Monday, September 17, 2018

My FIRE Journey & Inequality

A few weeks ago I was on my way to Culver's for the first time, because even a single dollar donated to the 2018 version of the GOP is one too many. So I decided to donate my burger dollars to a different joint, and Culver's seemed like it would be worth a shot.

And friends, I do not miss In and Out at all. Because, cheese curds.

But before I got to the drive-through, I heard Kai Risdall interviewing the American Enterprise Institute's outgoing president, Arthur Brooks. And, it was so good, I just had to pull over into an empty parking space. Tasty burgers could wait. [A transcript and audio of the interview can be found here.]

I pulled over because Brooks noted something I rarely ever think about when it comes to the dynamics of inequality:
"The knock-on effect of a financial crisis is really uneven economic growth. So, we can always talk about the economic growth rate is 2.9 or 3.2 or 4.1 percent or whatever we're measuring right now. But the problem in the decade after financial crises is that almost all that economic growth is concentrated in the top fifth of the income distribution."

The top quintile? Welp. That's us.

Here was the eye opening bit, for me: if recessions lead to uneven recoveries, then existing income and wealth inequality are made worse, not better, in the recovery itself. Rather than being a great leveler, bringing both the insanely rich, middle class, and poor to their collective knees, the Great Recession just exacerbated the existing inequality, even as we recover from it.

This is a little troubling to me, because we're totally in the group Brooks described as seeing nearly all of the gains: the top quintile of the income distribution.

U.S. share of household income by quintile, 1970-2016. Source [Click image for bigness.]

U.S. wealth distribution by quintile in 2017.
Yes, those are negative numbers for the bottom quintile. 

And a zero for the 2nd quintile. Source [Click image for bigness.]

Deep inside, there's a part of me that cares a lot about how people perceive me. That part of me wants to frame my FIRE journey as one of class mobility. I would like to think that I came from a middle class background, or maybe even a lower middle class background if I want some street cred. And, now, look where I am. Through my own hard work and good planning and, hey, aren't I impressive?

But that's a disingenuous framing. A more truthful way to think about it is that my journey to financial independence started in earnest in 2012, as the recovery was in full swing. I'd left my dreams of teaching and my years in the public sector behind, joined the corporate world, and sold way the hell out.

By 2012, we were already doing way better than average. Social Security says I made a whopping $84k that year, and that was just the income from my job. Throw in the stipend Mrs. Done by Forty earned from her graduate program, and we were comfortably in the top quintile of all earners in 2012.

And things just got better for us from there. I moved to a new company the next year, earning an even more ridiculous, six figure salary. Sure, Mrs. Done by Forty's income dipped a bit when the stipend ran out and she moved to T.A. and R.A. positions. But at no point did our household income ever leave the top quintile.

Ever since we discovered the FIRE movement, our efforts have been focused on turning the benefits of our income inequality into longer lasting, more impressive wealth inequality.

Sure, for a long while I have earned more than the average American. But when a financial crisis hits, and stocks and houses are on sale, why not try to leverage that opportunity to own a lot more wealth than the average American, too?

I can only speak for myself, but on some level FIRE is just another flavor of inequality in action. While other people were losing their jobs, liquidating their 401ks, losing their houses, and debating visiting a food bank for the first time, I was doing the opposite: learning about FIRE, stuffing my 401k and IRAs full to the point of overflowing, and buying preposterously cheap real estate that some unlucky soul had to sell.

In our corner of the world, we were living examples of how income inequality can be turned into a neat form of wealth inequality -- one in which we get to use the wealth to buy the most precious resource of all: time.

I'll freely admit that I feel a lot of guilt these days. I feel a little disconnected, being so utterly divorced from the middle class. Why should we be part of the top fifth who somehow owns 87% of all the wealth? In the case of our first home, and the woman the bank foreclosed on, why should we get to live in the house, instead of her?

