Perhaps the most out-of-touch video ever
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  Perhaps the most out-of-touch video ever
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Adam Griffin
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« on: September 13, 2014, 04:41:49 AM »

Do You Make $400,000 a Year But Feel Broke?

Found this while perusing another elitist article from the WSJ posted here. My head exploded; this is why some people want to bring back the guillotine. So I'm obviously not from Chicago (not sure how "Chicago" is defined here), but it certainly isn't NYC. With that being said, let's walk through the video's assessment of just how hard life must be for someone making $400,000 per year who is married with two children:



I'm not going to dispute the cost of the home (though $1.2 million for that seems a bit ridiculous anywhere outside of the core of the city), but apparently feeding a family of four costs $575 per week. In addition to that, utilities are assessed at $1,200 per month. Really? In addition, home maintenance costs are assessed to be $25,000 per year, which, for a house that large may be reasonable, but still seems absolutely ridiculous. All in all, this works out to $190,000 per year for a house and some food.



And here come the discretionary expenses, which gets even more ridiculous. Two vacations rated at a total cost of $25,000 per year. A new $60,000 car every four years means $15,000 per year in payments. A $10,000 entertainment budget, or $200 per week for whatever. Oh, and don't forget the "club dues", which will cost you $12,000 per year. Now, we're up to $252,000 in income gone.



Oh, and the kids - don't forget about the kids! If your kids want to be in sports, then be prepared to fork over $10,000 per year for them to play with a ball. An additional $10,000 per year will be allocated to the children's 529 account (which seems ridiculously low considering justification of other expenses). Holiday gifts for the children? Well, that'll be another $6,000 per year. Kids bring home a catalog for a fundraiser where they'll win some cheap plastic stuff from China for selling the most? Pull out that checkbook - another $5,000 per year!

All in all, this works out to $283,000 per year, which is what you'd earn after taxes.

"How can you make $400,000 per year and feel like you're just barely getting by?"

Apparently, by being an idiot.

WHAT IS THIS
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Antonio the Sixth
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« Reply #1 on: September 13, 2014, 04:45:48 AM »

this is why some people want to bring back the guillotine

Indeed. These people must be beheaded.
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dead0man
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« Reply #2 on: September 13, 2014, 05:10:32 AM »

Yeah, I'm not sure what the OP wants to discuss here.  Some people are morons, even some people that manage to make $400k/yr.  This isn't news or shocking.  Yes we should point and laugh.  No we should not feel sorry for them.
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patrick1
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« Reply #3 on: September 13, 2014, 05:36:21 AM »

There is an interesting psychology that happens with people as they progress in their careers and make more money.  Many people continually re-frame things in their head, they convince themselves that they are worth the money they are getting paid. This often moves in short order into them thinking that they are even underpaid for their awesome work. On a parallel track non-essential luxury things which were once out of their realm and reach in their former lives, now become must haves. Because God forbid you dont have the latest car, fanciest modern kitchen, send your kids to the right schools, vacation at tony places etc etc
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jaichind
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« Reply #4 on: September 13, 2014, 07:52:37 AM »

Several technical points

1) For an income of $400K, getting a house which is $1.2 is too high unless they are mostly cash which is obviously not true if they have such a high mortgage.  They should target a house which is about 2 times their gross income which is $800K.  This will help on property taxes as well since $24K seems pretty high even a $1.2 house.
2) 529 should really be $20K and not $10K since they have two kids.
3) A $60K car seems high, as a rule of thumb you want a car that costs around 10% of your annual gross income.  Of course since this a 4 member household so there might be a need for two cars in which case $60K is high but absurd.
4) It is not in the pictures but $9K for car insurance is absurd.  Car and home insurance together should be around $5K.
5) What these costs does not take into account would be nursery school which can be fairly expensive in upper income areas.  Of course one can assume their kids are of school going age.  Of course then this does not factor in private school.
6) I am not sure if this family has two income earners to arrive at an income of $400K.  If both parents work, then there is the cost of nannies/baby sitters that this list does not take into account.
7) The utilities and bills of $15K is way to high unless this family are a bunch of energy hogs.
Cool Home maintenance should really not be $25K unless they live in a very old and run down house which means they better in a palace if such a house cost $1.2 million.
9) I think groceries of $30K is reasonable if it includes the cost of going out to restaurants and eating out during lunchtime at work in a high cost area.
10) I think 2 vacations of $25K is high but not absurd as international travel costs will be high.

