1 years, while a more aggressive estimate would put it at ~7.3.

That calculator is a terrible way to go about it: They are missing inflation, which will have a large effect on your expenses over time.

There are other problems too, but that one alone make it worth looking elsewhere.

If you want to account for inflation, just subtract it from your savings rate. The market typically supports a 6-7% return before inflation, or a 4-5% return after inflation.

Umm, you might want to check your math. Or perhaps your assumptions about buying power.

There's a reason retirement planning doesn't go down this path.

The 5% return rate for investments is taking inflation into account, actually.

Even if you limit it to the investment return: It is ignoring variation in return for that level of return, which is a terrible way to do long-term planning.

Agreed, that is the main problem with this plan. The 4% withdrawal plan is increasingly less likely to work the longer the length of your retirement. If you retire at age 65, the probability is low enough to not generally worry... but if you retire at 30, you might want to think twice.

I'm sure somebody somewhere has calculated or estimated the probability of the 4% plan lasting for a given number of years. I'm curious what the results were.

The "4% plan" is a way to explain the problem for your avg Joe who can't do math. It's a nice rule of thumb (often you'll see 3% even) but doesn't leave a ton of room. Just look at the current environment if you need an example: Lots of people who retired in the 90s are getting killed on their principal.

Sensible planning involves calculating the probability that you will not outlive your assets: Portfolio planning will pick points from the so-called efficient frontier, and then often run Monte Carlo simulations to get a handle on whether the expected variation will put you in the poor house.

BTW, this is usually where the 3-4% plans arise from. People will make an assumption about return+variation, and then see what withdrawal is likely (but not guaranteed) to avoid outliving the principal.

Take a look at the Trinity Study: https://en.wikipedia.org/wiki/Trinity_study . The authors did a historical analysis of a reasonably sensible retirement portfolio (50/50 stocks/bonds), and figured out the minimum rate of return you could safely assume over any 30-year period (even those including the Great Depression). They also made some very conservative assumptions, such as that the retiree will continue increasing their spending every year by inflation (as measured by the Consumer Price Index). The answer: 4% per year.

This number commonly goes by the name "Safe Withdrawal Rate", or SWR. You'll see that term quite a bit in discussions of retirement, especially early retirement.

Turns out that very little difference exists between the amount needed to sustain 4%/year for 30 years and 4%/year indefinitely. The numbers also get better if you make a few less conservative assumptions, such as some flexibility in the amount you spend (buying fewer luxuries if another depression happens, for instance), or receiving any kind of additional retirement benefit later on (Social Security, corporate retirement), or various other safety nets that the study didn't cover.

In any case, if you don't feel comfortable with 4%, you can adjust it easily by working only a little longer. For instance, in the previously mentioned case of spending 30% of your income, if you've already saved 25x your annual spending (so you can live on 4% returns), and you work one more year past that, you'll save another (7/3)x of your annual expenses and earn about 1x in returns, meaning you now only have to assume a ~3.53% return (1/(25 + 7/3 + 1)).

> Building something interesting requires a surplus of time and money. Salaried jobs provide neither.

Standard negatory bullshit. You should be able to achieve building something interesting, using someone elses time and money. If you can't, maybe you've got an attitude problem, not a job problem.

Also perplexing was this assertion that salaried jobs don't provide a surplus of money, when the vast majority of entrepreneurs fund their projects and endeavors through a salaried position either held concurrently or in the past.

Lies! Our heros would never sully themselves with something as filthy as a salaried position!

Ah yes, the trap of a higher income.

Probably better to take the higher paying job and don't raise your standard of living. Adopt an automatic 25%+ of your income goes directly from your paycheck into savings. For a two income family, one spouse's paycheck pays the bills, and the others goes to savings and doesn't get touched.

Kinda like Herb and Dorothy. http://www.imdb.com/title/tt1227929/

The inflation is better focused on the life, not the lifestyle. I don't put my paycheck in the bank account and have set money withdrawn for my investments. I put my paycheck in my investments and have set money withdrawn for my bank account. I fight hard to make money for my future, and I know that's exactly where it's going. I keep strict records of my work time, and set a time limit on my job, then build myself outside of work hours, investing time in developing myself. If I prioritize some nice things that I want to spend on, i need to be patient, or it comes out of something less important. I find that careless expenses can be more of a burden than a pleasure, so keeping spending equal helps me improve my lifestyle, rather than inflate it.

