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Six-Figure Incomes and Going Broke?


Six-Figure Incomes and Going Broke?Oh my goodness, have you seen this article at WSJ – Six-Figure Incomes and Facing Financial Ruin? It’s ridiculous. If you’re making a 6 figure income, it’s probably your own fault that you’re facing financial ruin. Well, barring medical problems, that is. That can ruin anyone.

Here is the featured spender – Ms. Flores, 40 years old and lives in Oceanside, CA. She was earning more than $200,00 per year, but ran up $300,000 in credit card debt! This wasn’t her first brush with credit card debt either, she filed bankruptcy in 2005 after incurring about $500,000. How did she manage to do that?

Well, I guess if the credit card companies let you borrow money, then you might as well spend as much as you can. Live it up because, you can just keep doing it again and again. You can live way above your means when you’re still young and enjoy life. However, retirement will really suck if you don’t have any savings. (I’m assuming you don’t have much saving if you’re in $300,000 in the hole.) At that point, the credit card companies probably won’t let you borrow any money because you don’t have an income. It will be a big drop in lifestyle and for once you will have to pay your own way. Social security benefits definitely won’t fund personal chefs and lavish international vacations. Anyway, Ms. Flores is trying to turn it around so at least she might be in a better position when she’s 60.

Hypothetical Couple

WSJ also profiled a hypothetical couple with two teenagers in the Chicago area making $400,000. That’s a ton of money. How can they screw that up? Let’s see.

Income: $400,000


  • Tax, retirement, and college saving: $127,000.
  • Mortgage: $87,000. Assuming a million dollar home.
  • Property tax: $24,000.
  • Home maintenance: $25,000.
  • Utilities, cellphones, and other household bills: $15,000.
  • Groceries: $30,000. That’s $575 per week which turns out to be more than what we spend on our groceries/month.
  • New car every 4 years: $15,000/year on average.
  • Car insurance: $9,000
  • Discretionary purchases: $21,000
  • Health club due: $12,000
  • Vacations: $26,000
  • Sports related fees for children: $10,000
  • Gifts and holiday spending: $4,000
  • School fundraisers and charitable giving: $5,000

Okay… That level of spending seems absurd to me. They have a $10,000 negative cash flow every year with this budget. They’re basically broke and will need to reduce their retirement saving by $10,000 just to make ends meet.

First of all, their housing bill is around $150,000! That’s way higher than the average wealthy household. According to the U.S. Bureau of Labor, the wealthiest household spends about $38,000/year on housing in 2012. Next, their grocery bill is $575/week? Are they eating caviar and Champagne every meal? Their transportation expense is over $25,000/year. Basically, this budget is pretty absurd for this level of income.

Of course, this is just a hypothetical family. I’d hope that most families with this level of income would be a little more responsible with their money. Even if they get into trouble, they still have a huge advantage over the middle income households. They can just hire a financial advisor and turn things around very quickly simply because their income is so high. They’re living high on the hog and it would be pretty easy to cut the fat. Does anyone really pay $1,000/month for their health club? The most prestigious athletic club in Portland only costs about $200/month. Of course, the initiation fee cost $10,000 per family and you’d have to win a lottery. (ridiculous…)

No Symphathy

I guess I’m just jealous of Ms. Flores. She filed for bankruptcy and then went through the whole debt cycle again seemingly without any repercussions. I don’t have any experience with bankruptcy, so I don’t really know much about the process. I guess she had to cut back for a few years to rebuild her credit, but she’d still be pretty comfortable with a $200,000 yearly income. Mmmm… It would be nice to have a personal chef, personal assistants, maids, a nanny, a McMansion, and a new luxury car every few years.

Of course, the big down side is when you can’t work anymore. You’d have to live on social security and it’d be a big decrease in lifestyle. Personally, I’d rather have a comfortable lifestyle now AND when I’m old. Anyway, I have no sympathy at all for fiscally irresponsible people with high income. It’s easy to get financial education these days and they are still in a much better position than the middleclass. I’m sure most high income families are doing much better than Ms. Flores and the hypothetical family.

What about you? Would you live a luxurious lifestyle until you’re 65 and then be destitute afterward? Or would you rather live within your means and maintain a modest lifestyle?

