Save, Don’t Spend, Like the Top 1%

Friday, November 01, 2019

Give me a violin. A tiny one.

“My ex-wife is suing me for more alimony, I’m paying college tuition for three kids, my Hampton property taxes have doubled, and my new wife shops more than Paris Hilton,” whined one of my longtime, Manhattan-based money manager friends.

What my friend and many of his Wall Street co-workers are crying into their champagne about is their year-end bonuses. Those bonuses can amount to as low as 33% to as much as 500% of their base six-figure salaries.

A bonus on top of a six-figure salary is something to cry about? Surely, we must be missing something, right?

In 2017, the average Wall Street salary (including bonuses) was $422,500 — their highest level since the 2008 financial crisis.

By 2018, that had dropped to $398,600.

And it’s likely to be even smaller this year due to volatile markets, trade wars, the never-ending political fighting in the Washington, D.C., cesspool and a mega-shift into low-cost exchange-traded products like ETFs and ETNs.

According to Bloomberg Business News, the average Wall Street bonus will be as much as 15% smaller than last year. This will be the third year in a row of shrinking Wall Street incomes.

OK, I can understand why my friend is upset over an industry-wide annual income squeeze. But it doesn’t explain the waterworks.

Then I learned that he is teetering on insolvency. That definitely explains his anxiety.

But it also raises another question: How did things get so bad?

After all, six figures per year is still a lot of money. And while I don’t know my friend’s exact income, I do know that he has been making $1 million-plus a year for the two decades that I’ve known him.

According to the Economic Policy Institute, the top 1% of wage earners in 2019 needed to have earned at least $421,926 last year. That means my friend is solidly in the top 1%.

I don’t mean to pick on him, but it’s clear to me that my friend is missing the bigger issue. Just like the government, he (and wives No. 1 and No. 2) has a spending problem, not an income problem.

And more money can’t fix that kind of financial illiteracy. It only means you have more to lose!

He has probably made 10 to 20 times more money in his lifetime than I have, but I bet my net worth 10 to 20 times larger than his. Which goes to show that it's not how much you make, but instead how much you save.

For most Americans, the very best place to save money is inside a 401(k). In fact, accumulating a million dollars is easy if you faithfully contribute to your 401(k) or other retirement savings account.

Not only does 401(k) money go in without taxation, but many companies will contribute 50 cents for every dollar you save up to 6%.

Your 6% plus the company’s 3% gets you to 9%.

If you save $5,000 a year ($3,333 of yours and $1,666 of company match) for 30 years and that money returns an average of 10%, you will come close to accumulating $1 million.

So, don’t live like you belong on the "Lifestyles of the Rich & Famous." Save, don’t spend, your money.

And don’t get married a bunch of times.

Best wishes,

Tony Sagami

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