Fact Check: Money Magazine’s “I Saved $100,000 in 3.5 Years on a $54K salary”

A few days in the past, I used to be studying the September factor of Money Magazine and discovered an enchanting article: “I Saved $100,000 in 3.5 Years on a $54,000 Salary.”

The article in the mag is a considerably other from the web model. It used to be the print model that driven me to write down this… I most effective regarded on the on-line model as a manner of conveying the print model. That (print) model leaves out a crucial word of “from 2004 to 2008 before she was married” at first of the object, which is terribly necessary context. I’ll dig extra into this on the finish of the object.

My thoughts in an instant beginning doing the maths on saving $100,000 with a $54Ok wage. That turns out like a large quantity particularly on that wage. With the help of a calculator, it seems like Bola Sokunbi wage used to be $189Ok over 3.5 years. If I presume a 20% tax fee, it’s round $150Ok in take domestic wage. That’s an exhilarating financial savings fee of round 66%. Wow! Great activity!

It would appear that she lived on the remainder 40Ok for 3.5 years. I truly want to know extra about this! Everyone’s existence instances are other, however possibly I will be informed some new frugal pointers.

As I began to learn the object, Money Magazine’s narrative unraveled.

Sokunbi works in New York City and commutes from Hunterdon County, N.J. BestPlaces.web has the price of residing at 134. That’s 34% greater than the nationwide reasonable. Translation: It’s now not a affordable position to are living.

She has dual four yr olds. As a father of a four and a five yr previous, I will say that childcare is pricey. I believe it might consume up the 40Ok on my own in 18 months, particularly when bearing in mind two kids… particularly in a position that a prime value of residing. It’s now not the type of factor that you’ll be able to be frugal with… it’s virtually immediately paying somebody else’s wage. It’s now not the type of suppose you’ll get a bargain on… and despite the fact that you’ll want to, would you need a bargain on childcare?

So the bills appear to be prime. How may Sokunbi make it paintings? The article mentions in passing that her husband is a physician. I’m certain having a partner who’s a physician doesn’t issue into the funds a lot… or a minimum of that appears to be what Money Magazine thinks.

What else may well be a issue? She introduced a web page three years in the past that made $25,000 in the primary yr. That’s now not in the wage quantity. We don’t know what it made in the following couple of years. According to the object, “She developed it on the side for a year…” We’ll get again to this in a bit.

Does she have extra source of revenue that’s now not wage? Yep, her marriage ceremony pictures industry brings in between $three,000 and $five,000 consistent with marriage ceremony.

This is the place I prevent and tension that I’m now not criticizing Sokunbi. She’s clearly operating extraordinarily exhausting and making a choice of nice monetary strikes.

I’m criticizing Money Magazine’s identify and premise, for the reason that $54Ok annual wage is terribly deceptive. There’s most certainly some other $65,000 between web pages and marriage ceremony pictures. I’m conservatively estimating simply 10 weddings a yr ($40,000) and the $25,000 from her web page (presuming the source of revenue didn’t develop from the primary yr). So that’s round $120Ok ahead of we issue in what her doctor-husband makes. If he makes $200Ok (most certainly now not atypical for a physician in that house), that’s a family source of revenue of $300Ok a yr.

If my assumption of a family source of revenue of 300Ok a yr is improper, I say sorry. However, the object doesn’t appear to offer us a higher family quantity to do a actual source of revenue/expense research.

At least the object does point out that Sokunbi’s mom paid for her faculty so there’s no scholar mortgage debt to fret about. I didn’t see any details about scholar mortgage debt for husband, which might important bearing in mind that he’s a physician.

Let’s dig a little deeper, lets?

“None of Sokunbi’s friends were saving as aggressively as she was right out of college. Some were making twice what she earned and saving nothing at all… Another tailwind was the fact that she didn’t have much time to spend money. She travelled a lot for work during the week and began a side gig as a wedding photographer on the weekends.”

I to find this complicated. The article identify units a focal point on the timeline of the final 3.5 years. However, this anecdote turns out to return to the time after graduating faculty, which the object states used to be 2004. In the context of the object’s identify (“saved $100,000 in 3.5 years”) I assumed that travelling for paintings and being a marriage ceremony photographer used to be a part of the “saving $100,000” equation. It wasn’t till I assumed, “Hey she had two dual 1 yr olds 3.5 years in the past, how does ‘traveled a lot for work during the week’ logistically paintings?

(That’s to not say that it couldn’t paintings if somebody else taking good care of the twins, however that’s data that I’d have appreciated to understand.)