Photo credit: flickr avlxyz


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Joe started Retire by 40 in 2010 to figure out how to retire early. He spent 16 years working in computer design and enjoyed the technical work immensely. However, he hated the corporate BS. He left his engineering career behind to become a stay-at-home dad/blogger at 38. At Retire by 40, Joe focuses on financial independence, early retirement, investing, saving, and passive income.

For 2018, Joe plans to diversify his passive income by investing in US heartland real estate through RealtyShares. He has 3 rental units in Portland and he believes the local market is getting overpriced.

Joe highly recommends Personal Capital for DIY investors. He logs on to Personal Capital almost daily to check his cash flow and net worth. They have many useful tools that will help every investor analyze their portfolio and plan for retirement.
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{ 51 comments… add one }
  • Lance September 10, 2014, 9:52 am

    I wrote last month on a lady I met that makes $100,000 a month and is completely broke. Problem is they were making $300,000 a month regularly and now business has not gone so well. People can be broke at all income levels as long as their spending exceeds income. People who make $20,000 a year can’t understand how people who make $50,000 are broke, it is all perspective.

    • retirebyforty September 10, 2014, 3:07 pm

      Well, if their income is unstable, then they really need to save for the rainy days. Businesses can have downturns as we all saw in the last recession. How they heck are they spending down $100,000/month? Can you post a link to your article?

      • Jay September 10, 2014, 5:08 pm

        That’s absurd. That takes “not understanding money” to a whole new level. I’d be interested in reading it as well.


  • Andrew September 10, 2014, 10:06 am

    Probably had no financial education as usual in these type of situations. Schools don’t teach shit. They’d rather have you read Beowulf…

    • retirebyforty September 10, 2014, 3:07 pm

      Yeah, that’s unfortunate. We depends on the parents to teach financial responsibility, but a lot of parents have no clue.

  • Dividend Mantra September 10, 2014, 10:23 am


    That’s a shame. I think there’s a lot of blame to go around, although people definitely do not take enough personal responsibility for their situations. Much easier to blame politicians, or the economy, or the educational system.

    Although, I do wonder if it’s way too easy to claim bankruptcy and do it all over again. People like this who spend way above their means, go broke, and claim bankruptcy are not punished in any way or prevented from doing it all over again. This creates massive inefficiencies in the system that eventually have to trickle down to people who work hard and live below their means. Maybe bankruptcy should be a one-time deal, unless it’s medically related. And those that claim personal bankruptcy maintain some kind of designation that makes it almost impossible for them to dig themselves another hole.

    Best wishes!

    • retirebyforty September 10, 2014, 3:13 pm

      Right, people really need to take responsibility for their actions. I don’t think it’s a big inefficiencies, though. The credit card companies are making plenty of money. I’m sure they wouldn’t lend to her if they’re not making a ton of money.

  • Michelle September 10, 2014, 10:27 am

    These situations are truly sad. I would much rather live a more modest life and within my means instead of a life where you are broke. It just doesn’t make any sense to me to make that much money, yet be broke.

  • kammi September 10, 2014, 10:28 am

    That’s so sad. My relative is a professional neurosurgeon and she told me once while she was going to school they had a class that basically had to tell them how to manage their finances, because it’s no secret that even with six figure salaries (easily half a mill a year) bankruptcy is common. I don’t like wastage so I have no sympathy for those people who mismanage their finances; sorry. The food budget is laziness; obviously eating out too much. There is no excuse for at least getting that food bill down. It’s the 10th and I haven’t spent a dime on eating out at all this month!

    • retirebyforty September 10, 2014, 3:15 pm

      It’s nice that your cousin had a class like that. I never had a personal finance class when I was young. I guess my old profession wasn’t a big money maker. 🙂

  • Mrs. Frugalwoods September 10, 2014, 10:31 am

    That is equal parts crazy and sad. I’d much rather live (as I do) way below my means and not have any debt or fears over how I’ll pay for things in an emergency. I prefer a secure financial future over meaningless consumption!

    • retirebyforty September 10, 2014, 3:16 pm

      Meaningless consumption can be fun, but I’m sure it feels pretty empty once you get used to it. I think once in a while is a nice treat. Living below your means is the way to go normally.

  • John C September 10, 2014, 10:49 am

    Those numbers for the hypothetical family are truly crazy. I know housing in Chicago is more expensive than in Southwest MI, but I bought a pretty nice house for what this hypothetical family spends per year on theirs! The $25K per year for maintenance on the home is crazy too, If I spent $87K in mortgage payments I would think it would need to be a newer home with very low repair costs.