Yeah. I've got some feels. But luckily for us, Arthur Brooks has a lot more actionable advice for his audience than just feeling guilty. Let's let him take us out today.
"Now the political result of having stagnation in the bottom 80 percent is political populism, is despair across parts of the economy that people who are just looking at net aggregates they don't see. The policy solution to this, to the extent that there is one, is for all of us to work for more even economic growth. Pushing opportunity out to the periphery of society. This is an opportunity for economic conservatives and people who talk more about social justice, for people at the margins of society to work together because we have to have a common goal here."
A little common ground, a little hope, to start our week. Thanks, Arthur.

*Photo is from ChairWomanMay at Flickr Creative Commons.


  1. Replies
    1. That's a great comment to read, Solitary Diner. Thank YOU for reading, sincerely.

    2. Thank you for writing! It's nice to know that there are wealthy PF bloggers who still give shits about the less fortunate in this world. (I like to include myself in the list of bloggers who still gives shits.)

  2. Thank you for this truthful honesty :)

    1. Thanks for commenting, Monica. I hadn't heard of Strive before but will check it out.

  3. So I just finished re-reading Not Buying It. It was a book my creative nonfiction prof made us read in undergrad. The author did a shopping back in 2003...and she drew many of the same conclusions. That some people who are forgoing are doing so out of necessity but they call it something else. Most of us who forgo, including her in the experiment, are opting out because we can. What a luxury.

    It's funny how the PF world creates a lot of false framing and false urgency. I remember being in an absolute panic that I was going over my grocery budget one month. Like real fear in the grocery store line. What item should I put back? How could this be? What do I do?

    WTF, Penny. You don't know what it's like to be hungry and you never will. What do you do? You take money out of the buffer that you keep in your checking account, you dope.

    And then I made sure to make an extra gift to our food pantry that money because no one should have to feel like for real!

    That being said, I don't want anyone to apologize for what they have and what they started with, you know? Instead, I just want us all to do better and be better to others.

    1. "WTF, Penny. You don't know what it's like to be hungry and you never will. What do you do? You take money out of the buffer that you keep in your checking account, you dope."

      I love this perspective. We humans aren't always great at seeing how good we have it. No matter how much money I get, I still will find myself whining about our situation from time to time, which is NUTS.

      I also agree that people don't need to apologize for what they have or whatever they started with. But I do kind of want folks to at least acknowledge where they started. The nearly omnipresent view of "anyone can FIRE if they work hard & follow these steps (but please ignore our huge salaries)" is pretty tired.

      I'm excited to read Not Buying It, too. My library has it and I just placed a request. :)

  4. Thank you for this. While you've moved up the ladder of social mobility (as have I), we ALSO live in a society with lot of inequality.

    Speaking of teaching - did you see this cover story?

    1. That's a great article and as a former teacher it hits home for me. I think the most telling part of the Time piece is this:

      'Teaching has long been dominated by women, and experts say the roots of its relatively low pay lie in sexism. “The ‘hidden subsidy of public education’ is the fact that teachers for many years were necessarily working at suppressed wage levels because they really had no options other than teaching,” '

      At its core, the issue of underpaying teachers is that we have a systemic problem of underpaying women, regardless of field.

  5. This is something I think about often... then mostly push out of my mind, to be honest, because it is really overwhelming, uncomfortable, and fundamentally unsolvable by an individual in a timeline i can comprehend.

    I read a book, "Uneasy Street: Anxieties of Affluence" that touched on this, although it was very NYC-centeric. The main conclusion was that significant wealth is generally not moral, no matter how we try to rationalize it and be part of the "good" wealthy. The most moral actions are to push for fundamental changes to reduce income inequality and provide a better social safety net for all.

    This isn't just better for "the other 80%", but as the quote you shared said, it is essential to stability in general. It is not sustainable to leave the majority of the population out.

    Anyway - great post, and thank you for sharing!

    1. Thanks for that comment and for another book recommendation. Our library doesn't have it but I'm hoping that the Scottsdale library does, and I can make a little trip up north.

      "The most moral actions are to push for fundamental changes to reduce income inequality and provide a better social safety net for all."

      Yes. Hell yes, SP. This is what I really wish the FIRE community was centered around: systemic change that benefits everyone, rather than a myopic focus on individual actions (make a budget! eat at home! ride bikes!) that, while helpful, aren't going to address the larger issue of inequality.

