Money - you spend what you’ve got

[CountTheStars]

I have a theory that the higher your salary the higher your outgoings are. People earn more to spend more. So whilst someone on a £23,000 salary might look at someone on a £66,000 salary & think they must be rich in comparison, the reality is they’re most likely not, in a financial sense because you just spend what you have; you cut your cloth accordingly.

The person on £66,000 (my boss) is a case in point. His wife also earns similar, they send their kids to private school, are constantly upping their mortgage to fund extensions etc & as a consequence he moans that money just goes in & straight out again. They have a lot of extravagances in their life, eat out a lot, expensive holidays etc.

I’m the person on £23,000. I am a homeowner, I’ve got a good deal on my mortgage. I haven’t moved to a bigger house, my kids go to state comps & I put approx £600 per month aside in savings each month. I don’t buy takeaways, I am frugal with my food allowance . On paper, I am richer than my boss. Holidays are DIY affairs, in the UK, Wales, the Lakes etc.

So surely being financially solvent & financially aspirational is about making what you have work for you, rather than over-earning to over-pay.

What do others think?

My DH and I were like the OP’s boss but on a much higher salary (we are retired now). We always spent a bit more than we earned and luxuries became normal for us. We never, ever saved but luckily did pay a lot of money into pensions.

Of course a family on C£120K is better of than a couple/ family on roughly £50K.

I'm assuming they live in a bigger more expensive house and have more equity and possibly big pension pots even if they piss away the rest of their money every month.

Generally I agree that people with more money spend more but if they are financially savvy they also save more.
Only on MN are people high earners but live really frugally.
People who aspire to earn more mostly do it so they can buy a bigger/detached house in a better area or extend and have a nicer lifestyle, go on nicer holidays etc.
As we earned more we spent more but also saved/invested more too.

I’m roughly thirds: 1/3 bills, 1/3 discretionary spends, 1/3 savings.

For savings, that’s all pension, because I’m in my 50s, it’s tax efficient, and because I have enough emergency cash savings.

For my 1/3 bills, there’s actually discretionary items in there too, really. Like life insurance for example. I don’t need it, but I choose to have it, it seems a good gamble.

So I don’t spend to my limit, but I also do spend more on discretionary items (both absolute and as a %) than some others on my salary I’m sure. But also less than some!

Which is what I said earlier - I think it’s a given than on average, the more you have the more you spend - but that there are plenty of outliers in the data!

I agree OP. As incomes our have gone up our outgoings have too. In our case higher wages mean longer hours and more stressful jobs. This means less time for things like cleaning and gardening so these get subcontracted out. Childcare costs also increase as higher wages mean longer hours. We like to take more expensive holidays to maximise the benefit of our more limited free time.

Our housing costs have remained relatively static over time though as we are paying off a mortgage and we don't like to spend money on cars.

I also remember when I was growing up with very frugal parents one of my Dad's really well paid managers moving next door and being a bit put out that one of his employees could afford an expensive house. My parents decided to prioritise this but scrimped and saved in other areas on low salaries.

I don't completely agree with you OP - I think you're over-generalising, when really there are all kinds of frugal and profligate people at different points on the earning spectrum. And most people don't share the details of their financial set-ups.

OP are you richer than your boss, do you have more equity and a bigger bigger pension pot?

We've been married 35 years, and have had steadily increasing income. I would say that, apart from private education, our spending has not changed. We still eat out as much as we did, and look for offers in the supermarket. I don't shop at higher end stores.

Since our children have finished school, it has been a big thing for us to up the stars on holiday.

I agree with this. We've got a relatively high household income (£138k a year between DH and I.) Certainly as our income has increased we've spent more money, e.g buying the larger detached family home rather than staying in our little semi that we bought before having DC. We definitely spend a fair bit on going out for coffees etc and not having to worry too much about day to day spending.

BUT as our household income has increased we've become much more interested in personal finance matters and are definitely more knowledgeable than we used to be. So past a certain level on income where we felt reasonably comfortable we consciously agreed not to let "lifestyle creep" become a thing and just keep buying more expensive stuff. We prioritise stocks and shares ISAs, pension and other retirement savings, savings for our DDs and overpaying the mortgage. Any extra money we earn immediately gets allocated to one of these savings pots. The extra money has certainly given us more options and I think that's the true benefit. You have choices that you may not have if your income is lower and things feel tighter.

For example, we've just booked a caravan holiday to Devon for our family holiday this year. We could have afforded to go abroad but just don't feel the need to spend that extra money this year. Next year we may feel differently but we have the freedom of choice. It sounds like your boss is making choices that may or may not suit him but you also don't know how much his pension pot is, what other savings he has etc.

We earn about £150k a year between us. But you really wouldn't know it - we live quite frugally. Eat well, holiday well, but are just not spenders (neither of us interested in fashion, flash cars, high tech gadgets, eating out, etc). Our friends/family would be shocked if they knew what we earn. Will be all out in the open when we retire in a couple of years aged 55.

I thought that was the point of money.

