Keep in mind that the lifestyle changes you make now pay off more than double, by helping you save faster, by having those savings accumulate interest/earn you money, and by reducing the amount of money you need to sustain retirement indefinitely.
Finally, make compounding growth your friend, not your enemy. Kill debt ASAP, and start socking away as much of your money as you can in a growth-bearing account. If you can reliably save 50% of your income in an account that beats inflation by 4%, you can support your lifestyle indefinitely on growth after 17 years.
Also, eating out takes a lot of time... driving to a place, sitting there waiting for waiters to return a credit card, etc. The alcohol is super marked-up. You don't know the ingredients of the food well, it's usually loaded with sugar and fats. I don't mean never do it, but living that way is miserable.
And especially in the pandemic, eating out means tons of containers to deal with. Even if you push just push everything in the trash, it's still like a half a bag's worth. And if are a good doobie and wash the containers, recycle, save the leftovers, etc., it's nearly as much time as if you made it yourself. Again, not that you never should, but save it for special occasions if you wanna have a long, above-average healthspan.
Given the market of the last decade, investing everything above the 30-40k expenses and income tax in the S&P500 and re-investing the dividends would have brought GP there. Not really sure about how one can make it with 30-40k including rent in the Bay Area, but this sounds like the most reasonable takeaway for most readers.
You might as well get the advice "marry rich" - it's probably more likely.
Debt is a killer. I used to have a lot of credit card and personal debt, and was paying over $1,500/mo in interest on less than $100k USD/year. If you get stuck in that trap it's damn near impossible to get out of if you overextend yourself.
A lot of folks grossly underestimate what they spend eating out and drinking. Probably less of a problem now than a few years ago, but coinciding with my credit card debt phase I would have told you I spent "$100, maybe $150" a month when it was closer to $400-500.
If you're not set up for retirement (see below) there's little to no reason to be leasing a brand new BMW. I was absolutely guilty of this and it's tens of thousands of dollars I essentially set on fire for three years. You don't even have to sacrifice the nice car, my 2016 5 series was less than $25k out the door and I got it right after someone turned it in off-lease. My payment is less than theirs was and it'll be paid off before the warranty runs out. I'll then have an "asset" (not really) worth $5-10k, and can get another $25k off-lease car which will cost me less and get paid off quicker, if not in cash.
If you max out your 401(k) you are saving about $20k/yr while only reducing your taxable income by ~$15k/yr depending on your marginal tax rate. A Roth adds another $6k to that if you're under the cap (something like $140k for 2020) and you can withdraw the contributions from that account at any time without penalty. Not helpful for someone making $40k/yr but if you're making $100k it's hard to make a good argument not to max out your retirement unless you live in one of the outlier cities as far as rent and expenses.
There are absolutely the /r/personalfinance types who act like if you go to a restaurant more than once every six months you're going to end up destitute and starving while homeless. And the FIRE community is a borderline cult. But nobody working in our industry, even in super high-COL areas, really has to worry about retirement, even if they've made dumb mistakes like I did that ended up costing hundreds of thousands in the long run.
Even if you are above the Roth cap, you can contribute post-tax $6k to a tradtional IRA, then immediately roll into a Roth IRA. This is known as a "backdoor Roth".
Additionally, some employer 401(k) plans allow you to contribute post-tax money to your 401(k). The IRS specifies an upper limit of the total of [employee pre-tax + employer match + employee post-tax], which was $57k in 2020. The post-tax portion of the above can also be rolled into a Roth IRA. This is commonly referred to as the "mega-backdoor Roth"
Also, don't forget catch-up contributions to each if you are over 50.
Point is if you have the income to support it, you can save much more in a tax advantaged way than just that $19.5k pre-tax 401(k). Please look up the tax consequences of any of these options before doing them. They are straightforward but contain a few pitfalls, such as the pro-rata rule affecting rolling over traditional IRAs into Roth IRAs.
Prior to covid, find apartment within 30 biking to work, get two bedroom, split with roommate.
Going out $150/month
Limit yourself to going out with coworkers once a week, social gatherings once a week and a rule of only buying one drink while out.
Groceries & clothes $400/m
Make all your meals at home unless your work offered fully subsided meals and or on specific days subsided meals.
For clothing, only buy once the piece no longer serves it's function. Do not buy simply because it looks good or it has some "new feature".
Subscriptions $70/m
Netflix, Spotify, GitHub, Youtube Red, and Audible.
Books $50/m
Libraries are a good saving spot here but sometimes you're unable to get some of the new technical books.
Bike maintenance $500/yr
You're going to put wear and tear onto the trusty bike.
Remaining $0-10k/Yr
Yolo. Flights back to see family. Replacement bike if it gets stolen. Random transit trips to see friends.
Free beer, pizza and get to meet interesting people.
Even the absolute worst luck gives you perfectly acceptable returns on 30-35 year timelines. Multiple orders of magnitude better than a savings account, for sure.
Time and time again the best approach for highly compensated people who don't want to actively manage their finances is to put a chunk of every paycheck into a broadly diversified range of index funds and forget that it exists. In the US this means a) getting your company 401(k) match no matter what; b) putting the rest into a Roth IRA as cash flow/debt service allows; c) putting the rest into the remainder of your 401(k) as cash flow/debt service allows; d) putting the rest into a non-tax-advantaged brokerage account that basically mimics your 401(k) but probably has better fund options.
Meaning if you were planning on retiring during one of the long sideways or downturns your required "time in the market" may have just been extended by a decade. The impact of that depends on the unique time constraints of the individual and how well they addressed risk exposure.
