When we see someone driving a nice car or living in a big house in the nicest of neighborhoods, we often assume that these individuals are for better or worst higher earners living the dream, living the easy life. But are they?
Stressed
Many high earners spent years in school to get where they are. Most high earners work in high pressured professions and live in broken homes as a result of the long hours required to advance their careers. No wonder high earners tend to have high rates of suicides and elicit drug use.
Pay Check To Pay Check
This may be surprising to many, it is not atypical for high earners to live pay check to pay check. Simply put, those nice cars carry a nice car payment and a nice cost for insurance coverage. Those nice homes comes with a nice mortgage and nice costs of up keep (insurance, heating, cooling, landscaping, house keeping).
What about the family? Private schools for the little ones, those lavish family vacations and those social expenditures. You must keep your social status if you want to be in certain social circles.
But with those high salaries, they can afford it, right? As we tend to do at JoToFI.com, let us use examples.
Doctor And Lawyer
University
Let us look at the financials of a doctor and a lawyer. At about the age of 22, both our future lawyer and doctor will graduate college.
For all costs, let us use 2019 numbers for a rough estimate. Again for simplicity, we will use the average costs of public and private education. We will also assume only public or only private education from university to professional school for our estimates.
- Average public university cost per year: $10,116
- Average public university cost to graduation: 4 x $10,116 = $40,464
- Average private university cost per year: $36,801
- Average private university cost to graduation: 4 x $36,801 = $147, 204
Interest
Let us assume that our doctor and lawyer took out loans for school, for simplicity we will use the cost to graduation as their debt. For simplicity, we will not include interest charges. However, keep in mind that typically, interest accrues from the day the loan is disbursed. Interest continues to accrue until the loan is paid off. Further, this interest is capitalized. Currently, the interest rate is about 5% annually.
Professional School
After obtaining top grades and racking up debt at university, our future doctor and lawyer must now attend professional school.
For our lawyer, that is three additional years of law school education:
- Average private law school cost: $49,095
- Average private law school cost to graduation: 3 x $49,095 = $147,285
- Average public law school out-of-State cost: $40,725
- Average public law school out-of-State cost to graduation: 3 x $40,725 = $122,175
- Average public law school in-State cost: $27,591
- Average public law school in-State cost to graduation: 3 x $27,591 = $82,773
Our doctor on the other hand has four additional years of medical school:
- Average private medical school cost: $52,515
- Average private medical school cost to graduation: 4 x $52,515 = $210,060
- Average public medical school cost: $32,495
- Average public medical school cost to graduation: 4 x $32,495 = $129,980
Now, keep in mind that this debt accrues interest at about 5%-8%
Employment – Lawyer
For most lawyers this is it, at the age of about 25, they must now find a job. If you are aware of this profession, you will understand that the legal profession is bimodal. Meaning, at the top, a select number of law school graduates from top schools can earn a starting salary of $190,000 per year. Whereas at the bottom, the vast majority of lawyers earn a starting salary of less than $50,000 per year. In fact, the average salary for law school graduates is $72,500.
We will assume that our lawyer had amazing test scores, attended one of the top law schools in the country and was able to obtain a position with a starting salary of $72,500.
Employment – Doctor
For our doctor, residency follows medical school. Residency is a minimum of 3 years (based on your speciality) and an average salary of about $57,000 is paid. During residency, our future doctor will toil day and night. For many residents, the salary provided during residency is simply not enough. As such, our doctor’s loans will continue to accrue interest during this period
Following residency, let us imagine that our doctor foregoes a fellowship, it is time to find a job at about 30 years of age. With an average salary in the range of $160,000 – $200,000, absent the present debt load, our doctor has a bright financial future.
The Math
For our lawyer, with a starting salary of $72,500, without counting the accrued interest, if he attended:
- Private schools, he owes about: $147, 204 (University) + $147,285 (Law School) = 294,489
- Public schools, he owes about: $40,464 (University) + $122,175 (Law School – in State) = $162,639
- Public schools, he owes about: $40,464 (University) + $82,773 (Law School – out of State) = $123,237
For our doctor, with a starting salary of between $160,000 and $200,000, without counting the accrued interest, if he attended:
- Private schools, he owes about: $147, 204 (University) + $210,060 (Medical School) = $357,264
- Public schools, he owes about: $40,464 (University) + $129,980 (Medical School) = $170,444
With the accrued interest added, these numbers would be significantly inflated. This is especially true for our doctor due to the added year of medical school and added years of residency.
Now, is our doctor and lawyer living the dream, living the easy life? If anything, they have loan payments added to the lifestyle that they are expected to lead. Professional Stress + Financial Stress.
High Earners, High Debt
For high earners starting their careers, the debt loads are high. As high earners navigate their way through their careers, in addition to student loans, add the added cost of purchasing a home, getting married, having a family, life style inflation, and our consumerism culture. It should now be clear why so many high earners live pay check to pay check.
We are not telling you to feel sorry for high earners, especially those who live above their means to maintain social status. Our aim with this article is to give you an insight into the life of those who we typically view as “rich.”
Conclusion
Whether you are a high earner or not, your journey to financial independence includes living below your means, saving and investing. Journey on.
In this article, the use of “he” is intended to be gender neutral.
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