Building something interesting requires a surplus of time and money. Salaried jobs provide neither.

What? A salaried job is literally a company converting some of its money into time. It may not be your surplus of time or surplus of money, but that doesn't mean you aren't building something interesting.

On solution to this problem is make sure your social circle is weighted with people who spend money in the quantity and manner you wish to spend it.

I don't think I would ever naturally consider a luxury sedan a necessity, but if all my friends had them, I would begin to suffer from lifestyle scope creep.

My wife and I surround ourselves with people who do not spend large amounts of money in traditional ways. We don't budget, but according to mint, we live on just over half of our income.

>Building something interesting requires a surplus of time and money. Salaried jobs provide neither. Unless the job itself is your dream, stay the fuck away from them.

Yes, it's advisable to just start off with time and money.

>Strong people fall for this trap. It’s poisonous.

"Trap" is the keyword here, in that it's set up by someone other than yourself. Your colleagues (esp those more senior to you) in these industries will purposely coerce you towards a higher maintenance lifestyle so that you will have an increasingly difficult time escaping.

I've observed this time and time again in my friends. One of my buddies and his wife graduated from a top-10 MBA program. His wife recently needed to get a new car and she wanted a Honda Civic which is a car that's got a decent balance between price and utility. He convinced her to get a luxury sedan because being seen in the company parking lot with that is a big no-no.

Another friend increases spending in proportion to income as well. Bigger house, new car, fancy toys. Babies get spoiled with way more than we grew up on.

It's a sad phenomenon. This is "Keeping up with the Joneses" disease. If instead of spending all your money keeping up you become disciplined with your spending you can retire early. And these people certainly don't love their jobs. How could you pass that up?

I call that the "IV drip". The monthly check is the drip, and it keeps you sleepwalking... doing busywork, and the years keep flying by.

Yeah, but there are days where I wish I could have taken the blue pill.

I quit my well-paid, normal, boring job two weeks ago because I realized I fell into this kind of trap. It's been just two weeks and I already cut my spendings in half - no more expensive stuff when cheap would suffice, no more electronic toys which have zero ROI, no more spending just to make myself feel better. No more buying stuff because I'll be traveling a lot soon and just won't be able to take it all with me. I actually ended up putting lots of stuff on eBay because I realized I won't need it anymore.

When you get a paycheck every month, there is zero motivation to save. When you know there'll be no paycheck, you finally get your brain going and you start inventing ways to make money instead of slaving away.

You can save some effort by using a well regarded way of making money: getting a paycheck.

I might be crazy, but because of this I never negotiate salary. When it gets to that part of the job offer, I just tell them what I'm currently making and leave it to them to decide a reasonable increase. As long as they actually go up, I always accept.

You are severely underpaid, my friend. Surely you can think of a better recipient of your charity than the owner of your company?

glassdoor.com would disagree with you.... sorta. =P

I swear that I've read this before on HN.

I'm going to relay the depressing news that's behind this dynamic. Many Americans think of business as a risky, exclusive endeavor because "it takes money to make money". What's missed in that is that holding a job also costs money. Lots of it, although the costs are sometimes indirect. You have to live in an expensive location, although you're not getting nearly enough utility (in most cases) to justify paying to live there... except for the better jobs there. If you're serious about your career, you can't do your own cleaning: two-career couple and you need a maid. If you have kids, your bosses will ask where they go to school and it will affect your promotion chances. If a professional job pays $400k, there's absolutely no way you can keep it with less than about a $300k (pre-tax) lifestyle, and that's if you're really good. (The untalented need $500k to keep that job.) In fact, the major reason why it pays so much is because that is the economic cost of doing what the job requires (living in an expensive area, hiring a maid so you aren't distracted by chores). The vast majority of Americans' expenditures (aside from basic necessities) is put toward (a) recovering from negative emotional effects of work stress, and (b) meeting the social expectations necessary in order to succeed in one's career.