All things equal, I think if a family lives in a high cost area, one we take out this overly expensive house I think the rest of these costs seems reasonable as they underestimate some costs (child care, private school) while overestimating others. 
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jaichind
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« Reply #5 on: September 13, 2014, 08:03:06 AM »

I am not sure about Chicago is that expensive but I can very much identify with what is in this video as far as the greater NYC area is concerned.  My social circle are in the high income bracket and almost all of them have household income of $400K or above, most of them significantly above.  Once they have children as pretty much all of them do, the cost becomes very high.  It is a choice they make but all of them, including myself, make the same choice.  In blunt terms, the choice is to make sure their children lives in and attend school in an area that matches their social-economic status.  But the cost of housing and/or private school is expensive.  Since people in a similar income bracket pretty much make the same choice, they bid up the cost of housing of schooling and as a result, unless they are frugal in other areas, the level of saving they achieve is low relative to what one would expect given their income.  In that sense I very much think the video is in touch with the experience of households in the upper-middle income brackets living in high cost areas.
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Person Man
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« Reply #6 on: September 13, 2014, 09:13:54 AM »

I am not sure about Chicago is that expensive but I can very much identify with what is in this video as far as the greater NYC area is concerned.  My social circle are in the high income bracket and almost all of them have household income of $400K or above, most of them significantly above.  Once they have children as pretty much all of them do, the cost becomes very high.  It is a choice they make but all of them, including myself, make the same choice.  In blunt terms, the choice is to make sure their children lives in and attend school in an area that matches their social-economic status.  But the cost of housing and/or private school is expensive.  Since people in a similar income bracket pretty much make the same choice, they bid up the cost of housing of schooling and as a result, unless they are frugal in other areas, the level of saving they achieve is low relative to what one would expect given their income.  In that sense I very much think the video is in touch with the experience of households in the upper-middle income brackets living in high cost areas.
From what I hear, urban/suburban Illinois is about the same price as other midwestern blue states like Minnesota, Colorado and Wisconsin. At least salaries are similar.

But I stand by my remarks that people in certain communities should simply feel on top of the world from being even able to afford to live there at all.
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memphis
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« Reply #7 on: September 13, 2014, 09:29:00 AM »

It must be awful to barely get by in this luxury condo on Lakeshore Drive
http://www.realtor.com/realestateandhomes-detail/530-N-Lake-Shore-Dr-Apt-1801_Chicago_IL_60611_M76731-89019
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pbrower2a
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« Reply #8 on: September 13, 2014, 10:23:39 AM »

If I were making $400K a year, I would not be spending so recklessly. Buying expensive cars and houses is no way to create wealth; such dissipates wealth. OK, if those are necessary for purposes of business, but otherwise -- your kids may need some help in attending a high-cost, first-rate university. Harvard ain't cheap, and if you want your kids to do as well, you had better have a profitable business to hand down or be able to get your kids to a school that can keep them in the upper-middle class.

$400K income is rarefied air in a country in which many are lucky to make $15K a year.
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Simfan34
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« Reply #9 on: September 13, 2014, 10:50:57 AM »
« Edited: July 28, 2015, 11:39:38 AM by Simfan34 »

A family earning $440,000 in a $800,000 house?! Are you insane? A masochist? At the 30% rule limit they could get up to  $1.6 million, which wouldn't get them anything particularly palatial in most major metro areas. Trying to find an upscale five house in an nice town or area, at least here, is a fool's errand. I've heard maintainance comes to 0.5%-1% of the house value, which would be, what $6,000-$12,000?

Of course he could buy some land cheaply and build his own house for much more bang for his buck. Not a bad example to follow, although it would usually mean living in some far-off suburb. This won't happen in Winnetka.

And they seem to be neglecting private school, unless they are in a very good district. I don't know what school fees are like in the Chicago area, but here in New York they can cost you up to $40,000/yr.

Jaichind (who must have a lot of money saved in the bank) brings up some primarily good points but the main thing this video certainly isn't ridiculous. The sports, club dues, fundraising, seem like obvious places to cut for breathing room. But I am skeptical they'd have only one car. And God forbid what happens when one of their kids goes to Northwestern.

