Friday, January 25, 2008

You CAN get by on $496,000 per year

My favorite personal finance book is a short one by Andrew Tobias: The Only Investment Guide You'll Ever Need. Over the years I've read it many times and given several copies out as gifts. As I am utterly incapable of producing my own topical content, I thought I'd free-ride on old Andy for a while, and tell you about one of my favorite chapter titles of all time.

The title of the chapter is "You Can Get By On $165,000 Per Year". Now if you live in California or New York, you're probably thinking to yourself "well, what's so strange about that? I mean I wouldn't want to have to do it, but I think my mom's cousin gets by on less, and so does this one guy I met at the bus stop, I'm pretty sure." Ah, but this book was written in 1978, when $165,000 was worth $496,000 of 2008 dollars. That's a lot of money even in Cali.

The point, dear readers, is that most people feel like they are stretching to get by on their income. But since there is such a huge range of incomes in the US and A, it can't actually be the income that causes this. Someone who lives above his means is likely to do so whether his income is $15,000 or $150,000. And someone who stays under her budget will manage to do so at a range of incomes as well. So if you're struggling to make do on your salary, odds are that getting more money won't solve the problem.

Or to paraphrase Andy again, since I don't have his book in front of me to plagiarize: $20,000 earned, $19,000 spent = happiness. $19,000 earned, $20,000 spent = misery.