What we'd expect based on our knowledge of markets is that people would have to spend $1/year to keep a $1/year job. However, some people have a talent for managing money and saving. If they make twice as much, they save twice as fast. Instead of making $100k (post-tax) and spending $80k, they're spending $160k to keep a $200k (post-tax) job. The more they make, the more they save. No surprises.

However, the financially untalented are the ones who have to spend $120k to keep a $100k job. If they get promoted, they'll be spending $240k to keep a $200k job. They'll burn twice as fast.

This is a deeper problem than people think. It's not just about "discipline" or will. There are people out there who are just severely below average in financial sense and, while they can play the social gymnastics necessary to get the $500k+ jobs, they can't make $1.00 without spending $1.10 (at any income level).

While I agree with the underlying point that most people grow their spending with their job, I strongly disagree that "it's not just about discipline or will". It really does come down to wanting less and buying less. I don't know in what absurd world you "need" to spend $300k to keep a $400k job, or even $80k to keep a $100k job. Nothing stops you from having a six-figure salary and living like a college student.

That represents one of the most critical financial lessons of all time: your salary and your expenses do not need to correlate, so don't let them.

> your salary and your expenses do not need to correlate, so don't let them.

Wishing it doesn't make it so. In a previous life I applied to a business consultancy in Britain. (Ernst & Young? Andersen? Can't remember. It was long ago.) To get you into the mood, they had a little quiz on their website. One question went like this: "You have worked 12 hours on a report that is due the day after tomorrow and are tired. Your officemates want to go for beers. (This is Britain, and "beers" means many beers.) Will you join them?" Of course you join them says the website, you are supposed to work hard and party hard.

These are the social pressures that michaelochurch talks about, they are very real, and what you do and where you live will affect your chances of promotion. For an insight I do recommend Karen Ho's "Liquidated", it's an anthropological study of Wall Street.

There are two different mechanisms being pointed out, and it's important to understand the distinction.

The first is the tendency for your burn rate to drift up to match your neighbors. Even when encouraged by your neighbors being assholes about it, that is a matter of discipline; if your discipline is in the top ninety-whatever percentile, it is possible to stop yourself doing this.

The second is the fact that some companies attach to some jobs very high unpaid expenses that they dishonestly don't point out until after your working for the company, e.g. refusing to give you a high-paid job unless you drive to work in an expensive car. There's nothing to be done about that in the first sense; if they won't give you the job unless you spend much of your salary on these unpaid expenses, then they won't. What you need to do in this case is recognize such jobs, subtract the unpaid expenses from your after-tax salary, and make your decision whether to accept the job or walk away, based on your take-home pay after expenses, not before.

I don't follow your second point. In what situation would one be offered this position when they do not already own the expensive car, and after accepting it, how would they be coerced into buying such a car in order to keep their job?

Well if you look at what other people have been saying, one way this can happen is as a condition of the promotion that will get you the high salary you were aiming for.

A professional job that pays $400k is being a dermatologist in New Jersey. Even after the nanny and $600K house you are still putting away $200K a year. Your husband's $100K hobby job as a stay at home dad/computer programmer can be used as a slush fund to take care of the parents and keep him entertained with a new iPad every other year. Most high earning situations are not really like an adaption of a Bret Easton Ellis novel.

You forgot income tax there.

What if it is a $1.5mil house?

Just to break this down a bit for you at 400k/year, your take home after taxes and extras will be somewhere in the ballpark of 18k/mo.

Your nanny will be around 2500/mo - down to 15.5k

Your 600k house will be around 4300/mo - down to 11k

Malpractice insurance / practice fees is anyones guess but lets be reasonable and say 2k/mo - down to 9k

So were down to saving 9k per month but then there is all the other stuff, food, electricity, entertainment, kid expenses, clothes, etc etc. Id say this usually amounts to about 3-4.5k per month ($100-150 per day) for someone who expects to live decently well.