If I wasn't black I imagine my tuition payments would have ruined us.
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Mopsus
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« Reply #10 on: September 13, 2014, 11:33:37 AM »

Simfan, don't you think that some of that money would be better spent feeding starving children in Ethiopia?
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Simfan34
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« Reply #11 on: September 13, 2014, 11:51:28 AM »
« Edited: September 13, 2014, 11:53:24 AM by Governor Varavour »

Simfan, don't you think that some of that money would be better spent feeding starving children in Ethiopia?

Who do you think I am, Jeffrey Sachs?
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Mopsus
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« Reply #12 on: September 13, 2014, 11:59:50 AM »

Simfan, don't you think that some of that money would be better spent feeding starving children in Ethiopia?

Who do you think I am, Jeffrey Sachs?

I don't know what that means, but your original post was "What"?, so I'll respond to that one: Don't you think that there are better uses for a person's money than spending $40,000 a year to send their kids to private school, or spending hundreds of thousands of dollars on a house?
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Filuwaúrdjan
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« Reply #13 on: September 13, 2014, 12:00:04 PM »

"Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds nought and six, result misery."
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Cassius
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« Reply #14 on: September 13, 2014, 12:07:44 PM »
« Edited: September 13, 2014, 12:10:23 PM by Senator Cassius »

Simfan, don't you think that some of that money would be better spent feeding starving children in Ethiopia?

Who do you think I am, Jeffrey Sachs?

I don't know what that means, but your original post was "What"?, so I'll respond to that one: Don't you think that there are better uses for a person's money than spending $40,000 a year to send their kids to private school, or spending hundreds of thousands of dollars on a house?

Surely utilising one's money in an attempt to better the comfort and prospects of one's family is the best way in which said money can be used?
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Mopsus
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« Reply #15 on: September 13, 2014, 12:15:04 PM »

Simfan, don't you think that some of that money would be better spent feeding starving children in Ethiopia?

Who do you think I am, Jeffrey Sachs?

I don't know what that means, but your original post was "What"?, so I'll respond to that one: Don't you think that there are better uses for a person's money than spending $40,000 a year to send their kids to private school, or spending hundreds of thousands of dollars on a house?

Surely utilising one's money in an attempt to better the comfort and prospects of one's family is the best way in which said money can be used?

If one has attained an above-average level of comfort and ensured above-average prospects for one's family, and then has the opportunity to improve the comfort and prospects of someone else's family, one should do that.
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Linus Van Pelt
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« Reply #16 on: September 13, 2014, 01:50:14 PM »

Ah yes, the old "it's not a lot of money after I spend it all."
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pbrower2a
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« Reply #17 on: September 13, 2014, 02:02:11 PM »

The actor Patrick Stewart, who could have bought any car of his choosing,  shocked his Hollywood buddies by buying a Honda Accord. Excellent car, but not at all ostentatious.

One would think that successful people would have the wisdom to recognize the word luxury and its derivatives for the waste that the word implies. Do kids have to see everything before they are 20?

     
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jaichind
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« Reply #18 on: September 13, 2014, 02:18:23 PM »
« Edited: September 13, 2014, 02:25:56 PM by jaichind »

The article version of this is

http://online.wsj.com/articles/six-figure-incomesand-facing-financial-ruin-1409936418

part of it talks about this budget

Given how much college costs they really should do $20K for 529s.  Also putting away just $10K for retirement is a disaster even for a family that makes $200K.


----------------------------------------------------------------
Falling Into a Hole
How does a high-income family spend more than it earns? Consider a hypothetical couple in the Chicago area making $400,000 a year.

They live comfortably, travel frequently and pay the mortgage on a home worth more than $1 million. They send their two teenagers to public school and put away about $12,000 a year for retirement and $10,000 for college tuition.

And when it comes to income and expenditures, they are basically broke.

This couple was created by Northern Trust Wealth Management NTRS +0.69%  at the request of The Wall Street Journal, to illustrate how high earners can end up in the red.

The couple's annual take-home income is $273,000 after setting aside money for retirement and college and after paying U.S. and Illinois income taxes, which Northern Trust estimated based on certain assumptions about deductions and rates.

