This is Exactly How Much You Will Earn — and Spend — In Your Lifetime

47 Comments

The amount of money you will earn in your lifetime is fixed — you just don’t know what the number is yet.

This might sound like a painfully deterministic perspective, but its worth keeping in mind when you assess your spending. Human beings are notoriously short-sighted when it comes to making predictions about the future, but these normal blind spots seem exacerbated when it comes to finances. I’ve read a number a personal finance articles about how bad people are at saving for retirement because we’re terrible at making a guess at what our future selves will want, but I have yet to read one that talks about your money in the context of a lifetime bank account with a fixed balance that you are simply withdrawing from every day.

Even though that’s exactly what’s happening.

People often say money is infinite but time is not. They’re wrong.

“You can always earn more money but you can never get more time”, is the perspective that encourages living in the moment and not worrying about petty things like 7 year car loans. But the truth is your money is probably more fixed than you’d like to admit — and you probably won’t get much more than what can be predicted for your current age and level of education. I know none of us want to think of ourselves as statistics, but it doesn’t hurt to use data as a baseline to make judgements about how you’re doing.

If you have a Bachelors degree, you will earn approximately $1.8 million in your lifetime.

That’s it. That’s all you have. And about $360,000 of it will go to income taxes, so don’t think you’re rich now or anything. The number is even more depressing if you split for gender. Men earn, on average, almost $1 million more over their working lifetime than women, I assume because women are more likely to take time away from the workplace, work part-time, or choose lower paying jobs with flexibility in order to be the primary caregiver of children. But for the sake of simplicity, we’ll assume everyone gets $1.8 million, which comes to just shy of $1.5 million after taxes.

And that’s it.

You’re going to burn through this money much faster than you think. So fast you won’t even realize it is happening. Assuming you start burning money at age 20 and die at 80, you’ll have 60 years of spending and consumption. Trust me, you don’t want more — you can’t afford it. Below is a breakdown of what an average person’s lifetime earnings and spending might look like:

How much you will earn and spend in your income

Your numbers might be more or less, depending on a myriad of variables. Maybe your first home was more or less expensive, or your education was free or hundreds of thousands of dollars. Maybe you have a spouse that’s splitting many of those major expenses with you. Maybe you’ll never own a car, or maybe you’ll have four children. And maybe you’ll live to 90 years old, I don’t know. Life is long and varied, and the above is not meant to be a prediction OR a guide — merely a template for your to start making some guesses and assumptions about your own financial situation.

Sidenote: for the sake of simplicity, I did not get into the nitty gritty details of home ownership. The average person will actually own 5 homes in their lifetime, and every time they move, will spend approximately 10% of their home’s value on fees, commissions, and moving costs. Many people think that if they manage to sell their home at a profit, that money can be added to the top of their lifetime earnings. However, if you roll it into another house purchase, particularly if you size up, you’re not funnelling that money into your spending, just your net worth. To keep the above example as basic as possible I used one moderately priced house, but you can sub in whatever makes more sense for your own experience.

You will spend over $1 million more than you will earn in your lifetime

That big red seven-figure number probably took your breath away, but it’s not quite as alarming as you think. Don’t get me wrong: going into the red is never a good thing, but in this case a lot of your spending, particularly in retirement, will be subsidized by savings, real estate gains, government pensions, and so on. You might stop earning money at age 65, but if you live until 80, you’ll be spending it much longer.

This is actually a great illustration of why it is so important to save and invest during your working lifetime: if you don’t, you will not be able to afford your life.

You have to start saving, and you have to start right now. You have no other choice. To skip saving and investing is to leave yourself vulnerable to food, shelter, and other basic needs insecurity in the future. That said, we already know many people don’t save enough for retirement, and this is one of the reasons debt loads are increasing amongst seniors.

But that is not your problem yet. You are at the beginning, and in control of your own financial destiny.

One of the best things you can do is change your perspective: start treating every purchase you make as a withdrawal from your $1.5 million dollar balance.

