$1 Million Doesn’t Go As Far As It Used To

IT’S HARD TO LIVE ON A SUCCESSFUL ACTORS’S SALARY TODAY

On the show “The Big Bang Theory”, and even back in the days of “Friends”, the actors were having difficulty paying their bills at $350,000 per episode. It seems like $350,000 a week just doesn’t go as far as it used to, prices go up – expenses go up!

In the beginning, Johnny Galecki, Jim Parsons, and Kaley Cuoco were paid up to $60,000 per episode for the first 3 seasons. Then they realized a couple of things, first, they were in demand and making the network way more money than them. Second, as they began to get older they developed a taste for the finer things in life, and realized that means their expenses were increasing.

So what did they do? They asked for a pay raise, from season 4 to season 6, they earned $200,000 per episode, and in season 7 it rose to $350,000. Then in 2014, their salaries jumped to $1 million per episode in season 8. This is on top of receiving their signing bonuses, production deals and advances from other ventures. Not a bad way to manage funds for their increasing expenses.

While a pay raise of $60,000 to $1 million in a matter of 7 years to keep up with these expenses is extreme, it is something everyone needs to consider.

IS EVERY PAY RAISE GREAT?

Many workers receive something called a COLA (Cost of Living Adjustment) every year. It is generally based on the Consumer Price Index, and a lot of people think this is great. They are getting a raise every year allowing them to buy more. The thing is, it’s just an average measure of inflation in general. But it doesn’t show the whole picture for pricing all items. Sometimes housing, cars, clothes and even education costs can rise significantly more than inflation, meaning the amount you can purchase is actually less. The old saying “a dollar doesn’t go as far as it used to” is absolutely correct. Not to mention, just like the cast of the show, as you get older you may end up with higher expenses, like a bigger house or car, child care, or even putting away money for the future.

WHY YOU SHOULD CARE ABOUT INFLATION…

WHEN SPENDING?

Your purchasing power can actually drop if everything else increases, but your wages stay the same. At the end of 2017, inflation rates were averaging around 2.1% in the U.S.. While it may not seem like much, over a period of time, it can be bigger than you think. If you purchased an item for $1,000 in 1998, that same item in 2018 it would cost $1,549, and that’s a big difference.

WHEN SAVING?

Inflation also has an impact on savings accounts. If you were to put all your money away into a savings account, it’s not going to grow at the same pace as inflation, you might be lucky if you are earning 0.50% in that account. But if the costs of goods you buy rise by 2.0%, you’re actually losing 1.5% a year just by leaving it all in that savings account.

WHEN INVESTING?

If you have an investment like a CD (Certificate of Deposit) or a GIC (Guaranteed Investment Certificate) paying 2%, this may feel like the best way to not lose money, but it also means it’s the best way to ensure you don’t get ahead if inflation is at the same 2% rate. You may have the same purchasing power and can spend your money the same way you are today, but down the road you may be in trouble when you have higher expenses. You have to keep in mind that if inflation rises to 3%, you are actually losing out on what that money will pay for.

WHEN RETIRING?

While for some people, retirement seems a long time away, inflation can also have a negative impact. How? If you built up a portfolio that provides a regular fixed income of $2,000 per month, it just won’t get you as far with inflation. The longer you spend in retirement, the less you will be able to afford things. For example, if your expenses today are $1,800 per month, a 2% inflation rate will mean it will go up every year. Next year, expenses will be $1,836 per month, then $1,872 per month the following year.  Pretty soon, your expenses will exceed that $2,000 fixed income – which can be a big  problem.

Here is another way to look at it with income of $50,000 or $100,00 today.

Income	10 years later	20 years later
$50,000	$60,950	$74,297
$100,000	$121,899	$222,892

At a 2% inflation rate, if you are living on a fixed income of $50,000 a year, and you live for 20 years, you need to have $74,297 just to keep up.

If your investments aren’t beating inflation, you may never get ahead. Preparing for retirement by putting all your money in a savings account or even stashing it under your mattress won’t work if you want to keep up, or even improve your standard of living.

WHAT YOU NEED TO DO

Inflation is probably not going away, so you need to plan for it.

• Boost your savings to pay yourself more, as you get older
• Ask for annual salary increases that are above the COLA increase to get ahead
• Invest in products that can earn you more than inflation, whether mutual funds, ETFs, or Stocks. And yes, they all bring risk, but they also have a track record of providing better returns than inflation over time.

WILL THOSE SITCOM STARS BE OK?

The highest paid TV actress was Sofia Vergara, for 7 years in a row. In June 2018 she had earned $42.5 million, in one year, for her work on Modern Family, and also from advertising, commercials and other gigs. Not a bad way to stay ahead of inflation.

By the way, in 2017 the 5 original stars of “The Big Bang Theory”, dropped their salary by $100,000 each per episode to free up $500,000 in order to fund salary raises for Mayim Bialik and Melissa Rauch. They were only making $100,000 per episode for the same work! Equal pay for equal work, but that is an entirely different discussion for a future blog.