▲ How much is friendship worth? A couple with an annual salary of $1.8 million still feels poor due to a bizarre reason of not being able to make ends meet. Experts: It’s not worth bankrupting the family.
Maddie, a 29-year-old American woman, and her 33-year-old fiancé Paul live in London, England. While Paul recently resigned and is unemployed, based on Maddie’s salary alone, the couple still earns an annual income of US$230,000 (over HK$1.79 million).
Maddie’s high salary, coupled with her habit of making fixed deposits and investments, should be enough for them to live comfortably in a high-cost area like London. However, the couple still struggles with financial pressures, especially when it comes to planning their wedding next year.
People always tell me to live a good life, work hard and make a lot of money, and be able to do what you want, like travel to many places, have a big wedding, etc…
But on the other hand, I constantly felt stressed and guilty financially.
When she appeared on American financial expert Ramit Sethi’s podcast, she honestly confessed that she struggled with her income level, admitting she still felt penniless.
Sethi often teaches listeners how to save, but also encourages everyone to be frugal and set aside a certain amount of money in their monthly budget for “guilt-free spending.” However, Maddie and Paul’s spending has far exceeded the level of acceptable guilt. He mightn’t help but criticize: “You always make yourself feel poor and unworthy of comparison with those around you.”
Fatal Injury in Non-Essential Expenses
Ramit Sethi’s research found that Maddie and Paul did relatively well in controlling fixed expenses. Even without Paul’s income, their rent, groceries, car loan, and other necessities only accounted for regarding 63% of their take-home pay.
However, their fatal flaw lies in discretionary spending. This is where Maddie’s financial worries stem from.
They spend regarding US$7,000 (nearly HK$54,700) on travel and shopping every month, leaving them unable to make ends meet.
Spending Over 50,000 Yuan on Travel and Shopping Every Month
With Maddie and Paul, along with several of their friends, regarding to get married, it’s understandable that expenses related to favors, wedding banquets, bachelor parties, and honeymoons will be significant. If their spending habits remain unchecked, Sethi worries that this couple is on a path to financial suicide, even though they have become debt-free except for a small car loan.
Sethi sternly pointed out that despite an annual salary of US$230,000, the couple travels abroad eight times a year, plus they often engage in activities like Bootcamp, shopping groups, and golf groups individually. “These are actually very abnormal.”
If you have a very large net worth, you have the right to feel “okay” regarding occasional losses; but I think considering that you are losing money every month and will continue to do so for the foreseeable future… that’s where things start to get tricky.
Spending All Your Money Just to “Bury the Pile”?
Ramit Sethi implies that for couples with considerable income and net worth like Maddie and Paul, changing their consumption habits shouldn’t be difficult. The question is whether they have the will to do so.
The couple admits that much of their spending stems from pressure from friends and culture, rather than their own enjoyment.
Maddie confessed that she always hangs out with people from wealthy backgrounds and spends a lot of money. “There is definitely a feeling of ‘we need to keep up.'” Paul added:
It’s this urge to be involved in everything and live a social life that wears us down.
Conflict: Income is Not Commensurate with Life Vision
Ramit Sethi asks the couple to consider what they truly want from life and what sacrifices they are willing to make to achieve their goals.
The couple emphasizes a big wedding as a priority, but also acknowledges financial security as important. They plan to have children in the next few years and want to ensure their success at this stage of their lives.
Sethi earnestly advises Paul that even if his next job offers a satisfactory salary, he and his wife should make wise changes to their spending habits.
I like your vision of a better life, but your income is not commensurate with your vision and will continue to be so.
You Don’t Have to Compare Yourself to Peers to Live a Prosperous Life
Ramit Sethi understands that humans are social creatures susceptible to peer pressure and social trends. Following trends and “lifestyle inflation” are common financial management traps.
Lifestyle inflation (Lifestyle creep) refers to the phenomenon that as income increases, more discretionary spending becomes available, and living standards or lifestyles tend to improve.
However, he believes Maddie and Paul need to acknowledge that their friends’ lifestyles have no bearing on their personal financial situation and goals. Adults should have greater self-awareness and autonomy over how they spend their money:
Decide (for yourself) which social influences you are happy to accept and which are inconsistent with your fulfilling life.