They spend $87,000 a year on their mortgage, $24,000 on property taxes, $25,000 on home maintenance and $15,000 on utilities, cellphones and other household bills, which Northern Trust considers reasonable examples of what such a family might spend, based on the firm's experience. Groceries for the family of four cost $575 a week, or $30,000 a year.

The family buys a new car every four years, which amounts to $15,000 a year on average, and spends $9,000 annually on car insurance. Their discretionary purchases also include $21,000 a year on dining out and other entertainment, $12,000 in membership dues at a local club, and $26,000 on two family trips and one weekend getaway for the parents.

Add in $10,000 for equipment, fees and other expenses related to sports their children play, $4,000 for gifts and holiday spending, and $5,000 for school fundraisers and other charitable giving.

Suddenly, the hypothetical couple is $10,000 in the hole every year.

Clearly, couples in similar situations can cut back on expenses. The problem is that overspenders are often trying to satisfy both material and emotional needs.

Karol Ward, a New York psychotherapist who helps clients try to control spending, says some people overspend to fit in with peers or a social circle they aspire to join. One client picked up restaurant tabs for friends and associates because it made him feel important.

"It was more about his low self-esteem than generosity," she says.

For high earners in demanding jobs, spending heavily can also help justify long work hours and compensate for time away from friends and family.

"I wanted to reward myself for my hard work," says Robert Bell Platt, who was working as a patent lawyer in Washington, D.C., when he concluded about a decade ago that he and his partner, Mark See, were living well beyond their means.

The couple had six cars, including four BMWs, two speedboats, a townhouse in Alexandria, Va., and vacation homes on Jekyll Island, Ga., and in New York's Finger Lakes region. They enjoyed pricey dinners out every weekend, shopping for gourmet groceries and the latest electronic devices.

Mr. Bell, now 55, grew increasingly anxious. "In the back of my mind I kept thinking: 'This could all come undone in a hurry,' " he says. "We were spending too much and had nothing saved for retirement."

Climbing Out
Sometimes, overspenders need a motive to get back on the road to financial stability.

For Mr. Bell, it was fear. He saw colleagues in their 50s being let go by his law firm. He was particularly haunted by the story of one former co-worker who owned multiple homes and cars and earned in the high six figures; nearly two years after getting laid off, the man was bankrupt.

"I didn't want that to be me," says Mr. Bell, who was in his 40s at the time.

So Mr. Bell and his partner made big changes. They sold two of their homes and four of their cars. They ate at home more frequently. They canceled their cable television and cellphone plans. And they saved $1.7 million for retirement.

Ms. Flores had a similar revelation. She started working for a retirement-plan provider, and part of her job was traveling around the country to shoot a documentary about how Americans were struggling in retirement. She met investors in their 60s and 70s who had once earned six-figures but were now broke.

"I realized I was on that path," she says.

If you get laid off, the motivation is immediate. Don't keep on spending or try to maintain costly appearances. Mr. Bullock, the bankruptcy attorney, says clients who got into financial trouble soon after losing their jobs often weren't willing to scale back their lifestyle.

"They wanted to keep impressing their neighbors and they didn't want their spouse or kids to have to sacrifice," he says.

To avoid such an emergency, create a "thoughtful and long-term" financial plan, says Katie Nixon, the Chicago-based chief investment officer for wealth management at Northern Trust. Count up all income and all required spending, including taxes. Don't factor in "nice-to-haves" such as vacations, she says.

"That will give you a good sense of what is really your disposable income," she says.

People have a tendency to boost spending as income increases, Ms. Nixon says. So consider saving your bonuses and raising your 401(k) contributions. And make a sober assessment of your future earnings power.

Use manageable strategies to help change your lifestyle. Michelle Smith, president of New York-based Source Financial Advisors, suggests picking your indulgences carefully. If travel and dining are important to you, cut back in other areas.

"Making a 25% cut across the board feels a lot more restrictive and suffocating than keeping two or three categories at full tilt, and making a 30% reduction across the rest," she says.

Implementing the changes gradually and adjusting your financial plan periodically to stay on track will make the process easier and more sustainable, experts say.

Mr. Bell eventually quit corporate law and started to work for himself. Because the couple was able to unload so many assets, he was eventually able to start working part time and take a drastic pay cut.

Now he makes far less than many peers, but says he is happier and more relaxed, and no longer lies awake wondering if the couple's lifestyle is sustainable. To his surprise, he says, friends have expressed envy and said they wish they could simplify their lives, too.

