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How $40k/year is NOTHING, you need a hustle!

Discussion in 'Hustles, Freelancing, Bootstrapping' started by Almantas, Aug 11, 2017 at 6:31 PM.

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  1. Almantas
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    Almantas Silver Contributor Read The Millionaire Fastlane I've Read UNSCRIPTED Speedway Pass

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    Hi guys,

    Just had a discussion with one of my mates about JOBs and salaries. He sent me an interesting case study that I will share with you all:

    Meet Greg. He’s 25-years-old and lives in San Diego, California. He graduated college in 2013 with a useless degree in communications from Cal State Fullerton and has bounced around from job to job over the past 4 years to where he now makes more than he ever has—$40,000 a year salary. He’s also as broke as he’s ever been, albeit he has a roof over his head, food in his belly, and running water and electricity. Should he be grateful?

    Let’s break down Greg’s finances:

    His income is $40,000 and he gets paid on the 1st of every month. This means he gets 12 paychecks a year. This puts Greg’s monthly income at $3,333.33

    Every paycheck, however, he has deductions taken out…

    Health Insurance: $76.24

    Dental Insurance: $44.76

    Federal Income Tax: $331.15

    State Income Tax: $88.07

    Social Security: $206.67

    Medicare Tax: $48.33

    This is a total of $795.22 taken out of each paycheck before he ever sees a penny of his earnings. This is $9,542.64 taken out for the year. You can see that Greg doesn’t make $40,000, he “makes” only $30,457.36 because he only gets $2,538.11 deposited into his checking account each month.

    Here’s how Greg, who lives very frugally, spends his money:

    Having racked up debt for delaying his career and going to college for 4 years, he has a monthly student debt loan payment of $227 he’s dealing with. (National average is $280/month)

    Here’s Greg’s updated financial picture after this expense: $2,538.11- $227 = $2311.11 left over.

    Instead of splurging on a studio, he roommates with 3 other dudes in a small run-down house. His rent, which includes cable, internet, trash pickup, and utilities, is $750. This allows him to live in an “average” area (not a nice neighborhood but it’s not the ghetto). At least he has his own small bedroom, right? There’s no dishwasher though, so the sink often looks like this with 4 dudes:

    [​IMG]

    Here’s Greg’s updated financial picture after his housing expenses: $2311.11 - $750 = $1561.11 left over.

    To get to his job in La Jolla, Greg needs to have a car. Riding a bus is too time-consuming and besides, who wants to live in southern California without a car? His old 1994 Toyota Camry he purchased 3 years ago finally broke down after it hit 220,000 miles and he was forced to get a “new” car. He settled on a 2004 Chevy Impala that costs him now $84 a month, but the big expense is the insurance which sets him back $170 a month. Add in $150 he spends on gas and suddenly he’s spending $404 a month on transportation expenses.

    Here’s Greg’s updated financial picture after transportation expenses: $1561.11- $404 = $1157.11 left over.

    He likes to go to the gym to keep his body in shape, so his gym membership sets him back another $50. His monthly cell phone brings another $87.34 out of his pocket. This adds another $137.34 in monthly reoccurring expenses

    Here’s Greg’s updated financial picture after accounting for all reoccurring monthly expenses: $1157.11- $137.34 = $1,019.77 left over.

    You can see that Greg has just over $1,000 of money each month left to “spend” as he chooses once the monthly reoccurring expenses are paid for.

    Can you live on $1,000 a month for food and drinks, clothes, recreation, sports, birthday gifts, doctor copays, repairs, unexpected expenses, furniture, travel, etc.?

    Let’s look at what Greg did.

    He goes to WalMart and loads up on Ramen Noodle, and generally eats cheap. He wants to eat healthy but never sets foot in a Whole Foods. “Eating out” means a $5 turkey sub which he splurges on a couple times a week. All in all, Greg manages to only spend about $500 a month in food, which is only $16 a day.

    You can’t really take a girl out for steak and lobster for $16 a day, nor can you feed a family. That’s why Greg isn’t focused on dating or marriage at this point, he struggles to take care of himself, much less a family. Can you imagine how a guy making $40,000 a year with a stay-at-home mom and a couple of young kids does it?

    As you can expect, Greg easily spends the remaining $500 on various life expenses that come up each month. This past month he was able to save a penny, literally. After all, isn’t a penny saved a penny earned? At that rate, Greg will become a millionaire in 100 million months—or 8,333,333 years. Yes, that’s over 8 million years. By then, a million dollars just might be worth a penny.

    The reality is Greg will probably not save a penny a month and have a nest egg of $3.60 in 30 years because one of these months he’s going to have more unexpected expenses and he’ll have to go into debt. To ever get out that debt, he’ll have to cut even more into his monthly expenditures or he’ll need to increase his income or create more income flows or do both!
     
