Bondguy, is this what i have to look forward to when i’m; a million dollar producer, married w/ children

  Suddenly being a $400,000 producer and single doesn't seem so bad

You know what they say about the restaurant biz…

  How do you make a million?...start with 2M.   The marriage equivalent...   How do end up with a million?...give her 110% and leave 1M in a swiss bank account that she never new existed!!!

Ice ,you’re missing the point. While it might seem that my fictional guy was living high on the hog, how do you think people pulling down half a million or more every year live?

  I make that amount. I associate with people who make that amount. Most of these people are business people. Every business person has a variable income, not only salespeople. Yet, every one of these people has a second home. Most are at the Jersey shore. One guy, my neighbor, who makes less than me has a shore house that's worth over $3,000,000. Another, an Architect, has a house in Barbados.   The point is, this is the way people who make discretionary money live. The buy things they want. The live a certain lifestyle that comes with having money.   Yet, anyone of these people could fall on hard times. As in my example, a fairly well grounded guy, not living beyond his means, saving 25% of his income,  gets taken out by forces he couldn't imaging existed a year ago. I know if anyone told me a year ago that ML would be owned by Bank of America and that UBS would be cutting sub 400k producers I couldn't imagine that. I couldn't imagine that the markets would come so unglued and that munis would decouple so completely from treasuries.   And of course in my story my guy has many "fill in the blank"  options available to him.   The point of my story, isn't to exact pity, nobody pitys the rich falling down. But to understand. Understand, it's not about how good an advisor one is. Adversity can affect us all regardless of what business we're in. How prepared are we suppose to be?   As for how ridiculous some of the details of my story sound, each is taken from real life experience:   I found out my 1200 square foot, featured in Better Homes and Gardens 10 years prior, deck was riddled with termites when the hot tub wouldn't turn on. The hot tub was infested with termites. The low estimate to replace the deck was 30k. However, i didn't pay 30k. Not counting the pick up truck I bought because i kept getting screwed on delivery of materials, i paid about 8k for decking, screws, and tools to do it myself. Let me tell you doing the math to install over 400 balisters, some fun! As was tearing out the old deck. I got to use a Sawzall which my kids nick named the Bitch. The movie Training Day was playing at the time. And it took me a summer of weekends to get the project done. I kept the truck for about 3 years and sold it for about 5k less than i bought it for. So total cost for the deck-13k. I forget how much it cost me termite proof the house, which was also on the must be done list.   The dock/bulkhead story came from a friend with a house on Barnegat Bay. True story.   The mold- back to my house-it was in the mud room and was caused by a roof leak. Cheapest guy was 12k and he got the job. I gave our fictional guy a bigger house. One of the guys in one of our FL offices just paid 40k for a roof. So, I toned it down.   The water stained ceiling tile-my house again, and it was the dishwasher and it did ruin the plank floor in the kitchen.   My house came with the Sub Zero and we just found it to be leaking. Here we go again! The roof, dishwasher, and leaking fridge, all in the last year.   Then again, I left out some stuff. Like the six figure tab it cost me to save my daughter's life when , not in college and not covered by cobra, someone had to step up to pay the bill. Like you said, one of life's unexpected surprises. So, yeah, sh*t happens.   Again, how prepared are we suppose to be?          

I think iceco1d made a good point about variable income.  My husband and I have both had variable incomes since we left the DA’s office a couple of years out of law school.  Very variable - both in terms of our legal practices when we were working - and our investments after we retired.  Made us pretty conservative.  No second home - no boat - etc.  We do spend a lot on travel and restaurants - but those (and some other expense items) are discretionary expenses.