Anyhow nobody is going broke in this scenario but our rich dermatologist is "only" saving 4-6k per month amounting to about 50-70k per year. Not horrible but not the extravagant wealth that you might expect. Note that I was also pretty nice to our hypothetical doctor - in this scenario they dont even have any student loans or a fancy car.

That's $4300 in a mortgage, not rent. A large portion of it should count as savings, not as a living expense.

In most situations your home is a liability, not an asset.

With the normal family deductions take home would be $20K in New Jersey. Chinese nanny is $1600/m. Mortgage on $600K house is $3000/m. No insurance fees for a derm. They are in high demand and insurance is covered by the practice. There is also property tax, which is very high in NJ. Probably like $20K a year somewhere nice like Princeton. I was too generous with the savings rate but it's still over $10K a month, not $4k. Plus, there's still your husband's salary.

Anyway, that wasn't really my point. My point was that the $400K band is also a lot of upper middle class jobs like medicine, where people shop at Costco and drive Toyotas.

> If you have kids, your bosses will ask where they go to school and it will affect your promotion chances.

How can your kids' school affect promotion chances? I can understand buying expensive clothes, cleaning, expensive apartments etc. Although IMHO all this stuff does not really start to kick in before $150-200k.

This is such a profound statement with respect to our industry, and I think it represents an extreme opportunity:

I believe there is an incredible opportunity around providing lifestyle-support services that are NOT looking to gouge the people they serve.

Look at a service like Exec or even a service like Uber: both are fantastic, but both specifically target consuming all disposable income that they can from their userbase.

I think this is a short-sighted and limited model: there should be a lifestyle service that works on a percentage scale that is not seeking to maximize its immediate revenue from each and every user, but to help them maintain and grow.

If we look at the costs of the luxury and wanna-be-luxury sites, they are all myopic. None of them do anything other than appeal to the most base and traditional of consumerist norms: emotionally entice their target audience to spend their income on the service offered.

A parasite model.

Instead, imagine a company that offers a range of services based both on economy of scale, available resource by hour and user need.

Take the Tesla model: offer a luxury, yet newly innovative product which starts out as a high cost consumer item and work towards a more affordable, more widely available offering.

So you start a subscription service where you buy a block of available service hours. You can spend them on anything you want and switch it up each month.

Build a plan that started with an upfront payment for life evaluation.

* what is your situation?

* what are your goals?

* do you need your physical life organized?

* do you need a stylist?

* do you need an admin?

etc etc etc

You build out a profile of needs for N months - and build an intitial plan of action. From that baseline, you then have an available menu of services that the user can select from as needed. They do not have to use up their subscription hours and can accumulate hours for later/higher cost services later.

The company works to bring on 'task-rabbit' like folks for various tasks etc...

The goal is to allow people to focus on what they do without being gouged for premiums for any and every individual service they may need to maintain.

It's really sad that EVERYONE thinks that every service out there should net 100K+ (I took a cab to the airport and the COST to me as an individual was the equivalent to me paying someone $180K per year to drive me to the airport. (I can explain the economics of this in detail if you like..))

Exec and Uber aren't gouging, though.

Exec is actually cheaper for cleaning than something like Merry Maids. Plus the workers get paid way more.

Uber is more expensive than a cab, but it did not come into existence because the founders wanted to gouge people who needed cabs. It happened because cab service in SF is so terrible, an alternative was desperately needed.

I was not really trying to say they are gouging people with Exec and Uber - what I am trying to point out is that the amount that one pays Uber and Exec is really high given the type of service the worker (cleaner/admin or cab driver) is performing.

As I mentioned, when I took a cab to SFO, I paid the guy ~$65 for my Uber ride which lasted 23 minutes. Now, I know that I am paying for a premium service and a one-off delivery of myself to the airport. But to contrast this, that was $65 to ride for 20 minutes in a car to the airport where I was getting on a Plane to fly me hundreds and hundreds of miles and my plane ticket was only $149!

I think that everything costs too much - and that people who drive cabs shouldn't be making ~$80,000 per year.

You can get to SFO for less than $20 provided you're willing to use a shuttle/van service. The premium is for a private ride that is direct to the airport. So it's definitely possible to get these types of services cheap you just can't expect the same level of quality as Uber say.

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