  6. That's an interesting spreadsheet. I rose from below the second lowest quintile in 2000, when I was first responsible for my own expenses, to the third quintile around the time we got married and started the four to six year process of combining our money. Now that we're wholly combined and I've fought my way up the ladder more, we're getting close to the top quintile but it's doubtful how long we'll stay there. This upward mobility hasn't actually given me the resilience or confidence to be sure I can do it again though, I remember way too clearly how hard it was to claw my way up, and that's before I take into account the luck I had in getting the right advocates and mentors in some of my career pit stops. Add in aging and take away the energy of youth? Whew that picture doesn't look great should we make some bigger mistakes than we already have.

    That might be why it's so important for me to keep in touch with how things were and to give back. It's not a "there but for the grace of God" relief as much as gratitude for having as much as we have and wanting to make sure that we're doing our part to contribute to improving society in whatever ways we can.

    I don't feel a great deal of guilt because we can't help others if we don't keep ourselves out of the pit. I've been there and even then, I know it could be a lot worse. I'd like not to go back except to build ladders, y'know?

    1. Hey Revanche,

      I need to write another quintile post now that I found that spreadsheet: maybe that'll be the next post.

      We similarly moved up the quintiles over that same time period (first full time job in 2001). And like you, there was some luck in just meeting the right people along the way. My one female colleague helped me avoid layoffs, get a promotion, and even my current role: without her, it's very likely our financial situation would be far less awesome.

      You likely do a much better job of giving back than we do. I think that is at the root of my guilt: we suck at giving. We do a little, but nowhere near where we should.

      I need to build some ladders as you say, and have my actions match up with my words better.

    2. The nice thing about sucking at giving is that we can always start somewhere and learn to do better! Happy to have a chat with you about strategies if you ever want :)

  7. Bravo, my friend. It's not easy being rich! In all seriousness, there's a huge risk in disenfranchising millions of citizens. History has umpteen lessons on THAT. I honestly DO feel a level of guilt, having been handed some pretty good starting point advantages. So much to do to bring our public education system to par (Betsy can go suck eggs) and make health care a right not a privilege.

    1. Cubert! Yes, it seems we've forgotten what always happens when we let inequality gets out of control.

      And maybe it's natural for us to feel some guilt, given that so much of what we now have isn't really the result of our efforts but, as you say, the starting point advantages.

      And yes to improving the public education system & the healthcare system, too. A great place to start, friend.

  8. This was a nice post, and it speaks to maybe why I read DBF in the first place, "A financial blogger with a conscience who can see the blind spots around some of the corners? What a concept!"

    One thing I don't like about quintile charts though, is they tend to make people think in terms of 80% and 20%. The truth is (IMHO) that the real winners (and abusers) aren't even the 19% through the 1%. Heck, even talking about "the 1%" is a gross mischaracterization of what is going on. The truth is that the top 0.1% (in general) and some few below that are the REAL equality busters. And many of them are ruthless (with the tax dodging and politician-buying that that implies).

    I didn't realize this myself until the last several years, when after a lifetime of pulling myself up from lower middle class to somewhere in the top 1% in both assets and income (but not 0.1%), which came with a lot of luck by the way, I realized how much I didn't know before about how things work. Now I at least have some decent visibility into that world (heck, just talking to other parents at my son's elite private school has been eye opening).

    I myself am incredulous at some of the legal tax breaks I am able to take advantage of, and I know there are more to be had (with some bend but don't break pushing) if I had a TEAM of lawyers and accountants and not just a once a year guy strategizing on my behalf. That is just the tax side, there are lots of opportunities for advantage on the income generating side as well.

    Anyway, if I ever start a blog (and I've been thinking about it lately), I would spend a good amount of time pointing out how the system is rigged to my OWN benefit and and yet I do in fact think it is rigged. I'm dumbfounded the way the country is voting against its own interests. I'm convinced they just don't get how the system works against them and with the increasing rhetoric I'm conflicted about how much I should care (versus just surrender and drive a truck through all of the advantages this current system affords me). I guess I'll give it one or two more elections to self correct.

    Guess I have a conscience too.