  But I can see us - or people in similar situations - getting in trouble.  What if our munis start to default? (I forget which ratings agency just put *all* local governments on negative credit watch.)  We will probably lose our State Farm windstorm insurance within the year - and wind up self-insuring - because the crummy companies left in Florida seem to have less liquid net worth than we do!  We could afford to rebuild our house after a storm - but it would be a financial stress.  And what if we lose our medical insurance before we go on Medicare?  Most of you work for companies that offer health insurance - but health insurance is perhaps the single largest financial problem for early retirees (or people who have lost good jobs).  Health care/insurance is the single largest item in our annual budget (we don't have a mortgage).   We are lucky in many ways.  For example - our parents - children of the Depression - managed (and I have no idea how in the case of my-laws) to save enough money to pay for their retirements and even the care they needed in skilled nursing homes.  We have friends/family members whose parents need to be in skilled nursing homes (with Alzheimers and the like) - and the parents can't afford them (but they have too much money to qualify for Medicaid).  You're talking about much more than the cost of fixing a deck!   Then there are family members who get into trouble.  My brother and SIL support her sister.  Whose husband abandoned her and her child shortly after the kid was born (he is now 15 or so).  They used to pay a little - but now she has lost her job (she worked for a newspaper).  They can't see her thrown out on the street.  We have some family members who might wind up in really bad shape - but - knock wood - they haven't gone over the edge yet.   So perhaps the answer to a certain extent is be conservative - but you still have to keep your fingers crossed.  Robyn 

I respect the way you put that post together and put a lot of thought into it, BondGuy.  While I can agree that many high-income earners do spend a lot of their money due to the joy you get out of being able to reap the rewards of hard work, there is some disagreement with part of the theory.

  Robyn made a good point about being heavy on "discretionary expenses".  Dining at the finest of restaurants, taking a cruise on the most elegant liner this side of the Atlantic, putting your kids through private school, these are all expenses that are one-and-done.  You make a half a mil a year, go eat at Ruth's Chris 5 nights a week.  I see it as not irresponsible, but very risky to tie yourself up to a $750k mortgage, a $160k beach home w/$1,300 of upkeep/taxes each month, a $75k boat and 2 lexus leases.  These are things that you'll be paying on for 30 years.  (Unless you come to your senses and decide to purchase the Lexus after a while).  I can't say there's no need to have these things, because I think you should reward yourself for doing well and being good at what you do, but when things go sour and you don't work on a set half-mil salary but on a variable income, you reap what you sow with the aftermath.  I know your example was off the wall, but he didn't have one penny of a cash reserve, except the last part of his bonus that went to muni's and a CD, but that was set aside to pay for taxes.    Its hard to say how I would react if I was in the situation where I had the choice of how I wanted to spend $500,000 worth of income each year, because I'm not in that position.  Nor do I want to judge, although it may come across otherwise, but I think there's a big difference between living the high life and taking $10k trips and drinking the finest bottles of wine known to man kind vs. locking yourself in to $10,000 worth of fixed monthly expenses for the next 30 years of your life.

Well color me cheap, but I think many of the examples listed were certainly avoidable with a bit of foresight and discipline to live a more modest lifestyle.  My gross was down about 8% last year, but had it been down 40%, I would have easily been able to meet all my monthly bills with plenty left over.  This past week, I bought a new riding mower and next week will pay in cash for my wife’s outpatient surgery (two procedures…one covered, one not).  Neither expenditure will even touch my emergency stash of 6 months cash.  If I made $60,000 a year, I wouldn’t have to eliminate any necessity and even some non-necessities like cable and cell phones.  I have no car payment outside of the business lease for my Chrysler 300.  My entire debt for my house, two rental units, a lot set aside for a weekend cabin in retirement, two motorcycles, a van a truck and a car, is a whopping $66K.  I could literally write a check for the entire payoff if I needed to.  I don’t often socialize with people who make what I do.  Too many of them are pretentious assholes anyway.  Most people around me know that I make a pretty good living, but most would also be shocked if they knew exactly how good a living that was.