    Virtually every line of spending is beyond crazy on this theoretical family. I wonder if they just played with the numbers until they could make it seem remotely possible for a family earning 8X the US median income to be broke. It would have been interesting to see if they broke down the Tax, retirement, and education savings into individual line items. That must be one heck of a vacation they take! It would be relatively easy to tweak that budget to the point where they are in excess $100K a year instead.

    • retirebyforty September 10, 2014, 3:17 pm

      Yeah, that level of spending seem absurd to me. I’m sure there are a few families like that, but it’s definitely not the norm. I also think it should be pretty easy to cut the spending down by 30-50%.

  • Ben Luthi September 10, 2014, 11:12 am

    Agreed! No sympathy for those types of people. It reminds me of when Hillary Clinton said she and Billy were broke when they left the White House because of some debts. Absolutely no tears are coming out of my eyes for that kind of irresponsibility.

    • retirebyforty September 10, 2014, 3:18 pm

      Heh heh, yeah. She doesn’t know what broke mean.

      • nicoleandmaggie September 12, 2014, 9:55 am

        To be fair, from what I understand, most of those debts were from hiring lawyers to take care of the whitewater thing (and other lawsuits). And it’s not like they had to go bankrupt to pay them off.

  • Tawcan September 10, 2014, 11:22 am

    I have no sympathy for these people. Learn to control your spending. Those hypothetical numbers are simply out of whack.

    People who run into credit card debts obviously don’t understand that you have to pay back whatever you owe. Credit cards aren’t some magic cards that you just swipe and get magical money…

  • Justin September 10, 2014, 11:26 am

    I’m working on an interview of one of those $400k/yr earners right now. In contrast to the folks in the article, this household I’m interviewing managed to pay off $400k in debt and save enough to reach financial independence in their 30’s. And live in a high COL area. And have a kid.

    Unlike virtually all of the rest of their peers at work, they saved a big part of their incomes and did things like ride public transit instead of taking taxis.

    Sadly I think the “making six figures, still going broke” phenomenon is more common.

    • retirebyforty September 10, 2014, 3:19 pm

      Cool. I’m looking forward to it. How the heck did they run up $400k in debt? I assume consumer debt.

      • Justin October 7, 2014, 6:08 am

        It turns out it was $200k in debt (I thought it was $200k in debt each, but that was total – all college loans) plus another $20-30k in car debt and credit card / consumer debt.

        The article is scheduled to come out Monday Oct 13

  • Merlion September 10, 2014, 11:40 am

    I worked in an industry where a high percentage of the employees earned six figure incomes and many of them have lavish lifestyles i.e. luxury homes, expensive cars and “exotic” vacations. Even as I received promotions and pay increases over the years, I did not engage in lifestyle inflation and opted to max out my savings in my retirement account and invested the rest in taxable accounts. I feel fortunate to have financial security and have choices in how I want to spend my life.

    • retirebyforty September 10, 2014, 3:20 pm

      That’s great to hear. At least there is one sensible high income earner. 🙂
      Do you have any insight on why your peer spend so much money? Is it just because they want to live it up?

      • Merlion September 12, 2014, 7:42 am

        I think it has something to do with a perception that their professional success and social status is linked to the visible trappings of wealth. One example I remember was when I got a promotion to a management level position and was given a reserved parking lot near the front of the building where I worked. I had been traveling on business for a week and when I got back to the office, a coworker asked if I had a bought a new car as she had not seen my 5 year old non-luxury SUV in the parking lot! I guess my non-luxury SUV stood out among the BMWs and Mercedes!

  • ALDO September 10, 2014, 12:01 pm

    This is just insane. It goes to show that making more money will not necessarily solve people’s problems. I want to make more money, but only because I want to save more so I can retire earlier, not so I can spend more.

    • retirebyforty September 10, 2014, 3:21 pm

      It’s what you keep that matters, not how much you make. Making more money is great, but you need to be able to keep more too.

  • Paul N September 10, 2014, 12:18 pm

    What happens if this is a family member like a parent or a cousin, and then they later ask you for “help” financially? A situation like this happened in my family. Not $400,000k worth but 2 X $100,000 K worth of earning power. Then never saving a penny, then a divorce then living in a parents winter home and asking for money. I have the will to say no but not everyone does…. People need to be more responsible for themselves. I think these situations are humorous and this would make a great TV series. ( Title idea : The $400K and not a dollar in my 401K show?).