    1. Thanks for that very nice and thoughtful comment, Tin. I'm very happy that you're a reader and, yes, one with a good conscience.

      I think writing about the 1% is a fantastic idea and yes, I'd read your blog.

      I agree that if we slice things up, the 1% (who own 35% of the wealth per the graph above) or even the .1% are surely the drivers in the top quintile. And I'm tempted to let myself off the hook and say: see, I'm not really wealthy like those guys.

      Which is true! I'm totally nowhere in the neighborhood of those ultra wealthy.

      But I also note that even in the decile that I'm probably in, that 80%-90%...we somehow still have more wealth than the bottom 80% combined.

      That is to say, I'm not really all that much like them, either. Maybe that's where the feelings of disconnection come from: we've entered a pretty small niche.

      But back to your excellent comment: I think the legal breaks and power that you describe for the ultra, ultra rich are super intriguing. Maybe we could do a PF chat on that? Would you be interested in joining?

    2. Well now that I know I at least have a built in audience of one, I'd better get started ;-). Let me get organized and would be happy to chat in a month or so after I've at least begun to post.

      P.S. I hear you. By posting about the 0.01% impacts, it would let the rest of us off the hook, which is what you're trying to avoid. Like I said, a conscience!

    3. This was an interesting article somewhere along those lines

    4. Great reference Pete! Yes, I have that issue, bought it in an airport when I saw it a few weeks back (and gave it to my wife).

  9. First time reader here. This is a wonderful post, and something that I have tried to speak about on my own blog.

    Thank you for the stats, as well as your honest commentary.


    1. Hi Jen! Thanks for coming by and I hope you stick around. I really appreciate the kind comment.

      I tried finding your blog on the link above but it seems my Blogger settings might not be set up correctly. What's your blog address?

  10. This was so lovely to read! I've been thinking a lot about class and bootstrapping lately, since I married into a family where the kids grew up pretty wealthy. The dad still makes quite a lot and the mom is comfortable, and the kids are all probably going to do pretty well. In addition, they all graduated college without significant debt (since their parents could afford to send them), and only racked up debts at the grad level.

    My situation is somewhat different. My parents couldn't afford to give me that kind of help, and that impacted the choices that I made in high school and college, which had impacts in my later life. I still feel the stress of running out of money, even though I realized I can literally buy any food I want at the grocery store any time I want it. We do need to do more to give back now that we're in a position to do so, but with the loans looming over our heads it feels like we're not really ready yet.

    1. Hey there, LDtLD. I love the blog title you've got there.

      I know what you mean about early life stresses hanging around with you, especially re: money. My mom's background had some similar impacts on how she views money now, and I've inherited some, too.

      And I also empathize with the struggle to give back now, and yet having financial goals you want to accomplish at the same time, and a dollar can only go to one place...

      I've yet to figure out a fantastic balance there but if you have tips, please share. :)

  11. Hmmm... well it doesn't surprise me in the least that it's only the top quintile that's been enjoying the fruits of the recovery. And even though I never made anything close to a six figure income, I still know how very lucky I am. Some of that "luck" is because I made good decisions, but some of it is simply the fortune of birth.

    A good friend of mine lost her mother around the same time mine died, and the contrast really struck me. While my issues involved lots of discussions with my brother about settling the estate and how to best split up the small (but not trivial) assets, my friend had to start a GoFundMe account to raise money for the funeral, and she had to move out of the apartment she'd been sharing with her mom because she could no longer afford the rent.

    When I look at the real estate situation in my neighborhood, I see echoes of the same thing. For me it's great. My house is now worth 5 times what I paid for it, not to mention the fact that the mortgage was completely paid off a decade ago. So I just get to sit back and accrue equity. Meanwhile, folks who were renting or who had adjustable mortgages are leaving the neighborhood in droves. When I check Zillow to see what houses are going for, it saddens me to see the number of foreclosures. Clearly, one man's boom is another's bust. And I don't know where they're gonna go since this is already one of the cheapest neighborhoods in the city. Seriously, you can't even rent a studio for under $1k/month anywhere in the metro area.

    I could go on and on, but the bottom line is that we need to vote for politicians who will enact policies that will help everyone, not just the rich.