  If I buy a boat, plane or other toy, I'll damned sure know that I can carry the expense even if my income is cut in half, and I sure as hell won't borrow money to make the purchase.  I carry zero personal credit cards and all of two business cards which rarely see $1,000/month in charges and never see a balance carried over.  Next spring, I will break ground on a new house and it is unlikely that my total debt will exceed $150K as a result.  I'll likely clear all debt within 3-5 years, even if termites, mold or some other unforeseen problem is visited upon me (although I'll give you, a non-covered bout with cancer or similarly expensive disaster would be an exception).  The weekender cabin will not be built until all debt is gone and I have the cash set back to pay for it without borrowing.  If I WANT something, it will simply have to WAIT until I have sufficient resources to BOTH pay for AND maintain it.   I'm not saying that all financial difficulty is avoidable, but I AM saying that a hell of a lot of it stems from our impatience and desire to have the best NOW.  The advisor who takes a big check should keep an amount necessary to take care of all taxes in a CD ladder or some similarly risk-free vehicle.  The advisor who wants to buy a new toy had better understand the costs associated with keeping that toy and plan accordingly.  Many of us work hard and do a job that most cannot do and many don't have any desire to do, especially when times are tough.  We deserve what we earn and we deserve to enjoy it.  However, when we get overextended, very few of us have a story that will elicit any sympathy from Joe Six-Pack.  If you find yourself in a tough situation and you can honestly look back at your lifestyle and spending habits and see little or nothing that you could have done better, you have my sympathy (especially the guy with huge medical bills from his wife's bout with cancer).  The rest of us who find ourselves behind the 8-ball because (shock) a serious market decline happened at some stage in our careers, need to man-up and start being accountable for our lapses in judgement and poor management of our personal finances.  I don't care how nice a guy is and how good of a salesman he is, if he's foolishly spent himself into a corner, I sure as hell wouldn't go to him for financial advice.   You all can point to extreme examples of things that couldn't be avoided, but I can tell you from experience, that I can look at most high-income failures and point out many avoidable mistakes.  I don't fault people for the mistakes themselves...I fault them for the "poor me" attitudes and the lack of accountability..."If the market had just continued averaging 10-12% a year for my entire career, I would have been just fine."  Bullsh*t.

Nest, I understand that living in NYC, etc. costs more than living in rural midwest…no question about that.  Again, I’m not saying that there are not legitimate financial difficulties amongst us.  I’m just saying that I see a tremendous amount of POOR financial management among my brethren and a lot of our problems could be avoided if we’d simply practice what we preach.  There are plenty of idiots even here in rural midwest who drive gas guzzling Escalades and live in 7,000 square-feet homes and make considerably less than I do.  I don’t shed the first tear when I see their foreclosure notice in the newspaper.  I watched a competitor borrow and spend a ton of money a couple of years ago upgrading his house and I wonder how well he’s sleeping hese days with his revenue down and a giant mortgage looming overhead.

  It's pretty obvious to me that none of these people have read "The Millionaire Next Door".

Damn! I forgot to add in the guy’s cable bill! OK he has Comcast On Demand and pays $160 a month.