It baffles me people with more money say they havent really got more money because they spent it on things and experiences. Particularly when those things are an investment like pensions and a nicer house in a nicer area or their own health and wellbeing

With you and your DH earning similar, you're actually on 46k. That's a nice pot. Now, I'd be interested to hear in an actual 23k household as that is less than my household's earnings and I think we can struggle sometimes

Handbag Theory. Whatever size your handbag is, you fill it up. You didn't invent that theory!

It’s called lifestyle creep. You earn more and start to increase your spending. It happens to a lot of people.

Both DH and I invest into our stocks and shares ISAs, save for emergencies and have general savings (holidays, birthdays, gifts etc). If there's anything specific that needs saving for, we do that too. Then we spend out disposable income however we like. Gym memberships, yoga, eating out, clothes etc. we live within our means but our salaries will continue to increase and our outgoings will too. We currently live in a 3 bed semi but we will move to a 4/5 bed detached family home. Potentially send kids to private schools, family holidays, invest into kids ISAs and so on.

Not true for us at all. We both earn well & invest a lot for early retirement. We do spend a lot on nice holidays, because we love them.

If you earn well, you choose what you spend it on. Lots of us invest & save. A few go for the big house/car to impress others.

It's not true for everyone but my outgoings have definitely gone up with my earnings. Mostly lifestyle stuff like going out for dinner and drinks a couple times a week and a few long haul holidays a year. We pretty much buy what we want without thinking too much about it. Our fixed costs are still pretty low though, we put a lot in to pensions and we do save although no where near as much as we should.

I think the difference in income shows when people retire. My DH and I retired early to mid 50’s with 1.5 million in pensions.

It depends on the individual, not their income level. We earn comfortably in the six figures as a family, and have enough in assets that we'd be fine if we never worked again (currently both early 40s). We live in a city centre flat and don't own a car, we take public transport everywhere. Holidays are often travelling on budget flights, staying in air b&bs (looking at Eurocamp this year though). We save more than we spend, I don't buy for the sake of it so don't shop for clothes or gadgets unless they need replacing. My phone is about 6 years old, not on contract. Netflix or Sky. No beauty treatments, even hairdressers. Hardly ever eat out or have nights out. We spend a lot on the DCs (education and days out), but it's well within our income. I have friends on varying incomes who spend everything they get. I've just never done that even as a student or when getting minimum wage.

I agree Op. I earn much more than I used to but my outgoings have also gone up!

Don’t really understand the last bit of your post- are you saying it’s not worth earning more as you’d spend it? Presumably if you spend it on an easier, more enjoyable life etc that’s worth it?
We are a very high income family. Haven’t upgraded the house or car etc but have great holidays, don’t have financial worries and still save and plan for the future. I feel very lucky that if our income stopped tomorrow out fixed outgoings are actually pretty low and we would be fine with a bit of reorganisation.

Not always…we earn more than we ever have now and we spend way less. When I was a sahm and dh earned 38k we saved 5-600 per month. Now we earn over 100k and save 2k per month. I still have the same car as it’s 15years old. I won’t upgrade until it’s dead!! Kids are in state school and we have no mortgage now either.

Exactly this. There is little point having money unless it is serving a purpose.

OP's boss sounds like he is making reasonably wise choices with his money and isn't necessarily 'frittering' it away. Paying for private schooling can be seen as an investment in their children's futures and adding an extension could add a lot of value to their property and help them build equity. Both of these things could easily deliver better returns in the long term for their family than OP squirreling away £600 a month in a savings account.

The money on meals out etc is enhancing the boss's quality of life and therefore serves a purpose. If his joy from these things began to be outweighed by his concerns about his financial position then it should be relatively easy for him to cut out some the discretionary spending and save a lot more than OP.

Building on this, a final note of caution I would add OP is that you sound a little bit smug that you have more money saved than your boss, but this is only half of the picture. He has a significantly higher income than you and can divert his money towards investments and savings and these will accumulate much more quickly than you even if you live a super frugal lifestyle. So whilst your savings might give you a bit of financial security and flexibility, your lifestyle and saving potential are severely compromised by your lower income.

@Bumpitybumper completely agree. Also, OP does not know how much her boss has in savings, or whether he has family money and has benefitted from any generational wealth which would really improve his quality of life as his mortgage could be lower, he could have put a big deposit down on his home thereby reducing the mortgage payments and he could have lots of money invested which over time will make money. It's not just about income

sometimes I’ve thought about the joys of earning a better salary but I think the reality (for most) is that you’d spend it anyway - I don't quite get why this is a problem. It's nice to afford nice things. We only get one life. It's lovely to go buy whatever car I want - just happens that I have no interest in luxury ones, but I also don't need to trawl through small ads for a random banger. If washing machine dies, I get a new one. It's great to be able to sign DC up for any activity or trip they want, without even considering if I can afford it. It's nice to have good holidays and not the cheapest I can find.
Yes sure there are savings and investments and we're not 'one paycheck away from being homeless', but it's also not my goal to be the richest person in the graveyard.