Wednesday, June 27, 2012

The Salaryman Trap

A salary job can be a real trap - in more ways than other jobs!

I wrote before, in the Job Trap, how having a "job" to earn a living can be a dead-end, in that it encourages you to view money in terms of monthly cash-flow instead of real wealth you can own.

Salary jobs are even worse.   Back in the day, I used to fly out to Silicon Valley once a month, having a standing reservation on United Airlines, Business Class.  Oh, the frequent flyer miles!  Oh the credit card debt!  It was fun while it lasted - I only wished I saved more of that money!

But what was interesting, visiting these companies (Cirrus Logic, Sun Microsystems, Samsung)  was the people I would meet.   Most were young Engineers, a few years out of school, working in a cubicle on a SPARC workstation (remember those?) using Matlab to design integrated circuits, or perhaps writing code.

There were a smaller number of middle-aged people in management - the department heads, legal, human resources, and the like.   At at the very top, there were a few silver-back gorillas, with white hair on the temples, running the whole show - the CEO, the CFO, the COO, and the like.

It was, in a way, a pyramid scheme.  If you looked at the age distribution and the number of years of service, some things became abundantly clear.  Like with a law firm, there was room for a very few at the top, more in the middle, and at the bottom, a large number of young folks, in constant churn.

And the promise - not explicitly made, but implied - was that somehow, over time, if you stayed with the company, you would work your way up this ladder and make more and more money.

And as young Lawyers, or young Engineers, we never thought too much about the details of that implied promise - or whether or not in fact, it was practical.   Not everyone could just continue to advance and make more money.  In fact, due to the pyramidal nature of these types of organizations,  few would.

What happens to the rest?

What happens to a 40-year-old C+ programmer or circuit designer?  What happens to the Associate at the law firm if he doesn't "make partner".   What happens to the vast majority of people who work at these places?

Well, they go off and do other things, often for a lot less money.   And we don't like to talk about it, because, hey, we're young hot-shots, making the "good money" with promises of more, and we're not going to be "that loser" who we see going down the elevator with the picture of his wife and kids and his coffee mug in a cardboard copy-paper box.



The image above is of an Acura coupe - an overpriced Honda that appeals to young people who just "got a good job" and want to show off.  I met a young Engineer once, and we went out to the obligatory Chinese Lunch Buffet in Fremont in his new Acura.  He had traded his BMW in on it, and he was excited as to what a nice car it was.

Some of his older cohorts were smiling and nodding.   They knew the score - a young turk going out and immediately getting himself into debt up to his eyeballs, taking his bi-weekly paycheck and chopping it up into tiny little payments, until pretty soon, he was "living paycheck to paycheck".

And of course, the inevitable happened - the company downsized, and he found himself out of a job.   Of course, he is young and in demand, right?  So he can find a new job, in a matter of months.   And in the meantime, he can cash in part of his 401(k) to make the payments on the house and cars and credit cards.  Right?

After all, he is making good money!  And the future is so bright, he has to wear shades.  From here on out, it is nothing but prosperity and good times!

That was 15 years ago.  I wonder where he is today? I suspect the Acura is in a salvage yard somewhere near the bay.

Salaries for Engineers and programmers are still doing OK, but in some markets have stalled, as many companies have cut back or gone under, and thus put a lot of people on the street.

And while you might make "good money" at such a job, it never will be really good money unless you decide to accumulate some of it.

Going into debt for consumer goods, cell phones, cable TV, cars, jet skis, fancy houses, and all that crap means that when adversity strikes, you will lose it all and end up broke.

It also means missed opportunities.   When your friends tell you they want to start a new company making an exciting new product - and need a good circuit designer, but can pay you only in stock - what are you going to do?  "I need to make $100,000 a year to service my debts!" you say.   So you let opportunity go by, because you traded it for a jet-ski.

And opportunity does knock in your life.   A friend of mine decided to start a bank.  Yes, give me all that bullshit whiny American crap about how bank stocks are a bad bet.   You might think that, listening to the media.   I was able to only scrape up $10,000 to invest in the bank.   That has since morphed into more than $50,000, in only a few short years (and pays $1000 a year in dividends!).   Imagine if I had been able to invest $100,000.   Yea.

I was able to invest in Real Estate, though, and cash-out when the music stopped, with a seven-figure number.   But, the only reason I was able to do that was because I had a modest house and not a huge debt-load, thus qualifying me to buy those investment properties.

It is temping, as a salaryman, to think, "I am making so much money, my time is worth a lot to me!" - so you buy convenience foods, take-out designer coffees, eat in restaurants, and hire a lawn service.   After all, if you are making $100,000 a year, that is like $50 an hour, right?  So why bother doing it yourself?

But a salary job, as the name implies, does not pay you more money to work more.  So it is not like mowing your own lawn is taking away an hour of work, and thus $50 out of your pocket.   On the other hand, if you do this instead of watching "Jersey Shore" - you will definitely profit and be in better health.

But the second problem for the salaryman is normative cues - and salary jobs are chock full of them.   As I noted in cubicle survival tips, salary jobs are horrific as they place you in contact with a lot of other brain-dead salary people all day long.   And most of them on well entrenched on the consumerist bandwagon, buying crap on time and trying to outdo one another with their status.   And that is where one hears arguments like, "Well, my time is worth a lot, so I hire someone to breast-feed my children" and that sort of crap.

And of course, in the parking garage is the inevitable escalating war of cars - who has the fancier ride and who spent more in an apparent display of wealth.   And when lunchtime rolls around, these same brain-dead drones will encourage you to go out lunch, spend $20 of your hard earned money (even at $100,000 a year, this represents nearly an hour  of your after-tax income) on Chinese or Indian buffet.   And don't forget a designer coffee from the Starbucks in the lobby!  It's only five bucks and you can afford it because you're well off, right?

Right?  And if you say you can't afford it, well, then they will think you are poor or something - even though you both make basically the same salary.

Salary jobs are a trap, as while you may have a good income you may not be getting ahead in terms of increasing your net worth over time.   In the past, most salary people anesthetized themselves by looking to their rapidly appreciating homes as an indicia of their increasing wealth.   Today, that phoney wealth-on-paper has evaporated.   As a result, our nation's savings rate has actually gone up, as people are starting to catch on that we are not as wealthy as we thought we were.

So how do you avoid this trap?  It ain't easy, as the pressures from your peers and the media will be intense.  Your own spouse may be against you - in a big way - over this.   He or She will want - no, demand - that you keep up with the neighbors, in terms of spending.  Suddenly, you have to buy luxury cars and put the kids in private pre-school, and do all sorts of silly shit, financing most of it on time.

The secret, of course, is no secret.  Spend less than you make, max out that 401(k) plan, stop borrowing money for things, pay cash for cars, pay down debt, live within your means, and save up your money for the very real possibility that the "dream job" will go away long before you want it to.

And when that happens, well, you will be prepared.   And if it doesn't?  Well, you will be fantastically rich, then.   And if opportunity comes along, you will be able to jump on it, instead of saying, "No, I'll sit this one out, I have credit card debt and car payments to make."