    Last edited: Aug 11, 2017 at 8:52 PM
  2. Ecom man
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    Ecom man Platinum Contributor Read The Millionaire Fastlane FASTLANE INSIDER Speedway Pass

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    If you are making 40k a year and still choose to live in San Diego than you have bigger problems than your expenses... you are horrible at making decisions.
     
  3. 458
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    458 Gold Contributor Read The Millionaire Fastlane Speedway Pass

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    Who cares about Greg, he's average. I fire Greg's all the time.. If Greg wants more, he should be more. Capital allocation flows to assets that produce top or bottom line improvements, if Greg is neither then he's lucky he even has a kitchen that looks like that. If you don't like that, go live in North Korea.
     
  4. E-Sharp
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    E-Sharp Bronze Contributor Read The Millionaire Fastlane FASTLANE INSIDER Speedway Pass Summit Attendee

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    Let's look at what Greg didn't do: the dishes.
    Maybe there's a relationship.
     
  5. Almantas
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    Almantas Silver Contributor Read The Millionaire Fastlane I've Read UNSCRIPTED Speedway Pass

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    This piece is not written by me (as mentioned previously), I just found it somewhat interesting how a regular guy on $40k a year makes financial decisions. As per dishes, I am pretty sure there's a correlation between a kitchen mess and a financial mess.
     
  6. Sequential
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    Sequential Contributor Read The Millionaire Fastlane

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    The key here is...why $40k we don't know what field Greg is in nor his role in the field.
     
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  7. JAJT
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    JAJT Ha Ha! Business Read The Millionaire Fastlane I've Read UNSCRIPTED FASTLANE INSIDER Speedway Pass LEGENDARY CONTRIBUTOR

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    I love getting people to analyze their incomes like this (so few do) but this really just "Personal Finance 101".

    Honestly, California and other absurd living choices aside, $40k is a perfectly fine amount of income for most people to live on with a budget and some discipline. It'll put a roof over your head, food in your belly, pay all the bills, and give you some reasonably monthly entertainment. You have to save up for the things you want and Christmas probably sucks and vacations are mostly a "one day" thing but most people can be perfectly happy on that amount of money, assuming they don't ask too much out of life and properly budget, anyway. It's basically bordering lower middle class and middle class. I suspect most people fall in this range

    IMHO, if you want to live the way most people try to (and go in debt for) in North America you need to be making around 80-100k. That's around the point where you can go on a 2 week vacation every year, save for retirement, pay all your bills, not worry about things like minor car and house repairs, go to restaurants, and in general feel pretty 'good' about things without worrying about money unless you are just a die-hard consumer who can't wait to spend every time you get - and at that point no amount of money will fix this (just ask most lottery winners). You'll want more at this income range, but it's a good, honest life.

    Lucky for most people here we're not worrying about these two situations because we're too busy swinging for the fence.
     
  8. InspireHD
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    I tried to move to San Diego twice. Neither time worked out because I wasn't willing to spend my savings to try to make it work while I was unemployed.

    I once met with a guy who lived with 3 others and they were looking for a roommate. They were fairly close to the beach. I can't remember where he was originally from, but it wasn't California. I want to say it was somewhere on the east coast. Their apartment was dark, dirty, and disgusting. Cigarette ashes on the stove, dishes piled up, furniture looked like it had been dragged through dirt. They were all crammed into their apartment to keep the rent and expenses low.

    But...., he was working in a call center while trying to find a better job. Plus, duuuude, they lived near the beach in San Diego!! The dream!

    (I would still love to live there some day) I proposed to my wife on the beach in La Jolla. :cool:
     
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  9. ApparentHorizon
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    Looks like a dishwasher under that counter - Greg might have other issues if it is.
     
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  10. Justin1999111710
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    A clean house = a clean mind
     
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    Calculations like this are why I recommend people to start a business (even if it's small and shitty and on the side).

    With enough effort, you can easily start a $10k a year side hustle.

    An extra $10k a year for a guy like Greg would equal $200 extra a week to spend on dating, fun, travel, etc. Small amounts like that make a tremendous difference in terms of quality of life.

    Your bottom line is "disposable income". Any increases to that create the biggest differences in how good your life can be.

    For Greg, that increase would be from $1,019.77 a month to $1,853.10 a month - an 81.7% increase in terms of financial life quality.
     
    Last edited: Aug 12, 2017 at 12:26 AM
  12. hellolin
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    I don't get how people making less than 60k a year live in Southern California, I make just that and my life is JUST comfortable enough for me to log on this forum and read MJ's book, thinking about my next move. But to get here I had to pay a lot prices, even though I have no debt to speak of whatsoever. The only good thing going for Greg is how cheap his health insurance is, mine is like $200 a month AFTER the employer already paid $300 on his part for me.
     
