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Author: Patzer Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 308881  
Subject: Income: How much is high? Date: 7/19/2006 4:51 PM
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On one of the poll threads, jeffbrig says:

IMO, a high income is anything more than what you are currently making. Until you make that higher number, then it doesn't seem so high anymore.

There's a kernal of truth to this, and it explains why people making (arbitrary number that's noticeably more than I make) say they aren't high income. However, it doesn't explain how anyone could self-identify as having a high income. And according to the recent polls and discussion, several (many?) Fools on this board consider themselves to have high income.

I think jeff's next sentence reveals a bit more of the truth:

When I started working, I made $50k the first year and thought that was a lot. Last year, we made more than 3x that, but it sure didn't feel like it...

While there is undoubtedly a component of inflation between when jeff started working and now, the biggest difference will be inflation of lifestyle. The key thought here is, high income is relative to your spending level. People with higher spending than their incomes will rarely consider themselves to have high income, regardless of where the objective numbers are.

As I think this over, I think I can write a definition of high income that captures the fact that most, but not all, people believe high income is what someone else has:

"High income" means making enough that you can buy whatever you need, buy enough of what you want to be content, save part of your income, and not feel pinched.

By this definition, I have had high income for some time now. Even though my income is less than half of what jeffbrig claims for himself & his spouse, it's enough for me.

A corollary of this definition is that in order to achieve high income it is necessary to have modest wants. xtn certainly understands this principle when he advocates brainwashing yourself to not want stuff!

No matter how much money you earn, you can be low income relative to your wants. With modest wants and affordable needs, you can be high income with a marginal income tax rate of 25%.

Patzer
high income partly because I have no debt
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Author: 42rocky2005 Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 232325 of 308881
Subject: Re: Income: How much is high? Date: 7/19/2006 6:30 PM
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Hmmm... Depends on your definition. I self identified my household as high income because the gubbermint says I make too much money to use any number of tax credits that we would qualify for if we made less money. A slight shift up and we are looking at AMT and that's just for rich folks.

rocky

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Author: joelcorley Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 232326 of 308881
Subject: Re: Income: How much is high? Date: 7/19/2006 6:39 PM
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Patzer,

You wrote, "High income" means making enough that you can buy whatever you need, buy enough of what you want to be content, save part of your income, and not feel pinched.

By this definition I became "high income" the moment my ex-wife left me.

Well... Technically it was the moment I got all of our finances separated and the debt she left me paid off; but you get the idea.

For me there's the definition of that little subjective matter you included, ... save part of your income ... that leaves me unsatisfied.

- Joel

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Author: Patzer Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 232329 of 308881
Subject: Re: Income: How much is high? Date: 7/19/2006 6:53 PM
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For me there's the definition of that little subjective matter you included, ... save part of your income ... that leaves me unsatisfied.

Well, yeah. I don't know how to quantify how much savings is "enough" to be high income. I rationalize the lack of quantification with the concept that if you aren't saving enough, you'll fail the definition because you'll feel pinched. And how much savings is enough depends in part on how much wealth you have already accumulated and what obligations or dreams are attached to your assets.

Of course, my definition of high income doesn't address being wealthy, which is a matter of net worth. I consider myself high income because I have more income than I need, but I don't consider myself wealthy. I don't currently have a well considered definition of "wealthy", only a vague notion of wealthy meaning to have sufficient assets that it isn't necessary to work.

Patzer

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Author: mlk58 Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 232334 of 308881
Subject: Re: Income: How much is high? Date: 7/19/2006 8:06 PM
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"High income" means making enough that you can buy whatever you need, buy enough of what you want to be content, save part of your income, and not feel pinched.


I'd say that concept might be better termed something like "well off" or "comfortable" or, dare I say, "happy."

I personally know a bunch of people who make $300,000 or more a year, spend it all, and feel pinched. But I think that those people have "high incomes" by any reasonable definition of the term.

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Author: Abfacken Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 232335 of 308881
Subject: Re: Income: How much is high? Date: 7/19/2006 8:10 PM
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> I personally know a bunch of people who make $300,000 or more a year, spend it all, and feel pinched.

That's easy: tell them that they only really need one ferrari. Their kids won't mind too much of they have to make do with a BMW.

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Author: snie Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 232342 of 308881
Subject: Re: Income: How much is high? Date: 7/19/2006 8:43 PM
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"High income" means making enough that you can buy whatever you need, buy enough of what you want to be content, save part of your income, and not feel pinched.

I think this is a great definition.

When I was a child my family really struggled financially, for a number of reasons. I decided at about age 10 that I didn't care if I was ever "RICH", but I didn't ever want to be so 'poor' that I had to worry about paying my bills or figuring out where my rent money is going to come from.