It’s easy to spend impulsively if you think there is always more money to come, that every day you go to work in order to earn more. But this is a self-sabotaging perspective.

It’s a much better mental exercise to pretend that all the money you’ll earn in your lifetime is already there, and going to work every day is just the contingency you need to fulfill in order to access it.

In other words, you’re allowed to spend your $1.5 million if you work for it — but it’s still only $1.5 million, and every time you spend money, that balance gets smaller and smaller. Everything you buy chips away at that total, and some purchases take out big fat chunks of it. Some of these are unavoidable. For example, you have to pay income taxes and buy food. But some of these are not.

You can change how you spend your $1.5 million

You have 100% control over what kind of car you buy, and how many cars you buy. Whether your buy them outright with cash or finance them for years.

You get to decide if you pay off your student loans ahead of schedule, or spend the maximum amount of time in debt.

You choose if you want to lug around a credit card balance costing you 20% interest for years, or if you want to live with in your means and keep that extra almost-$200,000 for something else.

You can reduce your commute, have a small wedding, and buy your clothing and electronics secondhand.

And so on, ad nauseam.

The choices we make with our money are flexible and individual, and that’s how they should stay. But the most important thing is to be aware of how they impact our long-term financial goals — by being aware of just how expensive they are the context of our lifetime earning and spending.

You’re only going to get about $1.5 million to spend, so spend it wisely.


47 Comments

Cancel

  1. This is fantastic! As someone on a pay ladder for the foreseeable future, I know exactly what I’ll make when (not counting side hustles, of course). We’ve worked really hard to reduce a lot of these categories. And after ripping out all of the tile and underpayment in our bathroom, I’m never ever moving. For real. I also know that we’re over in some categories (travel but only by a bit last year). If it is reasonable and aligns with a priority, I’m OK with that. Thanks for another excellent post!

    Reply
  2. It is an interesting chart, but do you think it would make more sense if there were 2 incomes listed since we assume the person gets married and has a child? I know there are a million variables at play (death, divorce, one working parent), but one low income supporting all that spending seems crazy. Im also surprised by the low income! Is it $45,000 over 40 years? I cant imagine making that low of a family income, owning a $350K home and buying a brand new car every 6 years, but I do know that people seem to actually live like that when we look at debt ratios in this country!!

    Reply
    • I thought about listing the two incomes but it doesn’t make a huge difference… because families that do have children typically have at least 2, so that negates that. The wedding cost might be split, but then like you said, 50% of marriages end in divorce so maybe factor that into the equation. The housing thing is already a gross under-estimation because it optimistically assumes 1 home for 25 years — not the reality of moving to 5 different houses, and possibly getting 30-year mortgages, etc.

      It’s an imperfect chart, but a good first-look for most people!

      Reply
  3. I think the exercise of getting grounded in the at the big picture and reality of the numbers is so important, and for the sake of keeping spending in check, I don’t mind those average benchmarks, but I think one of the biggest problems today is people getting trapped in the idea of limited earning potential. You can earn independently of your age, job title, degree, etc. My SO broke six figures last year at age 28 with a high school degree. I’m on track to break my own six figure goal this year at age 29 with a degree in drama. Not typical of course, but I don’t know that we should encourage what’s typical. When it comes to earnings, there is an epidemic of settling that needs to stop. That said, I totally see the value of using the averages as a way to keep spending in check. (I just get really passionate about the earning more stuff, if you couldn’t tell 🙂 )

    Reply
    • hahaha I agree! I actually had a paragraph about earning more at the bottom, but I thought the post was getting too long so I cut it out =p

      Just to play devil’s advocate though, our expectations of our earnings are usually too rosy. The chances of someone having to take ANY time away from the workforce for disability, illness, layoff, education, or children is very, very, very high. This negatively impacts your overall earning potential in a very big way.

      Reply
  4. Another way to think about it is if you invest all 1.5 mil with a 4% withdrawl rate that’s 60k a year. Some people couldn’t live off of that amount of money and if that’s what they make in a lifetime than investing every penny is out of the question which is why saving, cutting costs and living a frugal life with the future in mind is the best choice.