  Seriously, you guys are tough!   A few points:   My guy has a 500k mortgage on a 750k house - net equity= 250k   He owns free and clear a second property- at cost net equity=160k   He has a 401k worth 400k - net equity= 400k   He has 100k (predeal) put away for his kids-net equity=100k   He has(predeal) a brokerage account worth 150k- net equity=150k   So, adding this up my guy has a net worth of $1,060,000. Of that, 250k is liquid. And he has the abilty to borrow, short term, against the rest if circumstances dictate.   After the deal, his net worth is increased by roughly $650k. He gets rid of the biggest threat to his families future security, the mortgage, and banks $430k in various pockets.   All the bases are covered. This guy has between 400k and 600k in liquidity, depending on the market, and what pockets you count, and he's still a frivilous idiot?   I don't think so.   First let's talk house. He owns a 750k pad with a 500k mortgage.
I live just outside Philly.  I live an upper middle class neighborhood in an upper middle class town. My house was featured in the magazine Better Homes and Gardens. Point being, it ain't exactly a shack. Today, my house would sell in the $450,000 range-give or take.   Two of my cousins live 75 miles north of me in the town of Morris Plains. Nice town! But not Rumson, Little Silver, or Short Hills. Not even Saddlebrook, or Leonia. Both of my cousin's homes, together, could fit inside my house. Yet, today, each would sell for more than my house. To buy my house in their neighborhood would be about a million dollars. Move that house 50 miles east and were talking over $1.5 million.   That being the case- exactly how is my guy being frivilous? It's all relative. We don't all live FT Myers Florida where 4000 sq ft homes are going for 80k. As I said my guy lives in a below average neighborhood for his neck of the woods. Yet, in that neihborhood, like my cousins,  home prices for very ordinary homes are extradinary. This is reality for many advisors who live on the West Coast and in the Northeast beach states from MD to Mass.   Next, on the amount of his mortgage, $3300/month carrying positive net equity of about 35% on a $450k annual income. And this, some of you find fault with?   Ok, lets reduce everything. Our guy makes $112k, carries a $125k mortgage on a house worth 188k.   Anyone here making just over 100k carrying a buck and a quarter mortgage? I'm sure there is. The point is: a guy making 112k carrying 125k mortgage is in exactly the same position, relatively, as the higher earner with the bigger mortgage. Everything is relative. Yet, the perception is that the higher earner is being financially irresponsible. IMO he's not, he's just living at another level. One he's earned. no different than Joe the plumber, AKA, the millionaire next door, a businessman making big bucks.   Let's carry that over to the cars. Our guy, at 450k is forking over $1200 a month for two cars. How about our 112k guy paying $300 a month? Sounds reasonable doesn't it? That's because it is. Except that the average car payment per dave ramsey is $384.month. So, our 112k guy has only one below average car.   Anyone here making car payments in excess of $300 a month on a 100k income?   Consider that the higher income guy is most likely more financially secure.   I disagree that my guy was living beyond his means. At an 11k cash burn per month, not touching the 401k, not taking on debt, the guy has a liquid assets that would last him over 3 years. That doesn't touch the 401k and doesn't touch the kid's money. Ok, i don't call his accounts an emergency reserve. In 26 years in this biz I have yet to have one client open an emergency reserve account. Take it from someone who has, unfortunately, lived it, in a financial meltdown it's all hands on deck. Every pocket counts.   So, let's add it up, 1.5 milllion after deal net worth. Positve equity in everything he owns with a debt to equity ratio of zero(no debt), six figure income, even though reduced, and you guys have a problem with two leased luxury cars and what you perceive as an over priced house?   This is a tough room!    

I came here to get cheered up and get perspective, thanks to all the thoughtful posts on this thread.

As a "planner", I think:   You gotta go for it and take risks, that means taking chances but living the good life too.   Stay out of bankruptcy. Maybe the poster could sell his book, pay off some debts and establish a cash reserve, and go work for someone for a while (even if being an employee to the buyer of his own practice while he goes "indy" with a b/d or RIA switch, or whatever. I've been in this too long, but I think having your own book isn't what it's cracked up to be. Okay, my revenues are down 40% and I still play too much  golf. I'm just saying this business isn't as much fun as it was when I was building it. Consider going to build something else, or just get some cash and a paycheck for a while, but don' t go banko, for us, that's defeat.   Look, Indy, being cheap isn't virtuous. I respect it, just like maybe I respect some guys who maybe hosed some people to get rich (hey, this is still America, I have less patience for dumb whiney liberalsl).   Live and learn.

[quote=BondGuy]Seriously, you guys are tough!

