2977: If You Are Young And Have A High Income: Treat It As A Windfall by Kevin of Financial Panther on Freedom

[00:00:00] This is Optimal Finance Daily. If You're Young and Have A High Income, Treat It As A Windfall by Kevin of FinancialPanther.com

[00:00:10] By almost any measure, I had hit the jackpot. I graduated from law school in 2013 with honors and landed a job at one of the largest law firms in the Midwest.

[00:00:22] In an era where law students were, and still are, frequently finding themselves unemployed or underemployed, I was one of the lucky ones.

[00:00:33] My starting salary in my first ever real job was $110,000 per year. Here I was, a 26-year-old kid making a salary that my middle-class parents had never earned in their entire lives.

[00:00:48] The most I had ever earned in a year before was about $20,000. According to the Bureau of Labor Statistics, the average salary for 25-34-year-olds in the United States is $38,324 a year.

[00:01:04] I was making nearly three times that amount. By my third year at the firm, my salary rose to $125,000 per year.

[00:01:14] I was a baller. But, like almost all new lawyers, or almost anyone entering a high-paying professional field, I also had sizable student loan debt, about $87,000 worth.

[00:01:28] So what's a newly minted 26-year-old lawyer to do with this type of income? I worked hard to get through law school, after all. Don't I deserve to live it up?

[00:01:38] And that's how many young lawyers do it, or doctors, or dentists, or anyone entering a high-paying field at a young age.

[00:01:47] The new lawyers around me mostly followed the same sequence of events. Some bought new houses within a year or two of starting work.

[00:01:55] Those that didn't buy a house lived in the hippest neighborhoods and in the hottest luxury apartments in town, replete with jacuzzis, balconies, and rooftop patios.

[00:02:06] One young lawyer I knew spent half of his take-home pay on a penthouse apartment.

[00:02:12] Everyone had student loan debt, as far as I was aware. But that was normal for a new young lawyer.

[00:02:18] When you have this huge income coming in, you'll be fine.

[00:02:22] Heck, my standard repayment for a 10-year student loan was in the neighborhood of $1,000 per month, about 11% of my starting salary.

[00:02:31] That's not really all that much when you think about it. Certainly manageable to be able to live well and pay your student loan bill without worry.

[00:02:40] That's not the way I approached my new job.

[00:02:43] I didn't want to be the normal, young lawyer and take 10 years to pay back my student loans.

[00:02:49] There was an opportunity to do something great with this newfound income.

[00:02:53] Most importantly, I knew I didn't want to be stuck in the shackles of the golden handcuffs, forced to stay in a job because of the money.

[00:03:01] A time will probably come when your job is the worst thing in the world, and I didn't want to be forced to have to stay in a job I hated because I needed the paycheck to keep up my lifestyle.

[00:03:12] So the way I approached my salary was to treat it as a windfall.

[00:03:17] I didn't act like I made six figures.

[00:03:20] Instead, I acted like I made normal money for someone my age.

[00:03:24] I lived in normal apartment buildings and paid average rent for my area.

[00:03:29] But that didn't mean I was living like a pauper.

[00:03:32] I still went out to eat, lived in good neighborhoods, and hung out with friends.

[00:03:36] I just didn't spend like I was making six figures.

[00:03:40] Instead, I spent like I was making a normal income for a 26 or 27-year-old professional.

[00:03:46] If my closest friends were making less than half of what I was making, then why not just live like I was making that too?

[00:03:53] I treated the rest of my income as a bonus and used it to pay my loans and get myself more financially settled.

[00:04:00] Now, two and a half years later, I'm free from the student loan shackles.

[00:04:05] And because I was free from student loan debt, I was able to take a new, more satisfying job, making $50,000 less per year without even blinking an eye.

[00:04:17] If you're young and have a high income, treat it like a windfall.

[00:04:22] I'm not saying to act as if you don't deserve the income.

[00:04:25] If you're young and worked hard to get where you are, you absolutely deserve to be paid appropriately.