Add to that, most economists don't think the long-term market returns will approach the past returns. Most now think 6% is reasonable, when the past was 10%-12%. This extends the horizon further unless you are willing to increase risk exposure by selecting higher growth stocks.
Your comment was that equity investing can be disastrous if you hit the timeline wrong, and my only point was that unless you're speculating or are only in the market for 5-10 years, that has never happened. We have no way of knowing if that will happen in the future or not, but there's no reason to believe that we're going to see decades of middling or negative growth. There's really no other option if you want to have a real retirement unless you plan to just rely on whatever government assistance you can get.
>that has never happened
This is the part that I disagree with. Talk with anyone who planned on retiring around 2008-ish. As a hypothetical, if the market is the proxy measure they lost around 5-8 years of retirement because they had to have "more time in the market" to re-coup losses. If they actually retired and were drawing down their money, it's even worse. Granted, the hypothetical is biased because someone of retirement age shouldn't have that much market exposure, but the point still stands that, while true at the population level, waiting for the market to recover doesn't always work out well at the individual level. I tend to think the people who tout long-term averages of market returns tend to ignore the long periods of sideways or downward movement that may align with an individual's specific circumstances.
If you feel secure in being able to maintain an income where you can enjoy both the basic and leisurely aspects of life. That you won't be made bankrupt by illness, or by unfair illegal/legal proceedings. In these circumstances the drive to sit on top of 2.5M to feel relaxed about your financial situation will likely fade away.
I like feel they're actually under-inflated (at least for comparing high paid workers in both places) because of equity.
The company I work at has rallied many times over 100% since I joined a bit over a year ago. I could sell my equity and "semi-retire" 30+ years early, working when/if I feel like it and not eat really into my savings
It wasn't some grand plan to join a company that would do well during a pandemic, but I did intentionally choose a public company since saying in the tech sector has exploded would be an understatement, and I wanted equity in that.
I'm guessing a lot of people who joined FAANG companies in the last few years are all probably sitting on enough to start thinking about that.
There are those who feel this is a bubble and not sustainable... maybe? But the way I see it is, even if this is the bubble before the next dot com era-style bust, it's better to have a position in it provided by my work and cashing out along the way, than not and end up losing my job anyways.
In all fairness, if you're working for a public tech (and many other) companies, you probably have good health insurance that's at least subsidized and 3-4 weeks of PTO which may not be great by European standards but isn't nothing. (Though admittedly increasingly shared with sick time so if you're out a lot, it's less good.)
[1]https://www.investopedia.com/personal-finance/how-much-incom...
It happens, but only if you have a loose definition of "many". If a family makes $531k, they are in the top 1%
https://dqydj.com/average-median-top-household-income-percen...
In any case, it doesn't require winning the startup lottery or having a $400K salary at Google.
ADDED: ~$2m + paid-off house is the sort of range people (typically engineers, non-software) I've had discussions about "targets" with have in mind.
In the US the OP would be in the top 3% of earners, top 4% in the UK. Even if you are in the top few percent you still have to spend most of your life working to be 'free' for a bit at the end of it.
Of course if you are inside the top 1% you could probably get away with a 10-15 year sentence. Where the average wage is generally life with a few years of poverty like freedom at the end.
Yes, if you put it in a 0% interest savings account. Buying assets that give an ROI is what most people do..
If I do not retire early and continue on this path, I would probably reach $3.5mil by age 50.
Americans have notoriously poor investment/saving habits, which obscures the fact that it is remarkably easy to accumulate liquid wealth in the US if you are a diligent saver. The median US household has enough investable income, after all ordinary life expenses, to accumulate a couple million dollars over a typical career. High earners can easily save 10x that amount.
The other key thing is investing in the stock market, specifically index funds which have a historical real return rate of 7%. Folks who invested since 2008 got way higher returns from a phenomenal bull run, but let's assume a more "conservative" 7% return.
Save 100k a year with 7% returns for 15 years and you have 2.5mil.
The flaw in that modeling is that your earnings typically peak later in your career, so OP may have made a lot of their money in the last few years from being a high level employee making 500k+ a year.
Well there's your problem. Extremely few well paying (say $150k+) jobs and crazy taxes don't exactly encourage wealth accumulation.
Try Bay Area - with tech salaries there and stocks growth being what they were this past decade, the real question is how is it not possible (if only you wanted) to have made $2M+ working for a FAANG for a decade there.
Or at least go for Switzerland, although market is much smaller there, beware. But I know multiple multimillionares in person who made it all on Google Zurich payroll.
If Switzerland is an option, ping me. I am a well-connected tech recruiter with a solid network in Zurich, and I worked as a programmer before, so I know the tech scene here inside out.
Most of that 2.5 million probably came from either interest or capital gains (which compounds). I've only been saving for a bit less than a decade and my increase in net worth for the last few years was greater than my total salary (before tax) the same year. [My salary is extremely low compared to Bay Area.] I save 40% of my after tax income.
That's why, just check how tech is pay in USA http://levels.fyi
The gist: If you didn't inherit, you are fkd in Germany.
MOST of wealthy people inherit it (and 2/3 of super wealthy inheritance in Germany is former Nazi money). It's unfair.
What helps me get by: I know my life is good, even though exiting the treadmill is most likely not possible. Enjoy what you have, invest a bit and focus on things that make you happy :)
There are plenty of places in the US where you can buy a house now - housing in the US overall is actually cheaper than it used to be per sqft as far as I recall. Then, in 30-40 years you may too be renting out a paid-off house.