His advice to them: "You have a choice. You can cut back before it's too late."
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jaichind
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« Reply #19 on: September 13, 2014, 02:24:34 PM »

There is an interesting psychology that happens with people as they progress in their careers and make more money.  Many people continually re-frame things in their head, they convince themselves that they are worth the money they are getting paid. This often moves in short order into them thinking that they are even underpaid for their awesome work. On a parallel track non-essential luxury things which were once out of their realm and reach in their former lives, now become must haves. Because God forbid you dont have the latest car, fanciest modern kitchen, send your kids to the right schools, vacation at tony places etc etc

I can concur with you to some extent that for some people this dynamic is playing out.  Lots of times some of these people are in high pressure management or finance jobs where projecting confidence is critical for their success.  Those best at it can project confidence to themselves and a result make them feel the deserve more credit and income then they are getting.  As for overspending I feel it is an issue of self-esteem.  For me personally I actually make it a game to be as frugal as possible although I drive my DW crazy with this, and she is very frugal herself.  Like I said, spending even for those who are frugal goes sky high once children comes into the picture.  The best days for me in terms of spending was when I was not married yet more than 7 years ago when I had an income above $500K but lived on a budget like someone with a $50K income.  Good days.  Only fly in the ointment was those darn income taxes, drat to Bill Clinton and his 1993 tax increase.   
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Lief 🗽
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« Reply #20 on: September 13, 2014, 02:25:08 PM »

Eh, if I were them I would live beyond my means. Might as well enjoy their money while they can, because they'll likely be the first against the wall when the revolution comes.
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jaichind
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« Reply #21 on: September 13, 2014, 02:30:07 PM »
« Edited: September 13, 2014, 04:22:09 PM by jaichind »

Eh, if I were them I would live beyond my means. Might as well enjoy their money while they can, because they'll likely be the first against the wall when the revolution comes.

Not sure if that is the best strategy even if the revolution is coming.  If a revolution is coming does it not make sense to have assets to be as liquid and transportable to another country as much as possible.  Having a bunch of overpriced homes, cars and other luxury items are not that liquid nor transportable so when the revolutionary council takes over, those assets will be the first to be requisitioned.   I guess the excessive international travel/vacations might be worth it as it will get one ready to live internationally when the revolution comes and these 1% have to go into exile and become "White Americans" (much like White Russians in the post-1917 world)
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Indy Texas
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« Reply #22 on: September 13, 2014, 03:38:59 PM »

There is an interesting psychology that happens with people as they progress in their careers and make more money.  Many people continually re-frame things in their head, they convince themselves that they are worth the money they are getting paid. This often moves in short order into them thinking that they are even underpaid for their awesome work. On a parallel track non-essential luxury things which were once out of their realm and reach in their former lives, now become must haves. Because God forbid you dont have the latest car, fanciest modern kitchen, send your kids to the right schools, vacation at tony places etc etc

The sad truth is that the hamster wheel of consumption does not slow down as income grows.

Particularly as you get into higher-paying jobs which are scarcer, less replicable and require more luck/connections/je ne sais quoi to obtain, the opportunity cost for opting out of a lot of the stuff on that list becomes higher.

You can say, "Well, country club dues are a luxury; the Evil Bourgeoisie should shut up and play at the public course." Well, everyone else they work with at their company and in their line of work are members at that exclusive club. So when you're interviewing for an executive position or trying to raise money for a business, are those guys going to give the job/capital to you, or to the guy they know a lot better because they see him every weekend on the links?

You can say, "Shut up and buy a cheaper house in a more proletarian neighborhood." Again, all that will do is put their children at a disadvantage by forcing them into a less affluent public school or putting them farther away and more removed from their private school. And you won't know the people you work with and do business with as well because you won't be in the same neighborhood as they are.

You can say, "Buy cheaper clothes and drive an Accord instead of a Mercedes," but rich people are no less subject to peer pressure and shallow judgment than poor people are.
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memphis
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« Reply #23 on: September 13, 2014, 07:41:57 PM »

Simfan is just determined to be penniless. He won't be the first.
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Simfan34
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« Reply #24 on: September 13, 2014, 07:44:03 PM »

Simfan is just determined to be penniless. He won't be the first.

Tongue
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