    Reply
  5. Giovina

    It’s pretty depressing that so many people end up negative and pay all that interest over the years. I see this earning potential as an opportunity to save up enough in the early years to not have to work later on, or to make the most of your money by spending it on things you really want and not handing it over to the bank. Build in a healthy savings rate and don’t buy into all the trappings of a typical life and you end up positive in the end, that’s my plan at least.

    Reply
  6. Personally, I am horrified at the fact that my dumb cell phone will cost me anywhere near $59,000 and that I will spend anywhere close to $72,000 on cable and internet.

    That’s a lot of money.

    This makes me want to find a way to spend way less on these areas and spend more on something else….like vacation!

    Reply
    • hahaha ikr

      I even used low-ball estimates. My cellphone costs $100/mo so… $1,200/yr x 60 years = $72,000 (and that’s assuming prices don’t rise!)

      Reply
      • Jakob

        On the other hand, my cellphone plan costs me $40 (with Canadian WIND) and Internet is $42 monthly. Not going with the big monopolists and taking a few hits on coverage or bandwidth can do wonders for these running costs.

        I even know people who live off wifi only and forego a mobile plan altogether. Just like it’s possible to live without a car entirely and rely on public transit if you’re in a big city centre.

        Reply
        • Honestly Jakob, that makes a lot of sense to me.

          I see every decision as full of trade-offs. Personally, I would trade some functionality and hipness of my cell phone to put money into other areas of my life that I find way more important.

          Reply
  7. What an interesting visual post! Would never have thought about looking at a total balance over a lifetime. It’s easy to see a paycheck, or a yearly income, but a lifetime income?! It makes me want to look at all my purchases from this year again and see if I’m really putting my money towards my values or elsewhere.

    Reply
  8. Stephanie

    This is applicable to a wide swath of people in North America right now, but I find it assumes that everyone wants to live a suburban lifestyle, which is increasingly not the case.

    My partner and I are in our early 30’s and couldn’t care less about society’s opinion of what success means at our age. We both have Master’s degrees, no children (and no desire for such). We have never had a car (we cycle, use autoshare or take transit), no desire to own a home, and no student debt. We don’t believe in weddings. And we are not outliers in our city by any means.

    We rent 950 sq ft in an historic Victorian home, all utilities included, in a central, beautiful neighborhood that has a walk score of 97, for less than 25% of our income. We spend more on travel and food than most people because that is what matters to us.

    I don’t say this because I think one lifestyle is right and one is wrong, but the myriad of considerations you discuss doesn’t actually account for people who have literally no desire to live life according to the options in your chart.

    Freeing yourself from a mortgage, children, and vehicle opens up a whole new realm of financial freedom and I’d be interested to hear your take on a ‘non-traditional’ approach to investment and saving.

    Reply
    • Emily

      Stephanie, seriously, do you want to be friends? We are twins. Every detail, down to the square footage of your Victorian rental. Happily kidsfree here, too. Similarly contemptuous of wasteful suburban lifestyles.

      Are you in Boston, by any chance? If so, let’s have drinks (because we can afford them!)

      Reply
    • The post is not meant to encourage or assume any kind of lifestyle, it’s just an aggregation of some averages. Like I said in the article: “the above is not meant to be a prediction OR a guide — merely a template for your to start making some guesses and assumptions about your own financial situation.”

      We have a tendency to interpret the world with bias towards our own situation. Everyone thinks everyone lives just like them. But the fact is, the average family home size has nearly doubled, while family size has been in decline (https://www.aei.org/publication/todays-new-homes-are-1000-square-feet-larger-than-in-1973-and-the-living-space-per-person-has-doubled-over-last-40-years/). While there is certainly a movement towards smaller urban lifestyles, we’re still not the majority.

      My husband & I rent a 2-bedroom urban condo, share 1 car, and don’t carry any debt, so we’re not subscribing to this chart either. It’s really just meant to provide a different perspective for people to look at their finances, not a suggestion or guideline of what you need to subscribe to!

