Addicted to Income

This is a guest post by Robert, who lives in Calgary and works as a financial adviser. He is married, has three kids and plans to retire at age 35.  Robert and his wife then plan to return to school and become teachers, eventually living and working overseas.

Something that’s very important to me is the idea of finding meaning in my life. My wife recommended a book that I really enjoyed, called What Should I Do With My Life, by Po Bronson. It is a collection of stories about people who are trying to answer that question. Some do and some don’t find an answer, but it was interesting for me to see the role that money plays. My assumption was that trying to find something meaningful in life was a luxury for the relatively rich. I also assumed that when people cash out, it becomes easy to do what they want with their lives. It turns out that neither assumption is very accurate.

The story that struck me with respect to financial resources was of bond traders (where the author worked). They earned $300,000 a year commission, and many of them were going to do it “just a few more years, then follow their dreams.” Seriously, after just three years of that kind of income, most people could afford to follow their dreams for quite a while without worrying about earning a paycheck. The author turned down that job, choosing to do what he loved: write. But where are the bond traders? 12 years later, most of them are still earning fat commissions.

My suspicion is that they became addicted to the income. I’ve seen it before, and I sometimes call it “lifestyle inflation.” The more a person earns, the more they spend. For one thing, they feel entitled to their quality of life. And then they buy a bigger house and a faster car, and the monthly payments chain them to their source of income. But people also seem to measure their self worth by the size of their paycheck. They may tell themselves something like, “I’m a worthwhile person because I have a house on the lake and two imported cars in the garage. Look how successful I am!” I’m not saying they’re not a success, simply that when you define yourself by your job or your income, how do you ever leave it?

I understand that not everyone wants to leave their job. My father is a prime example. He loves what he does. He’s been saying for the last five years that he’ll retire “in the next five years.” This year, he plans to retire about five years from now. But why would he retire? He’s doing what he loves, and was never a candidate for early retirement. The reason I want to leave my job is that I feel my calling in life is in education and that where I’d prefer to spend my time.

Lifestyle inflation is something I haven’t really struggled with. Part of the reason is that I’ve always been careful with money. In university, my wife and I lived on very little. As we could afford more, we ate better and we committed more to savings. When we took on commitments, we made sure we could handle them, buying a moderate (1550 sq ft 2-storey) home and just one small car (Toyota Echo). I guess I’ve always had a bit of a minimalist streak. As we earned more income, we used some of it to buy investments. Where my wife’s friends would buy shoes and matching handbags, we’d get excited about publicly-traded companies and stretch a little to buy their stock.

But it helped that I defined what I wanted from life before the income became abundant. We had set our plan to follow our hearts to teach in an international school in Asia. That helped us focus on paying off our house and building our investment portfolio. Now that our house is paid off, we have more disposable income than in the past. Sure, we spend more of it, but we are already focused on our version of early retirement.

I wonder if people who spend all of each increasingly larger paycheck will ever be able to make a break. The job may not be meaningful, but the income sure is nice and they couldn’t make this much money anywhere else. That’s probably true, but what makes it all worthwhile? Are they just addicted to income? Have you experienced this? Do you know anyone who has ditched a big paycheck to do what they love?

15 thoughts on “Addicted to Income”

  1. My husband and I are in this position currently…Good incomes and a good pool of savings/assets/no debt because we live moderately compared to our income. We could easily ‘cash out’ and do something else, we just don’t know what that ‘something else’ is.

    I think the people who have a “dream” (teach in Asia, open a fishing lodge, etc.) are the fortunate ones…there are a lot of us who haven’t figured that part out yet. While I agree a lot of people become addicted to their income, that’s not always the case….maybe I should read Bronson’s book again!

  2. I read that book several years ago and walked away with similar thoughts. I think it’s true, most people live up to whatever salary the are making.

    Many that make $100k think, if only I made $300k, THEN I would be able to save for retirement. Baloney. People save at all income levels, and other people spend at all income levels. It’s more about the individual than the dollars. Think of all those Wall Streeter’s that lost their jobs in the melt down that were financially devastated. Probably they liked their jobs and the income very much so never fathomed not working (so weren’t saving).

    I think it’s much easier to meet long-term savings goals like retirement if retirement is something that really appeals to you.

  3. ldk, I wasn’t thinking of people in your situation when I wrote the post. At the same time, I don’t think it’s rare to not have a “dream”. The book I referenced doesn’t provide the answer and many of the anecdotes are about people who either have a dream, but don’t acheive it, or who struggle to even define their dream. Alternatively, you could try this Zen Habits post: (linked from the post that Tim linked to on Friday).

    Retired Syd, I liked: “Many that make $100k think, if only I made $300k, THEN I would be able to save for retirement. Baloney.” I’ve seen that, too. I’ve also experienced, “I’ll be happy in five years when the house is paid off, when the kids are all in school, when…” I made a conscious effort to do meaningful things in the meantime, and it’s made a difference.

  4. Great post, I definitely think that a lot of people are addicted to income because it is most definitely addicting. Even those of us who are very aware of the lifestyle inflation that is happening can still have a hard time turning away from it.

