One of the best career advice tips I have to offer you has nothing to do with your job. You can have the best job in the world and earn a small fortune, but if you don’t do this one thing, you will not find long-term success.
The secret is that it’s all about what you do with the money you earn. The most common mistake people make is when they spend $3 for each $1 earned. This was drilled into me by my dad—who was a first-generation American and teacher in Brooklyn—when I was a little kid. At the time, it didn’t make any sense to me because I was a kid. What the heck did I know about money? He always said to live far below your means, save and invest as much as can, and in the long run, you’ll have a tidy sum to rely on. “Money begets more money” was his mantra. So, basically, my tip is really ripping off of my dad’s tip. Since he’s long passed away, my dad won’t know I’m stealing his line, but he’d really appreciate me retelling this in Forbes, if he was still around.
I’ve always followed his advice religiously—primarily out of guilt and not wanting to hear his constant lectures on this topic—and saved enough money to retire today (if I’d like to), which is a wonderful luxury. Unfortunately, this is not the case for the majority of Americans.
We live in a time when credit is cheap and it’s super easy to lease luxury automobiles and purchase whatever we like online with our credit cards. Social media pressures us to live up to the lives of Instagram influencers, compete with so-called friends on Facebook and keep up and surpass our neighbors by having the most toys.
The Wall Street Journal recently ran an in-depth piece detailing how “The rising costs associated with maintaining a middle-class lifestyle are pushing American middle-class families further in debt.” The article cites that wage growth has not kept up with the meteoric increases in buying a home, paying for college tuition and dealing with medical expenses. Over the last 30 years, the average family income rose 14%, while the house prices skyrocketed 290%, health-related expenditures rose about 276% and the average tuition at public, four-year colleges rocketed up 549%.
Instead of being frugal because of these large expenditures, people are doubling down with their expenses and financing purchases with their credit cards and home refinancing. Previous generations, without the anchors of hefty mortgages, high real estate taxes and enormous tuition debt, bought things outright with cash to save on interest and penalty costs. The middle class today is left with little-or-no money to invest in the stock market or save in the bank for the future.
The average American is falling deeper into debt to maintain their lifestyle and keep up appearances. The ease of getting credit makes it easy to buy or lease anything you’d like and it’s put on your tab. The problem is that the tab keeps getting larger, homes more expensive and college costs insanely higher. It’s like a Ponzi scheme, in which we are buying stuff now with the hopes that it could be paid off in the future. We’re playing one big game of chicken. Can you eventually come up with the money in the future to pay back everything you owe or will some exogenous event, such as losing your job or a family member getting a serious medical issue, throw your finances into a tailspin and teeter on the brink of bankruptcy?
I encounter this type of scenario on a regular basis as an executive recruiter. A recently downsized professional will tell me that he needs to quickly find another job and will be flexible with his compensation requirements. New laws prohibit me from asking, but they’ll either tell me or I can infer from our conversation, which usually goes something like this:
Candidate: I need to find a job right away!
Me: What are you looking for—with respect to compensation?
Candidate: I’m wide open.
Me: Can you please clarify?
Candidate: Yes, I really need to get back to work, as I have a lot of expenses to pay!
Me: Can you give me a ballpark idea of what you’d like to make?
Candidate: I was earning about $250k all in, and I’m open.
Me: So, if I have something in the range of about $200k, would that be okay?
Candidate (angrily): No! That’s way too low!
Me: Hmm, when you say open, it’s not actually that open. Maybe more like $225k?
Candidate (really angry): No! I need 250k or maybe 240k. I have a big monthly nut.
The applicant will then recite a laundry list of expenses, such as their mortgage, real estate taxes, leased luxury cars, clothing allowance, travel, nannies, dining out, utility bills, saving for retirement and children’s college tuition funds and tutors, trainers and athletic gear for the kids. This is all with after-tax money. If you live in a high-tax-rate state, like New York or New Jersey, that $250k is gross pay and you’ll likely net a little more than half of that after all the taxes are taken out.
My advice—stolen from my dad—is to avoid this problem by starting early. Don’t pick a college with a high tuition cost, while majoring in a subject that won’t enable you to earn a living that could afford you the chance to pay it back, have a family and buy a home. Defer gratification and live modestly way below your means, so you can save as much money as you can. Warren Buffett, the grandfatherly multibillionaire, famously said, “Someone’s sitting in the shade today because someone planted a tree a long time ago.” Buffett has also stated, “Do not save what is left after spending; instead, spend what is left after saving.”
I hope this sage, common-sense, advice from a couple of wise folks from an older generation, can serve us well and help plan for a successful, financially secure future.