A middle aged man I know makes a big five figure salary each month as a specialized Doctor. He has no sizeable savings and a very small retirement account. How can someone blow through such a massive salary? To be honest, you just have to make stupid decisions and keep on repeating them. He has a mortgage on a million plus dollar house, pays property tax, he has 3 car payments, and blows money on random novelties. He lives day to day.
Nearly no paycheck can support a decadent lifestyle that does not respect money.
Jack vs James
Let me illustrate a simple point using the chart below. James makes more money but has an extravagant lifestyle while Jack makes less money yet lives simply. James lives in a nice part of town in a newer high rise condo. James also eats out at work for lunch every day and also eats out on the weekends. He also likes fast German cars so he leased a BMW with his good credit and high salary. For entertainment, James goes out to concerts, movies, dates and in general likes a good time. He also likes to buy branded clothing at trendy stores.
At the end of every month, James saves $2,146 and Jack saves $2,539. Even though James makes considerably more money, it is Jack who saves nearly $400 more every month. If you stretch that over one year, James has been able to stash away $4,700 more!
There are so many people in the world living like either Jack or James. The person that makes more money seems to be more financially secure but what is not apparent is that he has a very low savings rate. This is an illusion as it is just the perception of being more well off. The fact is that overspenders are simply better at looking wealthy rather than being wealthy. I am not for living a minimalist or austere life. But in the beginning you must sacrifice so that in the end you have a financial foundation. Otherwise you are living paycheck to paycheck.
Here is a little infographic for you to understand the differences…
Verdict: A person with a lower paycheck can put more in their pocket every month over an extravagant spender. It is better to save now and spend later, otherwise you are only living paycheck to paycheck.