The couple agrees on the show that they need to learn to say no when friends invite them to travel or attend weddings that aren’t a priority. This way, they can allocate their money to the things that matter most to them.
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How Much Is Friendship Worth? Couple With $1.8 Million Salary Still Feels Poor – Experts: It’s Not Worth Bankrupting Your Family
Maddie, a 29-year-old American woman living in London, England, with her 33-year-old fiancé Paul, faces a peculiar financial dilemma: Despite an impressive combined annual income of over US$230,000 (over HK$1.79 million), they struggle to make ends meet. Despite Maddie’s hefty salary and prudent savings and investment habits, the couple is plagued by financial pressure, especially when planning their upcoming wedding.
On Ramit Sethi’s podcast, Maddie confessed her financial struggles: “People always tell me to live a good life, work hard, make a lot of money, and be able to do what you want, like travel to many places, have a big wedding, etc… But, on the other hand, I constantly felt stressed and guilty financially.”
Sethi, a renowned financial expert, typically teaches listeners regarding saving and frugality. He advises setting aside a portion of their monthly budget for guilt-free spending. However, Maddie and Paul’s spending exceeds this notion of guilt-free, leading Sethi to criticize, “You always make yourself feel poor and unworthy of comparison with those around you.”
The Fatal Flaw in Discretionary Spending
Sethi’s research revealed that Maddie and Paul manage their fixed expenses relatively well. Even without Paul’s current employment, their rent, groceries, car loan, and other essential expenses consume regarding 63% of their take-home pay. However, their discretionary spending – non-essential expenses – poses a significant threat to their financial well-being.
The couple spends an exorbitant US$7,000 (nearly HK$54,700) on travel and shopping each month, leaving them perpetually short of funds. With an upcoming wedding, the expenses for favors, wedding banquets, bachelor parties, and honeymoons will be immense. Sethi fears that if their spending habits remain uncontrolled, the couple’s financial stability will be jeopardized.
Spending Over 50,000 Yuan on Travel and Shopping Each Month
Sethi underlines the couple’s frequent international travel (eight times a year), solo vacations, and participation in activities like bootcamps, shopping groups, and golf groups. “These are actually very abnormal,” he notes.
Sethi emphasizes that while high net worth individuals can afford occasional financial losses, Maddie and Paul’s consistent monthly spending is a looming issue. “If you have a very large net worth, you have the right to feel ‘okay’ regarding occasional losses; but I think considering that you are losing money every month and will continue to do so for the foreseeable future… that’s where things start to get tricky.”
Spending All Your Money Just to “Bury the Pile”?
Sethi believes that Maddie and Paul, with their considerable income and net worth, possess the means to change their consumer habits. The question lies in their willingness to shift their perspectives. The couple admits that much of their spending stems from societal pressures and cultural influence rather than genuine enjoyment.
Maddie reveals her tendency to associate with high-income individuals and the resulting pressure to maintain a certain level of spending. “There is definitely a feeling of ‘we need to keep up,'” she confesses. Paul adds, “It’s this urge to be involved in everything and live a social life that wears us down.”
Conflict War: Income Not Commensurate with Life Vision
Sethi urges the couple to contemplate their life goals and the sacrifices they are willing to make to achieve them. The couple prioritizes a lavish wedding and financial security, as they also plan to start a family in the near future. They aim to navigate this next phase of their lives successfully.
Sethi advises Paul that even with a satisfactory salary from his next job, he and his wife must implement wise changes in their consumption. “I like your vision of a better life, but your income is not commensurate with your vision and will continue to be so.”
You Don’t Have to Compare Yourself with Peers to Live a Prosperous Life
Sethi acknowledges the inherent social nature of humans and the susceptibility to peer pressure and societal trends. He recognizes that lifestyle inflation is a common trap for those with increased income, leading to escalating living standards. However, he emphasizes that Maddie and Paul should recognize that their friends’ lifestyles have no bearing on their personal financial situation and goals.
Sethi encourages personal awareness and autonomy in managing finances: “Decide (for yourself) which social influences you are happy to accept and which are inconsistent with your fulfilling life.”
The couple agrees on the show that they must learn to politely decline invitations for travel or weddings that are not a top priority, allowing them to allocate their funds toward achieving their most cherished goals.
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