  A few points:   My guy has a 500k mortgage on a 750k house - net equity= 250k   He owns free and clear a second property- at cost net equity=160k   He has a 401k worth 400k - net equity= 400k   He has 100k (predeal) put away for his kids-net equity=100k   He has(predeal) a brokerage account worth 150k- net equity=150k   So, adding this up my guy has a net worth of $1,060,000. Of that, 250k is liquid. And he has the abilty to borrow, short term, against the rest if circumstances dictate.   After the deal, his net worth is increased by roughly $650k. He gets rid of the biggest threat to his families future security, the mortgage, and banks $430k in various pockets.   All the bases are covered. This guy has between 400k and 600k in liquidity, depending on the market, and what pockets you count, and he's still a frivilous idiot?   I don't think so.   First let's talk house. He owns a 750k pad with a 500k mortgage.
I live just outside Philly.  I live an upper middle class neighborhood in an upper middle class town. My house was featured in the magazine Better Homes and Gardens. Point being, it ain't exactly a shack. Today, my house would sell in the $450,000 range-give or take.   Two of my cousins live 75 miles north of me in the town of Morris Plains. Nice town! But not Rumson, Little Silver, or Short Hills. Not even Saddlebrook, or Leonia. Both of my cousin's homes, together, could fit inside my house. Yet, today, each would sell for more than my house. To buy my house in their neighborhood would be about a million dollars. Move that house 50 miles east and were talking over $1.5 million.   That being the case- exactly how is my guy being frivilous? It's all relative. We don't all live FT Myers Florida where 4000 sq ft homes are going for 80k. As I said my guy lives in a below average neighborhood for his neck of the woods. Yet, in that neihborhood, like my cousins,  home prices for very ordinary homes are extradinary. This is reality for many advisors who live on the West Coast and in the Northeast beach states from MD to Mass.   Next, on the amount of his mortgage, $3300/month carrying positive net equity of about 35% on a $450k annual income. And this, some of you find fault with?   Ok, lets reduce everything. Our guy makes $112k, carries a $125k mortgage on a house worth 188k.   Anyone here making just over 100k carrying a buck and a quarter mortgage? I'm sure there is. The point is: a guy making 112k carrying 125k mortgage is in exactly the same position, relatively, as the higher earner with the bigger mortgage. Everything is relative. Yet, the perception is that the higher earner is being financially irresponsible. IMO he's not, he's just living at another level. One he's earned. no different than Joe the plumber, AKA, the millionaire next door, a businessman making big bucks.   Let's carry that over to the cars. Our guy, at 450k is forking over $1200 a month for two cars. How about our 112k guy paying $300 a month? Sounds reasonable doesn't it? That's because it is. Except that the average car payment per dave ramsey is $384.month. So, our 112k guy has only one below average car.   Anyone here making car payments in excess of $300 a month on a 100k income?   Consider that the higher income guy is most likely more financially secure.   I disagree that my guy was living beyond his means. At an 11k cash burn per month, not touching the 401k, not taking on debt, the guy has a liquid assets that would last him over 3 years. That doesn't touch the 401k and doesn't touch the kid's money. Ok, i don't call his accounts an emergency reserve. In 26 years in this biz I have yet to have one client open an emergency reserve account. Take it from someone who has, unfortunately, lived it, in a financial meltdown it's all hands on deck. Every pocket counts.   So, let's add it up, 1.5 milllion after deal net worth. Positve equity in everything he owns with a debt to equity ratio of zero(no debt), six figure income, even though reduced, and you guys have a problem with two leased luxury cars and what you perceive as an over priced house?   This is a tough room![/quote]   ...yeah, BG, I AM tough.  I'm not saying that your friend is a trainwreck...far from it.  At the same time, he's made liberal use of credit and that's what has him boxed in...to reduce/eliminate his debt, he's put a serious strain on his liquidity.  We all want nice stuff and want to feel the reward of our labors, but why are we so ^%!$!%&# impatient?!!  There's no good reason your friend has ANY car payments.  I'll use a Dave Ramsey example (with apologies to those that don't like Dave) on your guy.  Why couldn't he have banked $1200/month for a year and bought a used Honda Accord or something similar for cash?  Within a 2nd year, he can buy another similar vehicle for cash.  By the end of the third year, he can take the first car and $14K cash and trade up...still with no car payment.  