Let’s get again to the Clever Girl Finance web page and her “salary.” The Money article additionally states:

“Two years ago, Sokunbi quit her consulting job to focus on the business full time.”

Well, that undermines the entire 3.5 years of a $54,000 wage, proper? It turns out like we’re taking a look at 1.five years of the $54,000 wage, plus regardless of the undisclosed quantity Clever Girl Finances has made in the final couple of years.

I think like Money Magazine put me on a curler coaster of puzzle source of revenue and bills.

Finally a Lesson!

Yes, “Finally a lesson” is borrowing from one among my favourite cartoons Finally a Lesson about making an investment in actual property to earn passive source of revenue.

After writing all this up, I determined it may well be highest to visit the supply moderately than Money Magazine. Fortunately, Sokunbi has explains how she stored $100Ok on her web page.

It turns out that the majority of my confusion this is brought about by means of the context of the prit article. From the supply, Sokunbi, it kind of feels the object is canopy two other instances. The saving of $100Ok in 3.5 years appears to be about 2004, after faculty. The stuff about as of late, neatly… that’s now not related. Please put out of your mind in regards to the doctor-husband, children, and the web page. Perhaps she didn’t are living in NJ on the time both.

Given the actual supply of the tips, we get new, necessary data (but even so that Sokunbi can totally rock a white get dressed):

She “got a raise and a bonus every year and got promoted raising my salary by the end of the 3.5 years to ~$74,000 (which was really ~$52,000 after taxes).” It appears to be totally false that she “Saved $100,000 in 3.5 Years on a $54K salary.” Even except for all of the deceptive stuff I discussed above, the wage used to be now not $54Ok for 3.5 years. In addition, the creator of the Money Magazine article turns out to put out of your mind the point out of a bonus. It’s now not a large bonus ($1500 after taxes), but it surely’s “still something” in Sokunbi’s phrases. It buys a lot of Ramen which turns out to were her meals of selection.

The subsequent crucial factor lacking from Money Magazine’s article is that the cash is 401Ok, which incorporates her employer’s fit. That’s pre-tax cash, and loose cash, which is necessary context.

Next we have now:

“This was also before the last major US recession and so the money I contributed had grown because the stock market had been performing pretty well.”

That 401Ok had truly grown because of the timing the inventory marketplace as neatly. It’s now not “saving” in the context of “contributions”, however extra of a web value factor. I’ve been reasonably sarcastic right here, but when invested $15Ok in Facebook round $25 (a goal=”new” href=”https://www.lazymanandmoney.com/ask-the-readers-is-this-trading-or-investing/”>I did purchase Facebook inventory at this value) and it grew to $100Ok, is that truly “saving $100K?” I don’t suppose so.

There’s extra:

“I lived at home for six months after graduating from college before moving into my first place which helped me really kickstart my savings because I was able to save most of my pay for those six months.”

Well this didn’t make the Money Magazine article in any respect, however even Sokunbi recognizes how a lot it helped. This will have been a part of “her mother paid for her college education” that used to be discussed in the object.

And then there’s this:

“The first year of my [photography] business I earned around $10,000. The second year I earned around $30,000. Subsequent years I earned more.”

This seems to have began in her 2d yr of saving. I’ll forget about the next years, as a result of that may well be out of doors of the 3.5 years timeline. Still, we have now some other $40Ok of source of revenue except for wage.

Final Thoughts

There’s such a lot right here that my head is spinning.

If we amoritize the pictures industry ($40Ok over 3.5 years) we get round $11Ok a yr. If we take a bet in regards to the reasonable wage (beginning at $52Ok) that “grew every year, plus promotions and the bonus” (my quote now not hers), I’d say it’s round 62Ok (it crowned at $72Ok except for the bonus).

I believe we’re taking a look at round $70Ok+ source of revenue (possibly $75Ok) and a living-at-home scenario which helped her save maximum of her source of revenue. Those financial savings may well be most commonly pre-tax in a 401Ok account that benefited a great deal from a bull marketplace.

I want to tension as soon as once more that I’m now not criticizing Sokunbi. We in fact have a lot in not unusual (residing at domestic for six months, saving in large part in a 401Ok plan, facet hustles together with a private finance web page). I’m criticizing Money Magazine for his or her advertising and confusion about contemporary stuff (physician husband, twins, and so forth.) after they will have to have coated the tale actually a decade in the past.

I wish to give credit score to Sokunbi for operating extraordinarily exhausting and making nice monetary choices. At the tip of the day, that’s what this newsletter will have to were about.