    1. Hey there, ECL! How've you been?

      That story about your friend & the gofundme I can only imagine having to deal with serious money & moving stresses at that time.

      And yes, the divide in every neighborhood between those who bought in before the bubble and those renting is pretty telling. And $1k for a studio is rough: that reminds me of San Diego prices when we were there.

      Yes on voting for politicians and policies that spread the growth & opportunity more broadly! I'm cautiously optimistic that the Dems sweep both houses in 2018. Naive, I'm sure...but I've got hope!

  12. And this, this post, is why I still read your blog and have nixed almost all other PF/FIRE blogs I once followed. You speak the truth, as tough as they may be.

    I am 'just like you' - in as much as being Australian, and engineer, and almost paid off my mortgage on my one bedroom place in the inner city Sydney. I can't help thinking, far too often 'well if I could, anyone could' - but just as often thinking, well, no... I have a higher than average salary. I had the benefit of a great secondary education, due to my parents (relative) wealth to pay for it (as university here is comparatively affordable, it's private secondary schooling I consider comparable to your college).

    I can't disagree with politicians who want to raise taxes for the 'rich' to help others. I don't celebrate a tax cut (which our current federal conservative party has been delivering).

    Lastly, I love that you still reply and engage with every comment. Thumbs up to that

    1. Sarah! It's so good to hear from you and to hear such a nice comment: you're way too kind here. How's life in Australia? I'm trying to convince Mrs. Done by Forty that taking Baby AF on a trip to our last continent (not counting Antarctica) will be no big deal. :)

      I LOVE that you're so open and aware of the advantages that interplay along with your hard work and good strategies. No one needs to apologize: just recognize, you know?

      And 100% agree on the tax situation: giving a disproportionate amount of tax benefits to those who already have so much seems really silly. I'm (naively) hopeful that our tax system will become more progressive overall in the next few years, as Democrats hopefully take over more state & federal governments.

  13. Wow, suddenly I'm very glad I never developed a taste for In-N-Out.

    Sorry that you feel guilty. As someone who has to keep reminding herself that she's no longer middle class ($600 health insurance premiums and a household with 4 or 5 chronic ailments will do that), it's always a shock to my system too. I think it gets easier with time. Or maybe it just shouldn't get easy ever.

    Hope to see you at FinCon!

  14. Yep! All of the gains plus some going to a small subset of people does not bode well.

  15. I can also sympathize with this position. I feel the same way and it is somewhat magnified because I teach this stuff for a living (my wife teaches a class on consumer culture). I make no bones about my political persuasion and the fact that I believe that inequality is the great issue of our time. At the same time, I think the FI Community we should do more. I don't know what that is, but I feel like I am not doing enough and maybe through my blog, workshops, and advice I can make a small amount of difference to reduce that inequality. That is probably somewhat of a pipe dream because a lot of it is structural, but it is something I still hope and strive to do.

  16. This is an interesting read as well as the comments. It seems to me like at least partly by definition, people chasing FIRE (including myself) don't really trust our government to properly spend our money for the greater benefit of society. If they didn't why would everyone give up trying to less taxes like contributing to a ira, or 529 plan? They would just save and pay taxes knowing their taxes are helping make a better life for everyone ? My guess is, because we don't trust our government is spending our money appropriately regardless of who is in charge at the time. If you had spare money would you rather decide who to donate too, or let Uncle Sam decide? I would rather decide for sure with my money.
    Why do people already in FIRE accept government subsidies from ACA? Shouldn't they turn them down since someone else needs them more? It's easy to say, it's not me the 1%, it is the .01% or whatever number is just above where you are at. I applaud your thoughts about the greater good, I just think it's really hard to know how to execute a plan that really helps the greater good. We may see a day when net worth is taxed instead of only income. I can see some future law saying if your net worth is over X-million you don't get social security benefits. Someone with 1 million will say, the limit needs to be 2 million. Someone with 2 million will say, no at least 5 million after all I live in California.
    Great post. Any readers please read my comment as discussion / food for thought, not an attack as that is my intention.

  17. We're all able to be channels of blessing, whether we're wealthy or not.

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