Saturday, July 14, 2012

How much money will you make in life?

You may make more than a million dollars in your life.  Hanging onto it is the trick.

 As I noted in The Amount of Money You Will Earn is Finite, you will only earn so much money in life, a fact that become painfully clear as you near retirement.

When we are younger, we tend to think that our income is open-ended.  We secretly harbor dreams of "striking it rich" someday.   I know as a hydraulic technician at AeroQuip, making $4 an hour, I dreamed of getting a job at UTC making the fabulous sum of $8 an hour.  And it was enough to allow me to buy my first home, too.

But at the time, I was going to night school, hoping to get a job as an Engineer, making the whopping sum of $30,000 a year!  I would be really rich then, or so I thought.  Then it was on to law school, hoping to make the fabled $100,000 a year!  Holy Cow!   But of course, by then, well, a hundred-grand is just the name of a candy bar, today.

In my previous posting, Buyer's Checklist, I alluded to the fact that how much you make in life is not hard to calculate or estimate, with pretty good accuracy.

For example, assume you are a typical American, starting out in life at age 22 with a half-way decent job and career (you didn't waste your college years going to frat parties and smoking pot, and instead studied something that lead to a paying career).   Maybe you start out at a low salary - that is typical in any economy, perhaps making as little as $25,000 a year.   But by age 30, you can expect to be making the median income of $50,000 a year, and perhaps by age 40, $75,000 a year.   And maybe, over time, you may approach the fabled $100,000 a year.

And if you have a spouse, they may make a similar amount.  Assume that one of you takes a decade off to have children, and factor that into the mix.

Well, you can add up the numbers, and come up with a result. From age 22 to age 30, you will earn over a quarter million dollars, or about $338,472, if my figuring is correct.  If you are married, and your wife works, that's over half-million dollars, right there.

Let's assume from age 30 to 40 your salary rises only with the rate of inflation - about 2%.  That's about another $550,000 right there.  Double that, if your spouse is working.

From 40 to 50, you might see the same thing.  As you can see, you are well over the million mark.  It is a staggering amount of money.

But a finite one.

Do the math.  Based on your own career path and the pay rates for your job and your locality, you can figure out, probably with a +/- 10% accuracy, how much you will earn in life.

And even if you made $10 an hour, from age 20 to age 65, this would come out to $990,000 in a lifetime.

The point is not to get overwhelmed by "all that money you are making" - but to realize how little it is.  And also realize that you may end up making less than this, particularly if you get laid off in your 50's and never work again - or never work again at a job in that pay range.

Lottery winners often end up bankrupt, as they spend a million dollars as though it was an unlimited amount of money.  To them, a million is a "lot" - more than they can count.  So they spend it, and end up broke - and we shake our heads and call them fools.

But your average salary-man does the same thing - he earns maybe a few million in his career, and squanders most of it, convinced there is more down the road to spend, and that he is "making a lot of money".  But he ain't.

And when he is laid off at age 55 - and broke - we should shake our heads and call him a fool.  But the media paints him as a victim of external forces - as though he was forced to serially lease cars, buy cell phones, and subscribe to Cable.

Well, from the media's point of view, this is "true" in that their advertisers sell these products, or indeed, the media company itself is in the business of selling these services.  

It is an interesting exercise to figure out what you will make in life - and try to figure out how much you should save.  You may realize early on that in order to reach your savings goals, you have to set aside, regularly, a finite amount of money.

And this means, of course, not spending a corresponding amount of money.  It means making sacrifices, because you can't just "choose to save" and then keep spending like before.

Something has to give, as you will only make so much money in life, period.