    • retirebyforty September 10, 2014, 3:22 pm

      I’d have to say no too. Maybe just help out with the bare minimum. If they make $200k, they should be able to take care of their bills.

  • Chi September 10, 2014, 12:23 pm

    I have just recently started reading your blogs. Like you, I want to retire and have more free time. Both my hubby and I are in our 40s, working in Corporate America and too scared to leave our jobs behind for fear of running out of money. Hubby’s biggest worry is how to pay for college costs for our 2 kids (who are 14 and 10). We both have 6 figure incomes and have maxed out our 401ks for the last 20 years. We have rental properties that generate about $60,000 annual net income (after property tax, insurance and maintenance). What’s your advice for me to finally make that leap like you have?

    • retirebyforty September 10, 2014, 3:26 pm

      See if you can live on just your husband’s income and the rental income. Save all your income every month. If it works out, then you have a chance to retire early. College is big problem, though. Can your kids get scholarship or financial assistance? It’ll be tougher with your high income.
      I’d come up with a retirement plan and a timeline. Good luck!

  • jim September 10, 2014, 12:36 pm

    Lets all get MAD at the hypothetical family!! 😉

    Actually I think its good for them to use a hypothetical faily since this way the interwebs doesn’t get outraged at some real family for wasting away 400k in this way. Save the poor rich people from getting made fun of all across the web.

    That $87k for the mortgage of the hypothetical home is way too high. That is assuming 6.25% interest on a 15 year loan with $850k debt on a $1.2M house. With that mortgage theyd’ be putting about $35k a year into the home principal in effectively forced savings.
    If they refinanced to a 30 year fixed loan they could cut their payments down to about $4400 a month or $53k a year pretty easily. Thats $24k annual difference right there by simply not over paying their mortgage. Or if they wanted to keep the 15 year term they could get it down to $77k and cut their costs $10k a year. 6.25% is far too high to be paying on a mortgage given todays rates, but I suppose it happens.

    $25k a year for maintenance seems silly too. But that may include house cleaning, lawn care, pool cleaning, etc. Still its honestly hard for me to see how you could spend that kind of money. Unless the house is just old and falling apart.

    • retirebyforty September 10, 2014, 3:28 pm

      Yeah, it’s fun to get riled up at the hypothetical family. 🙂
      Thanks for getting the detail on the home. I didn’t find it on the article. It must be from the consultant company. 6.25% is way too high to be realistic. I thought the house cost more, like $1.8M or something like that.

  • anonymous September 10, 2014, 2:47 pm

    She’s financially irresponsible, but didn’t do anything unethical. She just gamed the system to her advantage and suffered a blow to her credit for her mistake. There’s no reason to be jealous of another stranger. Credit card companies know it’s an unsecured debt and thus charge sky high interest rates.

    If you’re happy with your own spending and lifestyle, that’s what matters in the end.

    • retirebyforty September 10, 2014, 3:29 pm

      Right, it’s the credit card companies’ responsibility to screen their customers. They are making plenty of money from their high interest rate and it’s just a number game for them.

  • Jason September 10, 2014, 2:52 pm

    I think the real issue with many of these families is that they truly believe that they’ll be able to work forever and they’ll keep getting raises, bonuses, etc. With that mentality, why not blow all of your money?

    Maybe it’s negative of me, but I’ve always told myself that my income was never guaranteed and having some savings could save me from disaster, or at least soften a disaster into maybe just a downturn.

    • retirebyforty September 10, 2014, 3:30 pm

      That’s really smart of you to assume your income is not guaranteed. You never know where life will take you. I guess people are too optimistic and don’t think ahead for the long term.

  • Pennypincher September 10, 2014, 3:01 pm

    Some readers were sad for the big spender?? I don’t feel sorry for her. She filed for bankruptcy once already to get off the hook. I see the big spenders in my small town. One had to move into affordable housing after losing the big income. Another had nothing left for retirement after spending it all on lifestyle. Still working at 65. What were they thinking?
    Reminds me of the traits of a narcissist-constant need for attention, a show of status, wealth. What goes around, comes around.
    Hypothetical couple’s numbers are waaaay out of line. Not realistic at all.

