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Sam Instone

By: Sam Instone

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February 11th, 2019

How two lawyers, currently earning $500,000, admit they struggle to make ends meet (case study plus our thoughts)

Investment | Pensions | Financial Planning

$500,000 a year is an enviable salary.

Around AED1.8 million.

14 times the UK average. 

But it’s still not enough for one couple to pay their bills.

Spending less than you earn is step 2 in our 3-step financial planning process.

It’s easier said than done…

Given so many use borrowed money to fund their lifestyles.

Or live from salary to salary.

One American couple (not a client of ours) understands this all too well.

As high-earning lawyers they have a combined salary of $500,000.

This couple’s household budget is shown below.

Living in the U.S., their higher salary equates to higher tax.

Not surprising then, this forces down other spending.

Their housing costs are only 18% of income, food is just 5% and transportation only 3%.

(Which sounds quite reasonable).

Bureau of Labour

Notably, they are still paying off student loan debt…

And their healthcare costs are high as a result of having two young children.

Looking at this chart, it’s hardly a surprise they are living month to month…

Despite earning a salary many of us envy.

Viewing their expenses in black and white…

Their lifestyle becomes even more apparent…

Affluent Family Budget

A quick summary shows, they:

  • Own two relatively high-end cars and a $1.5M home
  • Spend $42,000 on child care.
  • Take three $6,000 vacations per year
  • Spend $1,000 per month on their kids’ sports and music lessons

Commendably, they also make large donations to charity.

The problem is not necessarily the types of purchases they make…

(After all their salaries can afford them)…

It’s the aggregate impact of all their expenses.

 

So, how would we advise them on the way forward?

If you’ve followed our blog for a while, you’ll recognise these 3 steps to wealth…

How to get wealthy over time-1

Spending less than you earn is step 2.

The key to this step is not the actual act of saving.

It’s finding the money to save in the first place.

You could argue this couple is technically spending less than they earn…

They have $7,300 left, after all.

But they are unable to save for retirement

Or have available money on hand for emergencies…

Simply because they are not living within their means.

The obvious solution for them is to look at where they can cut costs…

And have honest conversations about whether certain expenses are needs, wants or luxuries

Following the 50/30/20 rule.

Ultimate-Luxury-Bucket-List-Olivers-Travels

Conversations about money can be difficult.

They need both analysis and perspective.

Proper financial planning should allow you to enjoy life now while making provision for your future.

This family needs to look at the numbers now and into the future.

It needs a budget and a plan.

If this is built upon the right foundations (step 1) – you’re over half way there.

If you need advice on anything or would like an expert’s look into your financial situation, get in touch.

We’re always happy to help – and offer a no obligation, no cost 15-minute discovery call.

Book a 15-minute discovery call

 

About Sam Instone

Sam Instone, Director at AES International, is passionate about positive change and ensuring international investors get better results.

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