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

By Sam Instone - June 20, 2020

$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.

And I understand that’s easier said than done.

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.

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

Not surprising then, this forces down other spending.

Their housing costs are 33% of income, food is just 12.6% and transportation 15.8%.

(Which sounds quite reasonable).

Share of U.S. household consumer expenditures by major categories, 2016

Notably, they are still paying off student loan debt and their healthcare costs are high as a result of having two young children (despite earning a salary many of us envy).

Viewing their expenses in black and white, their lifestyle becomes even more apparent…

Affluent family budget distribution

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 retain wealth editedSpending 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 their children's education or their 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.

Conversations about money can be difficult.

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

You need analysis and perspective but most importantly you need access to the right type of information to empower your financial decisions. 

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And, ultimately, achieve financial freedom.

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