  • Maverick September 10, 2014, 3:15 pm

    It makes me think differently. I don’t expect a “hand-out”…ever. But I have to ponder a what-if. What-if I transfer all my wealth to my significant other (with whom I deeply trust), then take my credit cards and go on a super spending spree and give the stuff away. Then declare bankruptcy. When bankruptcy is “off the books”, transfer back wealth from significant other.

    My point being that I believe it’s too easy…still, to get into / out of bankruptcy.

    • so September 12, 2014, 3:54 am

      “But I have to ponder a what-if. What-if I transfer all my wealth to my significant other (with whom I deeply trust), then take my credit cards and go on a super spending spree and give the stuff away. Then declare bankruptcy. When bankruptcy is “off the books”, transfer back wealth from significant other.”

      That’s an obvious fraudulent conveyance and the court would reverse the transfer to your wife and make the assets transferred to your wife available to satisfy your creditors (provided it occurred in a year or so prior to the bankruptcy). The laws are set up to handle simple simon scams like that.

  • Shane September 10, 2014, 3:57 pm

    No sympathy from me. Ridiculous. Why are people smart enough to get to that kind of level of income and then be so dumb when it comes to managing it?

  • Melanie @ Dear Debt September 10, 2014, 4:13 pm

    This is insane! I have never even made close to that, so I think that is just stupidity on their part. Especially about going bankrupt and racking up more debt?! What’s the point then? There are many people like myself, working at modest salaries, of 25k-40k working really hard, but also having a decent life. It blows me away when I read these articles.

  • SavvyFinancialLatina September 10, 2014, 5:06 pm

    Yes! I actually read this article and thought puke! It’s disgusting. I honestly can’t believe people don’t save their income when they are such high earners. BUT….my husband has a family member with a $1M+ house the is broke. Constantly says they are broke but still drive super expensive cars, crazy nice vacations, and crazy nice house. He worked for them and they shafted them on the agreed upon payment. It was only a couple of hundred bucks and they didn’t want to pay him. Yet they spend that on one dinner out. Priorities are not well adjusted.

    • retirebyforty September 12, 2014, 10:19 am

      Sorry to hear that. Rich people really need to spend more time with regular people to see what broke is. It sucks that they stiffed your husband.

  • Vince September 11, 2014, 4:48 am

    Thank you. Another wonderful post.

    What shocked me about the hypothetical family was the pittance they spent on charitable giving. I make a good living (and fear retirement because I don’t know how to deal with medical insurance). My wife and I consider it a priority to carefully choose and help charities that really help others. It’s a responsibility and a privilege. Sometimes people need people; that’s all there is to it.

    More on topic, my wife’s ex-husband sold his family business after their divorce for a bit over $4 million. He then chose to live a lavish lifestyle (not as much as your example) and he invested in land deals. The basic motivation behind this was simple greed – he wanted to turn $4 million into lots more.

    I don’t understand it at all, and I can see I’m not alone. Thanks for the post and all the comments. Y’all are pretty fascinating folks.

    • Vince September 11, 2014, 7:47 am

      Oh, I forgot to mention – my wife’s ex-husband is now broke. Four million dollars disappeared! I shake my head at that. It’s the greed that did it. If he’d lived modestly, or even a bit more than that, he was set for life. I don’t know what he was thinking.

    • retirebyforty September 12, 2014, 10:21 am

      $4 million is plenty for a single guy to live comfortably for the rest of his life. I guess some people just can’t stop taking chances. He probably should have invested more conservatively.

  • Jay Cup September 11, 2014, 7:10 am

    It’s all about discipline and lifestyle inflation. Most people don’t have it, no matter what their income. That’s why we hear about these pro athletes who are making millions going broke after a few years. It’s just baffling!

  • Tom September 15, 2014, 11:03 am

    It’s kind of annoying to see these “hypothetical” situations or actual cases that newspapers or news websites produce to show how people, even those who make $100k or even $500k a year, end up in debt. Of course the moral of the story is, if someone making way more than you (the average American) cant make ends meet, how could YOU possibly expect to save.

    It’s this whole cycle of enabling that the media does to get people to read their stories. The typical reader gets to be annoyed at the rich, make fun of them and then use that story as an excuse for themselves to not try to save. It’s a great recipe for getting eyeballs on your story I guess.

    • retirebyforty September 16, 2014, 9:02 am

      I guess you’re right about how the public will take it. The media has to make money somehow. 🙂

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