This cycle can be repeated until your friend is buying nice cars every 4-5 years and paying cash for them...for less than the price if his lease payments.   Kid needs a car?  My daughter is 12 years old and is saving for her first car.  In the summer, she will work for me 2-3 days a week on my file imaging project and make money for her car fund.  At 16, I will match whatever she has saved and we will buy her a car for cash.  She will be responsible for paying the insurance for that car.  My assumption is that she will be more careful if she knows that the bill gets much higher with accidents.   Want a boat?  Not until I have the cash for it.  I have no desire to be saddled to a $700/month boat payment just so I can have a boat like my neighbor has.  Leverage for a house or investment real estate with appreciation potential I understand...leverage for a toy is not the way I do things...at least not in the 20+ years since I finished school and had my epiphany.   $400K in his 401K?  How in the H- is he going to maintain his standard of living with that little put away over a 15-year career?  My standard of living is considerably cheaper (partly due to geography and partly due to choices) and I have more than that in retirement.  I don't think I have nearly enough at this point, so if I were in his shoes, I'd be very concerned, especially with the monthly nut he's got to cover.   Private school?  Killer vacation?  These are all choices.  If you are struggling to cover your nut, they are still choices that can be passed on.  I want the best for my kid too, but if it comes down to private school and being liquidated, that choice gets much simpler.  If I am in BK, private school is gone anyway.  This guy may need to just swallow his pride and make some hard changes...the kids may have to go to public school for awhile.  The wife may have to get a job.  The boat may well have to be sold at half the original price and the deficiency might have to be renegotiated and paid off at say, $300/month.  Supper may be tuna salad sandwiches for awhile instead of eating out 4-5 nights a week.  Clothes may have to be bought at Old Navy.  This year's vacation may have to be tent camping in a state park with some canoeing and fishing on the park lake.  Life could be worse.  Once your friend cycles through a rough patch like that, I'm guessing he'll use leverage very carefully as a result.   40 years ago, something like 4% of the population had a mortgage.  Today, it is more like 4% DON'T have a mortgage.  Can we go back to those standards?  Probably not to that degree, but I believe for many individuals, it's certainly possible.  Did I say it was easy and/or fun?  Heck no!  I'm not saying that your friend is wrong to have a mortgage and use leverage.  What I am saying is that use of leverage comes with risk and potential consequences and to not consider the possibility that you could get squeezed by debt is at least short-sighted.  If your friend gets squeezed and liquidated while living what 95% of the population would consider the good life, he's not going to find much sympathy from the guy that's carrying a lunchbucket with a bologna sandwich and driving a 15-year old Ford Ranger while fretting about his overtime being gone and wondering how he's gonna make the next payment on that modular home he bought three years ago.  That's as diplomatic as I can put it.  I wish your friend well, but if he's serious about digging out of the hole he is in, he might want to read Dave Ramsey's "Total Money Makeover" and "The Millionaire Next Door"  (Stanley/Danko).

Back to topic…

  RE: you thinking about a bk filing I think you tell your manager and your compliance dept. as soon as you can.  They need to know, don't surprise them or they just may terminate you.   I hear ya.  I know a broker (independant) who has gone through a terrible divorce spending incredible amounts of money trying to do what he thinks is the right thing for his situation and children and has paid the lawyers over the IRS.  His thought was this will only take a year or so, but it has dragged on much longer and cost a lot more than originally thought.  He has thought about the 13 filing to get on a payment plan and take care of this obligation.  Now he thinks his broker dealer will terminate him becasue they are scared that a broker with a large liability could cost the firm a lot of money if does unscrupulous business to cover his debt.  Mind you, this broker with over 20 in the industry doesn't have one complaint on his record and even though his IRS debt has added up over 3 to 4 years, now the BD is scared of him.  He cant be the only broker in this type of a position!!!!!!!   So, anyone have any words of wisdom here?  If they terminated my friend for filing a 13, would it be a wrongful termination?  Do they have cause?