  5. I doubt anyone is immune to “lifestyle inflation.” I worry about it constantly. And it becomes more portent as one works to wean oneself from earned income.

  6. My situation was exactly the opposite of being addicted to income. While I was working, I voluntarily cut my pay twice because I hated the commute so much and wanted more nonwork time. The first time I cut my pay by about 40%. The second time I cut it about 25% (of the already reduced amount).

    For me, being able to easily sustain (and improve) my general daily lifestyle on this repeatedly reduced income (and added nonwork time) was how I liked to “show off” my success.

    But my biggest achievement was being able to reduce my wage income to zero and still sustain my daily general lifestyle when I ERed in late 2008.

    You could say that I was addicted to how much nonwork time I could “buy” with the wage income I chose to forgo. This is comparable to Syd’s final sentence in her comment.

  7. I’m in a similiar situation to ldk. For the first time in our lives, my wife and I do not need to feel stressed about money.

    I’m 55 and ready to retire for the second time.
    My big concern is that I will be looking for something in 3 years. Every 3 years I get bored and need something new. To me work and fun have always been the same. I love to be excited so I find jobs that get me going. I too have taken many paycuts to do interesting jobs.

    My small business was exciting but has turned into a job but I like the money!

    On the other hand, every day when I look at the obits, I think “what the hell am I doing still working”?

    To me, retiring only works if I can do things, play hockey, golf, bike, work out, etc.

    So I’m struggling too. Retire now while we’re healthy or take the chance and work another 3 years and make more money!

  8. Deegee, you brought up the exchange of time for money and money for time. I’m going to explore that further next week, because it’s an interesting idea.

    Mike, I think that’s a very common dilemma. Most people want to be excited by what they do, whether at work or in retirement, and want to be sure their money won’t run out. Thank you so much for sharing your thinking and experience with this.

  9. Hello Robert I’m new to the site and I think it’s interesting to compare our stories. I’m currently in my first year of teaching high school and while I enjoy it, I think I might one day want to get into finance in some capacity. This might mean simply moving within the education system or changing careers entirely.

    As for the post, I think living rurally can be a great antidote for lifestyle inflation. I was raised rurally in Manitoba and I never thought of myself as a minimalist simply because few people around me ever had money to spend on luxuries. Lifestyle inflation basically consisted of a newer snowmobile or a bigger pick up truck. Now that I am finally making some ‘real money’ I don’t find it difficult to save and be happy at the same time. I believe living rurally makes it easy to enjoy the ‘simple things’ in life and there is not the constant temptation to spend money like there is in urban environments.

  10. Great post. I was previously a banker and later a financial advisor. I saw so many people struggle to keep up with the neighbors. I read an article somewhere that recommended people live in communities where they are on par with the neighbors or somewhat higher as far as financial status. That this would reduce the keep up with the joneses syndrome. This i think is echoed by one of the posted comments “living in a rural setting”.

    I am a business owner whose main product is being replaced by computers. This was not unexpected by me but was by my partner. So we basically lived different lifestyles. The business will probably be closed in three years. I am in a postion strangely that I cononsider it a blessing. It will force me to start the next phase of my life whatever that may be. I am in a financial position to do so; my partner is not. I do plan on working for the extras and most importantly the social asspects. Like the authors father I work because I enjoy the process and interaction.

    thank you for the blog. Enjoy reading the posts.

  11. Kyle, thanks for sharing. You’re not the first person I’ve heard of wanting to move from teaching school to finance. Either there’s something about teaching that’s less attractive than I think, or maybe many people like to try something new to continue to learn and grow.

    It’s interesting what you said about your rural setting and a lower temptation for lifestyle inflation. I hadn’t considered it, being a city boy. I also found that it was easy to save more while my income increased. Keep it up, and it’ll move you quicker toward your goal.

  12. Mike, you make a great argument in favour of working toward financial independence. Even if you’re not there yet when you’re forced to change jobs, you’ll be in a much more stable position than your colleague.

    I also agree with the advice about living in a neighborhood that fits the lifestyle you want to maintain, not the maximum you can afford. I think this is particularly a problem in the US where mortgage interest is tax-deductible, so it was normal to buy the most house a person could afford. I believe that The Millionaire Next Door book makes the same point.

    Best of luck finding what you’d love to do next!

  13. Hey Robert,

    I don’t want to chase you off of teaching at all! I like my job the vast majority of days and I do get major satisfaction from constantly engaging students. BUT it’s definitely a job you have to have a passion for doing, because when you don’t you make a terrible teacher. I see way too many of these types out there and I have promised not to be one of them.

    I also just find the idea of money, budgeting, investing, and capitalism in general to be very interesting. There is plenty of room within the education field to grow, so this may scratch my itch so we’ll see. I’m teaching a grade 10 business class this year and it has been fun to share some of the stuff I read on line here with my students. Best of Luck.

  14. As a friend of mine used to say,”There are some people who are broke at a very high standard of living!”

  15. I forgot to mention that we were probably no more than 13 or 14 years old at the time. We are now early fifties, and he just sold his very succesful accounting firm for a large sum and is now set for life at pretty much whatever standard of living he chooses. There is something to be said for not only living within your means, but to “sacrifice” and live below your means can ultimately be very rewarding.

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