Sunday, September 27, 2020

Why Are High Income Earners Struggling Too With Wealth?

An interesting article from TODAY (Link Here) shows why for the majority of people, even a highly paid career such as a pilot - they continue to struggle and face the crunch to survive when these are considered high-income earners.

The article interviews a random selection of 12 pilots, and while the sample number is considered relatively small, it gives a good indication of how numbers crunching and dire the situation is for these pilots during the pandemic.

High-Income Earners = Higher Wealth?

Many of us would think that high-income earners have a better correlation to wealth

After all, if you earn $10,000 as opposed to say $2,000, you should be much better off technically when it comes to your savings rate.... right!?

Most People Would Think Linearly That Nothing Can Go Wrong

As it turns out, this isn't necessarily the case.

From the article, one of the pilots is earning an income excess of $14,000 (including allowance) yet still struggles when the company had to force a company-wide pay cut to $6,000. Another pilot being interviewed has also admitted to being cash-strapped as his total compensations suffered a major cut down from the earlier of $23,000 to $13,000. We would think that is still a lot by most standard but when he has an obligation to pay $19,000 in his expenses the whole story is completely different.

It was easy for most of us (the bottom ladders) to assume that with that sort of income earned per month, it would have been a breeze to survive the winter. After all, basic housing, medical and food supplies don't take up that much of a pile.

But life has a way of making fun of us when we least expect.

As some of us earn more money, the potential of our savings increases. But we ended up with so many social junks that our expenses start to increase. Most people ended up with a lesser or equal number of savings rates or worst fare poorer than before.

High compensation including allowances and variable bonuses are often deceptive in nature.

They make us feel rich because we think that's where we should belong.

Welcome to the Life of Social Junk

At first, we started off with an upgrade coffee lifestyle venturing into the likes of Starbucks or Coffee Bean.

Then, we started upgrading our cars, homes, vacations, and many more of our other social lifestyle.

Earning high salaries have a way of filtrating us into a lifestyle that systematically drains each and every single drop of us, through spending more with the convenience of free x-month installments and debts.

You see your friends getting the latest gadget up on the market - Buy.

You look at your co-peers sending their kids to many different tuitions - Follow.

You look at that nice view from the top of your dream apartment - Buy.

You check your debt borrowings and it allows you to upgrade your car - Do it.

These are the kind of life we ended up today because we are filled with material possessions with little or no meaning to it. 

We are simply chasing the better after the next best, only to find out there are infinitely better things to chase.

What If Those Pilots Act Differently?

Some people like me, especially if you linger around longer in the finance community, would always think cynically.

At first, I don't think it's healthy to always exhibit this sort of thinking, but it usually helps mentally and the amount of work you put in at the other extreme when the world gone bad has tremendously helped to turn the situation around.

For instance, I am always skeptical about how long I can survive in the corporate world. 

I have always assumed that bad nasty people leads the corporate world and at anytime at their discretion they are going to eat me up.

Because of this mentality, I've gone into the other side of always trying to look after myself first. 

I saved hard. I saved for the rainy days. I saved preparing for winter moments like today.

And I invest for the future.

Increase Other Income, Think Cynically

Will these pilots end up in a better position than today had they saved more in good times in preparation for the rainy days? Perhaps so.

While it is difficult due to the nature of their roles having to fly in and out and keeping up with their fellow peers, I believe they can do that to a certain extent.

Most pilots also probably do not qualify for basic housing subsidy given their high household income so they are likely to live in a private condo. Nevertheless, they should still have enough buffer to save for their rainy days given their high level of income and allowances.

Perhaps, the journalist should have come up with a "What Would You Do Differently?" type of questions that would intrigued the readers from the lessons learnt.

Thanks for reading.

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16 comments:

  1. Hi,

    I think that peer pressure plays a significant part. If one does not follow the "Jones", one will be ostracised from the peer group. This is up to one to decide whether they want to follow the herd and the cost will be herdy and one will be in some sort of financial trouble when the crisis strikes.

    The best approach is to make hay while the sun shines. When crisis strikes, it is up to one who has to handle alone. Having the stashed buffer goes to great extent to softening the impact.

    WTK

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  2. When you are bankrupt, you are not allowed to hold on to your bungalows and Ferraris. So these pilots shouldn't expect to hold on to their existing lifestyle. Simple as that.

    Downgrade to a HDB unit since their current income allows that and life on their dividends, selling off their shares bit by bit etc. Won't die one.

    It's the lower income that can't afford to have savings, that's the people that we should be concern about.

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  3. Hi B,

    That is only one or few examples, not everyone. I have pilot friends surviving well with finances but the problem for them is uncertainty over long term as they do not really know what to do.

    Otherwise they can easily downgrade their property and cash out 7 digit that not many normal Singaporeans can.

    That said, having do nothing and still get salary is not that bad compared to many struggling at work!

    Sometimes I wondered if this world is so so wrong! People who hard and down to earth are suffering more than those who flaunt.

    But anyway, I belong to the frugal type but cost of living in Sg is really too high! And I am worry it will gets higher and not sure how our kids can cope in future... worry for them..

    ReplyDelete
  4. For the pilot who used to earn $23k. I find the below paragraph confusing.
    "
    The 50-year-old pilot who declined to be named has been with the airline for 27 years. He told TODAY that he is cash-strapped because the money he has earned during the span of his career has been invested in properties, stocks and bonds."

    Well, technically he is doing it right by investing in assets. But either he is really bad with investing or has other expenses... And stock markets in general did recover somewhat. So just find it a bit strange.

    ReplyDelete
    Replies
    1. Probably bought a ton of properties and totally in debt.

      Delete
    2. yeah true. Over leverage. But all is not lost. Can still cash out. Properties technically have not crashed. Just hard to sell.

      Delete
    3. Hi apenquotes,

      Stock should have generated some dividend for him. I suspect that his expense is of high figure and hence the generated dividend is not able to cover his expenses.

      WTK

      Delete
  5. Do we really believe all that is reported in newspapers?

    ReplyDelete
  6. His 13k per month after paycut still puts him in the higher percentile of income. There are tons of people that are earning 10% or less than what he is. These are the real struggles.

    ReplyDelete
  7. What about the idling caas civil servants, immunity as well?

    ReplyDelete
  8. Good habits like being thrifty n spend within one's means n gaining financial knowledge will see one thru any crisis. Sadly such skills are not being thought in school during the 70s to 80s.
    High income earners who lack financial discipline will have to learn it the hardway. I saved 40% of my income n set aside cash for emergency for more than a year as I have been thru hardship during my childhood years. I am sure there are sizable number of people out there who practice good financial discipline. We need to teach our kids how to manage money.

    ReplyDelete
  9. I agree wholeheartedly with your view on this issue. Most people earning a fixed income for hours worked assume that the standard of living that they have now is a right and will exist in perpetuity. However, the truth is that many things can rock that status quo. Because people do not think about this, they do not attempt to invest, do not learn new skills and are therefore vulnerable when they face salary cuts.

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