      Reply
      • Stephanie

        Agree with everything you say, and have found other advice you give to be very useful.

        However…

        I’m a designer and one of the fundamental principles in my field is to design for a condition that you *want* to exist. When we design for the status quo obviously nothing changes.

        Providing a chart that shows people the ‘status quo’ of spending and earning may be enlightening as a static snapshot of where many people are, but doesn’t actually help one to visualize a financial future that is desirable.

        I examine the above expected income/outcome and think ‘okay, none of that applies to me. Now what?’ According to this chart, I will have a big stinking pile of money sitting around that I’m not spending on all those things. What should I do with it?

        At the bottom of my comment, I asked for your thoughts on a ‘non-traditional’ approach to investment and saving because I (and presumably, many others) are seeking financial information that is not tied to status-quo notions of finance and life-staging.

        There’s an appetite for resources and financial advice that actually responds to millennials; I would like to see someone throw away all the notions of the ‘average joe’ finance stats that are – to my mind – already a relic of the past, and be disruptive.

        Reply
  9. This was a great exercise to do. I included things like cost of continuing education and professional dues, (I’m a nurse- it never ends) and other memberships (Costco, AMA). I also included personal care and gifts/donations as well as medical expenses (prescriptions/dentist, etc), since I don’t have kids, or a mortgage. Clearly just an estimate on these things, but it was really eye opening and made me realize, like Elle, that maybe I don’t value a cell phone or cable enough to spend that kind of money on it over a life time.

    Thanks for the post, can’t wait to share it.

    Reply
  10. Michael

    Neat to see the numbers laid out as they are. But I think you’re grossly underestimating what people will earn in their lifetimes as well.

    In this scenario, you’re assuming someone is making $40,000/year from age 20 to age 65. Assuming they work till they’re dead at 80, then they’d only be making $30,000/year. Even if you’re only making modest salary gains of 2-3% per year, the average person is going to make way more than $1.8 Mil.

    If you look at average income per family, according to stats Canada the average family income is $76K/year. If you live in Alberta, it’s over $97k/year.

    Not trying to to be argumentative, but I don’t believe the picture is as bleak as you make it seem.

    Other than that, I really like your blog and am a regular reader of it. Keep up the great work!

    Reply
    • Hey Michael,

      If you look at the article I pulled the numbers from, you’ll see there’s a big split between men & women as far as earnings go — men earn over $2 million in their lifetime, but women will earn $1 million less. This is likely because women take time away from the workforce to be the primary caregiver to children (as I said in the post). But this is probably why the numbers look pessimistic to you! As a man, they are 😉

      That said, average income per family isn’t the same as average income per person, which is what I wanted to outline here. A two-person family earning $76,000 per year is only $38,000 per year each! =p Also things like disability, layoffs, or illness that hit unexpectedly and take you out of the workforce for a few years and damper your lifetime earnings.

      Glad you enjoyed the post!

      Reply
  11. I love this! I think it’s super important to always think about how a $1 spent today affects your hypothetical “future self.” With interest, $1 could be much more than $1 in 40 years. In accounting lingo, it’s important to always be thinking about the present value of things — accounting for costs and benefits in the future!

    Reply
  12. Aaron

    Hey Bridget,

    This is such an awesome breakdown, it really puts things into perspective. When you put every purchase in the context of your $1.5mm bank a lot of things don’t seem worth it.

    I do take issue with this though – the breakdown doesn’t consider two things: the time-value of money, or the value of any of your assets.

    People earn money un-evenly. At some point, you’re going to have excess money deposited in your “bank”. That money is going to earn interest & appreciate over time.

    You also don’t consider the value of assets, or their appreciation. Sure, the average person is going to own 6 cars – but when they are done with the car it’s not like they trash them. There is still value there that is captured.

    Cars are a small item, but when you don’t take the value of a home into account, it’s a much bigger issue. After 60 years, a $350,000 home with a tiny amount of appreciation (1.5% a year) is worth over $855k. That’s nearly 2/3 of the shortfall that you lay out!