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    Here is the thing, Greg is actually doing well for what he makes. He didn't go out and buy a brand new BMW like many of his situation would, he actually spends like how much he makes. Most of his peers are getting high on credit cards while complaint about the loss of American dream, not knowing that more successful people who have achieved what they want are pushing them out of places like California by raising the real estate price.
     
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  14. juan917
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    40k is different from 40k / year. title is a bit click baity
     
    Last edited: Aug 12, 2017 at 4:31 AM
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  15. Almantas
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    Almantas Silver Contributor Read The Millionaire Fastlane I've Read UNSCRIPTED Speedway Pass

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    Hi Juan, my apologies for unintentional click-baity title. Well pointed!
     
  16. Camilo Ardiles
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    Camilo Ardiles Contributor Read The Millionaire Fastlane I've Read UNSCRIPTED

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    The most important question for me at least: is this guy trying to find a way out of this financial disaster? :D
     
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    Expected a boss post where a forgotten bank account with $40k is found but it means nothing because #fastlaneballin

    Instead I found Average Greg.
     
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  18. Almantas
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    Almantas Silver Contributor Read The Millionaire Fastlane I've Read UNSCRIPTED Speedway Pass

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    Apologies for disappointing you, dear Sir!
     
  19. ksc23
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    It's not you, it's Greg :(
     
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    What if he was making $40k from passive income, would it still be seen as nothing?

    Out of interest what would it cost for a 4 person family to live a modest life in an average state in the US?
     
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    Gregs pretty smart, living in a nice city on a shit salary and not spending above his means to increase debt.

    I thought taxes were a lot more in California. Here in Toronto, anyone with a decent salary gets taxed 30-35%. Real Estate (Buy/Rent), Hydro, Electricity, Automotive costs are out the roof and go up yearly. You need to make over 100K as a Full Timer just to pay your bills and have a small amount of cash on the side for shopping, 1 vacation a year, etc.

    This thread is a great eye opener for the young kids and college students on the forum who haven't moved out on their own yet with a full time job in their career. This should be motivational to hustle and work harder on any business ventures you're contemplating on starting or already have started and lost some spark. This is real stuff. I remember when I bought my first house one year after college at 22 and wasn't making much money either, I was living pay check to pay check with an excel sheet documenting every penny made and spent. I had to work overtime just to buy something for myself....I never believed in debt. It was bs, and it was very difficult for me to test business ideas and start something because I had 0 savings. It took me years to figure out a way how, which I eventually did.
     
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  22. TheRegalMachine
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    Most young folks think 40k will lead to stability and some pocket money to fool around with.
    Sadly most don't have the luxury of a level headed adult sitting them down and telling them the truth of the matter.
    Sadly most don't try to research it themselves without an adult to hold their hands either.
    Sadly most will listen to peers and adults who know jack shit about finances.
    So they blindly go forwards, making unnecessary purchases regularly, and keep repeating the same mistakes they have seen
    others make before.
    This parabolic Greg like the dishes in that sink are symbolic of irresponsibility.
    Those fuckers know the dishes have to be done. And they know it doesn't take much effort to wash those first few dishes. Some soap, water, maybe a cloth or sponge, but they let it all pile up until you have a mess that will be time consuming and a pain in the ass.
    The 40k isn't the problem it's the fact Greg didn't do the simple house keeping early on. Now he has a mess on his hand that isn't easy to clean up.
    Clean your fucking financial dishes Greg.
    Don't wait for your shitty roomies to do it either.
     
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  23. mike24601
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    I make shit money right now. But by living rent free with family and tightening up on my expenses I manage to save half my income a year. If I were Greg, I'd be saving half of 40k a year. Hell, I'd rent a bedroom from an old lady with a house full of creepy dolls and doilies on the furniture if it meant I could save more money. And if I made 100k a year, I'd save half of that too. 50k to bills, living expenses, and food. The other 50k goes to building my business, investing in real estate, and hey, what the hell, I'll throw 10k a year into a mutual fund while I'm at it.

    Whatever else I can do to make money off of money!!! I am REALLY good at living frugally, and I recognize that sacrifices need to be made now so I can enjoy my ideal life later. Not 40 years later, but 10 years is a very reasonable time frame for this to work. You can bootstrap a lot of business ideas, but having money in the bank for "fuck you" events, buying inventory, hiring out certain tasks...it certainly adds a lot more good gumballs to your gumball machine.
     
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    It is a common theme and pretty standard conditions most millennials live in these days.

    Gregs life is the first quarter of both of MJs books, we should all know the answers by now if you have read them.
     
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  25. MJ DeMarco
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    Admin Post
    If they occur, if they don't, you can bet he spending that money to assuage his misery. I don't blame him. Why save when his current financial outlook is a millionaire by year 2200?

    Can you please credit the author with a link?

    Changed.

    Amen. At least he has a job, nowadays that shows some level of competence and work ethic.
     
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