There is so much terrible financial writing around the internet. The “Web of Shame” series chronicles these atrocities.
I’m a big fan of Business Insider. They straddle the “infotainment” fence well in my opinion, by offering a broad array of business and personal finance news and stories. They seem to have a knack for understanding not just what is important in current business events, but also filtering down to only events people actually care about. They also have a pretty adept staff of writers. However, Libby Kane, author of Here’s the surprisingly conservative budget of a 26-year-old who earns over $200,000 a year, is NOT one of those writers.
Quick Article Overview
Libby’s article profiles a young man who goes by the pseudonym Tim Jacobs, a 26-year-old Wisconsinite who works as a software implementation consultant. Tim is highly successful. He graduated without student loan debt (which is awesome and I highly recommend this), and worked himself into a career field that is both in high demand, highly mobile, and highly compensated. I applaud Tim on being able to pull down $211k last year in base pay and bonuses—I wish I made that kind of money. What’s more, in addition to his handsome salary, Tim works remotely at his client’s site. A client who reimburses his hotel, food, and gas expenses (on TOP of his regular salary). That is an absolutely insanely sweet deal. This sort of arrangement is likely outside the realm of possibility for 99.99% of Americans, and I have my doubts as to how reliable that arrangement will be over the long term for Tim, but as long the gravy train is rollin’—good on him!
The premise being pushed by Ms. Kane is: Tim makes a great salary, but still is very conservative in his expenses. I can commend that, I think it’s great to show people who are making good money but are still choosing to live well below their means. I think there’s value in looking to emulate the behavior of others who find a passion in saving, rather than spending. The problem with the article, and Libby Kane’s ostensible blindness throughout, is that Tim Jacobs is not the least bit conservative.
Now, Tim Jacobs doesn’t owe me anything. He doesn’t have to be conservative in his expenses. He makes awesome money and has worked out an insanely comfortable agreement with his client. That’s awesome and he can do what he wants with his cash. My problem is entirely in how Ms. Kane totally spins this story around and lacks even the most basic healthy skepticism.
Why Libby’s Article is Shameful
Tim Jacobs (via Libby) was kind enough to provide us a snapshot of his income and expense situation. This makes the testing of Libby’s assertion of Tim’s “surprisingly conservative” budget rather easy.
Let’s quickly estimate a case study on Tim.
Gross Income: $211,000
401k & Spousal IRA: $23,000
Taxes: $85,000 (Federal, State, FICA, Medicare total ~ 45%)
Insurance (est.): $7,000
Net Income: $96,000
Monthly Net Income: $8,000
Now, pulling down $8k a month after maxing a 401k and spousal IRA is straight-up phenomenal. But, when I see $8k in take-home, and I’ve been told this childless Wisconsinite is “surprisingly conservative” I’d expect to see a budget like this:
Monthly Net Income: $8,000
Total Extra Income: $5,450
Instead, though, here are Tim’s expenses through the first 22 days of January.
If you extrapolate these expenses out over a whole month, Tim is spending:
Personal Care: $285
Gym: $150 (Apparently he paid for two months in January)
So, tell me Ms. Kane, what about the above is “conservative?” Keep in mind, this $3,900 does NOT include any phone, internet, housing costs (because they are reimbursed). Tim “negotiated” a $69/night long-term rate for his “Hotel Suite.” So, if you add a $2,000/mo housing cost, and another $100 for phone and internet, then Tim is spending $6k a month—or 75% of his take-home income.
I envy this dude. Every month he’s dining like a tourist for $50/day, buying the equivalent of a Macbook Pro, getting 10-15 haircuts, buying a suit at Men’s Wearhouse, and watching 27 Netflix subscriptions at once and he’s still being touted as “conservative.”
There’s, like, NOTHING conservative about this guy—other than his state Governor. The moment the punchbowl gets taken away and he’s suddenly on the hook for his own food/lodging/phone costs (sort of like every other person), he’ll be fine, but he won’t be retiring any time soon (you’d need a $1.8M portfolio to yield $6k a month at 4% withdrawal rate).
The Straw that Broke…
I could probably let all of this go if it wasn’t for this one little ditty that simply forced my hand into writing this post. When discussing his January expenses, Tim says:
“The idea here is that we are trending well,” Jacobs says. “We’re currently well under budget for the month ($1,508.70 spent of the $2,516). You can see we overspent a bit in restaurants, which is a subset category of food and dining, but because we underspent in groceries, we will be OK in the food and dining as a whole.”
You know, Tim, you’re right. You are trending well. Looking at your budget, you wanted to spend $2,516 this month, and you’ve spent just $1,508.70 so far. Sooo…wait a second….let me look at those expenses again…
Now, I’m no Sherlock Holmes, but are we just going to sit back and pretend that Tim’s “Health & Fitness” category doesn’t show a whopping negative expense of $895.98? I mean, if that shows up on Qualcomm’s billion-dollar financial statement then sure, it’s no big deal. But, in the context of Tim’s “highly conservative” $2,500/month budget, then this “free” $900 is pretty daggum material. For the sake of, you know, the truth, let’s pretend that Tim isn’t getting a monthly $900 refund (which, by the way, is not mentioned whatsoever anywhere in the article). Suddenly, Tim has spent $2,404.68. I guess you ain’t “trending” as well as thought, eh, Tim? At this rate, you’ll be spending almost a thousand bucks MORE than your budget.
Ugh, I’ve had enough. The takeaway here is that this guy, Tim Jacobs, somehow smooth-talked his way into a truly awesome compensation package by which he spends his money on almost nothing because his client foots the bill. As such, he decides to ball-out on food, shopping, clothing, gym fees and entertainment in a way that he otherwise would not be able to under “normal” compensation practices. This is fine–to each his own—but let’s not call this “surprisingly conservative.” Bad on you, Libby Kane. Do better.
Until Next Time,