    I get that selling a home has fees. I also understand that this whole article was just an exercise to make a point, but I just wanted to call that out.

    Thanks for putting this together!

    Reply
    • Guess you missed this paragraph:

      “a lot of your spending, particularly in retirement, will be subsidized by savings, real estate gains, government pensions, and so on.”

      Everyone buys their home with the hope that it will appreciate. Whether or not this true depends on a myriad of factors, which I didn’t want to get into in this post (which is also the main reason I breezed over the example listing just one home, when in reality people will typically own 5 in their lifetime).

      There car thing can go either way. Canadians have a problem with car loans right now, where they’re taking out 7+ year loans for their vehicles, leaving themselves underwater on the car for virtually the entire time they own it. Often when they change cars (usually around 6 years), they just roll the loan into a new one — the dealerships dressing this debt treadmill up with the words “negative equity” so it doesn’t sound as bad as it is.
      This example also doesn’t take into account how many people lease their cars.

      Like I said, the chart was not meant to be a guideline or a prediction, just an exercise. Whatever is missing or not missing depends entirely on a person’s individual circumstances.

      Reply
      • Aaron

        I didn’t miss the paragraph, you might have missed where I said “I also understand that this whole article was just an exercise to make a point”.

        I was just curious about how the math worked out, so I did it myself. This post kind of put the fear in my honestly!

        Figured I’d share, I was more surprised at how much a home could appreciate over the years.

        Wasn’t trying to find a “gotcha” in your math, was just hoping to further the discussion…

        Reply
  13. Elizabeth

    This is a really interesting spreadsheet! I actually made a modified version for myself to see if I’m on track for a surplus over my lifetime. With no credit card interest, no student loan debt, and a condo purchase split with my fiance I still don’t come out ahead which is sobering. I made some additional adjustments that match my actual plans (e.g. sharing a car with my fiance, purchasing a new phone outright every 5 years and maintaining my $30/month plan, no cable, fewer but bigger vacations, reduced wedding budget) and ended up with a surplus of ~$60,000. But I know some of that will go to hobbies that aren’t included on the spreadsheet. This is really good motivation to continue making smart decision and avoid lifestyle inflation – I really won’t be able to afford a large house, for example, without feeling real sacrifice elsewhere.

    Reply
  14. mark

    For to think about. 1 job you love 1 house and 1 wife that will make you a millionaire. Always pay cash.

    Reply
  15. Yep, we all need to focus on making better money choices. $1.5 million is not so much given modern day lifespans. And man can it go fast if a person has some bad health or other luck!

    Reply
  16. Wayne

    Your article forgot to factor in inheritance which millennial are counting on from their boomers parents!that’s why millennials eat out a lot!

    Reply
  17. Elizabeth

    Hi Bridget,
    I’m a frequent reader though I don’t think I’ve commented before! Love your blog and I think you do a great job of laying out things out clearly – this post being a good example.
    This part caught my eye though:
    “Men earn, on average, almost $1 million more over their working lifetime than women, I assume because women are more likely to take time away from the workplace, work part-time, or choose lower paying jobs with flexibility in order to be the primary caregiver of children.”
    While some of the difference in lifetime pay may be due to the factors you mention, one of the main reasons women earn less is because they are very frequently payed less for the exact same job ! It’s even worse for women of colour. In Canada women working full time earn 73.5 cents for every dollar a man earns.
    This has been covered well in many places, but the article below is a good primer. I mention this mostly because I know many people read your blog and I would hate to see this misperception perpetuated.
    http://www.theglobeandmail.com/news/national/women-still-earning-less-money-than-men-despite-gains-in-education-study/article29044130/

    Thanks,

    Elizabeth

    Reply
    • That’s not the main reason. While the gender gap is real and I would never deny its existence, women far out-number men in lower paid professions, particularly those with part-time hours. The “motherhood penalty” is a real thing, and has a hugely detrimental effect on a woman’s lifetime earnings — whereas for men fatherhood typically increases their earning potential.