[00:04:31] But don't get caught up thinking you're suddenly a big shot because you're in your 20s and making a ton of money.

[00:04:37] You'll have plenty of time in the future to be a big shot if you want.

[00:04:42] You don't need to be a big shot yet.

[00:04:44] Most of your peers aren't big shots.

[00:04:46] It won't look weird if you live modestly right now.

[00:04:50] There's a video of Dave Ramsey answering a question from a new lawyer-doctor couple.

[00:04:56] And it's a great example of the way most young high-income earners act once they get into their first jobs.

[00:05:04] Basically, a young lawyer and doctor couple tells Dave that they have $420,000 in student loan debt

[00:05:11] and are starting their careers and expect to make $550,000 a year.

[00:05:17] They want to buy their dream home.

[00:05:20] Even after being told not to buy the home and instead to live cheap and pay off the loans,

[00:05:26] you still get the feeling that this couple is going to buy the house.

[00:05:30] Because that's what you're supposed to do when you make that much money.

[00:05:34] Imagine what they could do if they lived like they made $80,000 per year

[00:05:38] and treated the rest as icing on the cake.

[00:05:42] Don't squander your high income.

[00:05:45] When I left my job to move into government work,

[00:05:48] I asked some of my peers how they stood on their student loans.

[00:05:51] No one that I had spoken to had made a dent in their loans.

[00:05:56] Instead, they appeared to have spent it on their apartments and fancy restaurants,

[00:06:00] basically living the life that's expected of a six-figure earner.

[00:06:05] After 2.5 years, they basically had nothing to show for all their hard work.

[00:06:10] You never know what the future may hold

[00:06:13] and you want to give yourself the flexibility to do what you want to do

[00:06:17] and not be dictated by what your monthly payments are.

[00:06:21] You'll have your entire life to make money.

[00:06:24] Treat those early high income years as a bonus

[00:06:27] and get yourself on the right footing.

[00:06:29] Your future self will thank you.

[00:06:36] You just listened to the post titled,

[00:06:38] If You're Young and Have a High Income, Treat It as a Windfall

[00:06:42] by Kevin of FinancialPanther.com

[00:06:45] While I'm not a lawyer, I like to say I play one on TV

[00:06:49] because I spent most of my corporate career negotiating contracts.

[00:06:53] And while I didn't get the six-figure income right out of school,

[00:06:57] I did hit that income level before 30 years old

[00:07:00] and thankfully around the same time that I discovered the FIRE movement,

[00:07:05] which stands for Financial Independence Retire Early.

[00:07:08] This allowed me to get out of debt quickly

[00:07:11] and start saving and investing 60% of my income.

[00:07:14] Many people assume that I must have been depriving myself.

[00:07:18] But when your material needs and desires are minimal,

[00:07:22] saving a large percentage of your income is very exciting.

[00:07:26] The way I looked at it was that I was front-loading

[00:07:30] the saving and investing I needed to do anyway for eventual retirement.

[00:07:36] Once I reached Coast Fi,

[00:07:38] which means I have enough money in my retirement vehicles

[00:07:41] to grow to what I need for traditional retirement in 30 years,

[00:07:45] and I had a solid emergency slash opportunity fund,

[00:07:50] which for me was two years of living expenses liquid,

[00:07:53] it gave me the option to walk away from the high income

[00:07:58] and see no change in my quality of life.

[00:08:01] Most people think saving and investing will benefit them later in life,

[00:08:06] which is true and that long-term mindset is good,

[00:08:09] but it can also lead us to procrastinate.

[00:08:12] Saving aggressively when I had a high income

[00:08:15] didn't just help me secure my retirement.

[00:08:18] It helped me right now

[00:08:20] because I had the financial bandwidth

[00:08:22] to walk away from W2 work and pursue self-employment.

[00:08:27] That'll do it for today.

[00:08:28] Thank you for listening.

[00:08:30] Have a great rest of your day,

[00:08:31] and I'll see you on tomorrow's show

[00:08:33] where optimal life awaits.