      One of the best books I’ve read on the topic is The XX Factor by Alison Wolf (https://www.amazon.ca/XX-Factor-Working-Women-Created-ebook/dp/B00FBQNOR4/ref=sr_1_1?ie=UTF8&qid=1459780384&sr=8-1&keywords=the+xx+factor) — tons of great data and charts about how much women are paid and what professions they occupy!

      Reply
      • Elizabeth

        Ok, glad to hear you have read about this and given it some thought. My main point was that your statement seemed a little misleading – making it sound like it was all personal choice.

        Agreed that women are much more likely to work in lower paid professions – but not necessarily just to have more flexibility for childcare, I think there are a variety of reasons. A more underlying issue is more WHY so many predominantly female professions are paid less than male dominated ones.

        Reply
        • This doesn’t make sense though. Professions are compensated differently, regardless of what gender dominates their population. Admin assistants don’t deserve to make as much as engineers, not because they’re primarily women and engineers are primarily men, but because engineering requires more skill and responsibility.

          The gender gap is only a problem when women are paid less than men for the SAME job, not for different jobs.

          Reply
  18. Kirk

    Hey Bridget,
    Two main items I wanted to address, if I may.
    Biggest one is your mixing of capital expenses and operating expenses. Spend money on a cell phone and it’s gone (OpEx) however spend money on a home and it’s an investment. (CapEx) The $350k you have on the line item for Mortgage is actually both an investment and has utiltiy, as you are not paying rent. (granted, there are high costs with owning). Secondly, the income numbers you are using today are at least 10 years out of date. To make this argument more valid, you should get more recent figures, or at least apply a realistic increase to wage growth over time. Here’s 2009 numbers at $2.7 for bachelor’s degree, which is 50% HIGHER than your number.
    Thanks

    Captain Kirk

    Reply
  19. Shoop

    Spending more than 10% of your projected lifetime income on credit card interest seems like pretty poor financial planning.

    Perhaps living in one’s means is a better financial plan.

    Reply
  20. Consideration

    Please stop with the click-bait headlines and assumptions. It isn’t very good journalism and as you have admitted several times it isn’t accurate, it is misleading. This is the North Korean “fake grocery store” of articles.

    Reply
  21. You will spend over a million more than you earn… that is so sad!

    Reply
  22. Arthur

    I know this is meant to be an exercise to plan expenses. But I still can’t fully buy into the idea that pretending to know how much I’ll earn during my whole lifetime is healthy. Besides the obvious “shit happens” (economical or personal crisis reducing the life balance), this assumes I won’t be searching for more sources of income other than work during my whole life.

    It might be a good watershed on bad (or lack of) long-term expenses planning, but I sense a soul-crushing implication of “that’s all you’ll be capable of achieving in your life, deal with it” when I read it.

    Reply
  23. L Sterk

    Ooops on the annual gasoline bill. $3000 a year for a 20mpg car would mean driving 60,000 miles a year. In U.S. auto insurance companies routinely allow for 12,000-16,000 miles in typical underwriting.

    There was a missing entry for auto repairs and maintenance assuming cars are kept for 10 years on average. So perhaps relabelling Gasoline to Auto Related Expenses would solve the issue.

    Reply
    • Kali Kross

      I spend more than $300 monthly on gas, and I only drive to and from work (30 miles RT) each day. I do run local errands daily, as do most. However, my gas bill is about $400/month for 20k miles annually. Even a 20 mpg car gets almost half that (EV’s/green cars not included) on a stop-and-go commute. And that level of congestion is what I must navigate between 5:30am-8pm in Los Angeles. Going a scant 30 blocks away could take 40 minutes in mid-city.

      I just checked my car’s mileage report, and though it is supposed to get about 18 mpg for city miles, I only get 14 mpg. Freeways have awesome monikers in spirit, but there is nothing (nothing!) “free” about an LA freeway. $400 spent in the last 45 days, alone, on hitting pot holes after the big rains… Rme

      Reply