Since then, I've used that philosophy as my fundamental guiding motivation. It has helped me keep my wants modest and my expectations realistic.

Now at age 28, I'm "lucky" enough do exactly what Patzer described "buy what ever I need, buy enough of what I want, save money, and not feel pinched". I don't think luck has much to do with it, because I was in much the same position as a college student (although my net worth has gone up substantially!)

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Author: Gingko100 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 232346 of 308881
Subject: Re: Income: How much is high? Date: 7/19/2006 9:03 PM
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AMT is most definitely not just for the rich any more...it got deferred again this year, but it's out there and will soon begin to hit the middle class.

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Author: Patzer Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 232350 of 308881
Subject: Re: Income: How much is high? Date: 7/19/2006 9:37 PM
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I personally know a bunch of people who make $300,000 or more a year, spend it all, and feel pinched. But I think that those people have "high incomes" by any reasonable definition of the term.

They probably think of themselves as "middle income". People frequently don't apply reasonable definitions to their own situations.

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Author: DBAVelvet74 Big gold star, 5000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 232351 of 308881
Subject: Re: Income: How much is high? Date: 7/19/2006 10:05 PM
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I think high is relative to your area. In my area the median salary is about $50K.

So $100K would be high since it is double.

$40K would be kind of low.

$25K would be really low.

It's all relative.

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Author: TicoHombre Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 232353 of 308881
Subject: Re: Income: How much is high? Date: 7/19/2006 10:42 PM
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I think a better facet of this discussion might be the difference between "Rich" and "Wealthy."

A person--by definition--can be rich, but not wealthy. For example, a person making $150k per year might be considered rich. But due to hyper-consumerism, have a low or even negative net worth. On the other hand, a person making closer to say 35k per year might not be considered rich, but may through good saving/investing habits have a higher net worth, perhaps hundreds of thousands of dollars, and therefore be considered wealthy.

Wealth has been defined as assets producing passive income.
Rich defined as income resulting from a job or salary. I am working from memory here, but I believe that's what I read in "The Millionaire Next Door." Someone correct me if I'm wrong.

The point being that income can be truly irrelevant to wealth. Some people simply don't know how to manage an abundance, whilst others can do more with less. The latter are truly wealthy. The former....well....

TicoHombre

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Author: TheNewD Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 232356 of 308881
Subject: Re: Income: How much is high? Date: 7/19/2006 11:14 PM
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That's easy: tell them that they only really need one ferrari. Their kids won't mind too much of they have to make do with a BMW.

I work with lawyers. At a recent party, I overheard one saying that he just bought a convertible, but he hasn't had time to drive it more than once this summer.

-TND
Is your mouth dropping open too?

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Author: Abfacken Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 232359 of 308881
Subject: Re: Income: How much is high? Date: 7/19/2006 11:31 PM
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> At a recent party, I overheard one saying that he just bought a convertible, but he hasn't had time to drive it more than once this summer.

That's sad - convertibles need love, too. I'd be happy to care for his car for a small monthly stipend.

On a serious note, I've been considering whether I want to go the lawyer route - I've got an engineering background and an analytical mind (also, I enjoy a good fight), but I want to get a better idea of what awaits me before making that sort of commitment.

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Author: TheNewD Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 232362 of 308881
Subject: Re: Income: How much is high? Date: 7/20/2006 12:35 AM
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On a serious note, I've been considering whether I want to go the lawyer route - I've got an engineering background and an analytical mind (also, I enjoy a good fight), but I want to get a better idea of what awaits me before making that sort of commitment.

I always say that the problem with going to law school is that you bust your butt for three (or more) years, and all you get to show for it at the end is that you're a lawyer.

With an engineering background, you may be able to get into patent law. A bachelor's degree in engineering earns you the privilege of being able to take the Patent Bar. It's a ridiculously hard 100-question, 6-hour multiple choice test in which you are required to pull out of your brain various minute facts about the inner workings of patent law. Most people who take it the first time fail. If you take a $3,000 class, the pass rate increases dramatically to about 80% or more. When you pass, you become a Patent Agent. The advantage of being a Patent Agent is that you know patent law, but clients don't have to pay as much for your services. And if you work at the right law firm, they might pay for your law school education.

-TND
Patent Agent since 1902 ...I mean 11/2005

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Author: jtallenmd Big red star, 1000 posts Old School Fool CAPS All Star Motley Fool One Everlasting Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 232364 of 308881
Subject: Re: Income: How much is high? Date: 7/20/2006 1:56 AM
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"High income" means making enough that you can buy whatever you need, buy enough of what you want to be content, save part of your income, and not feel pinched.

I disagree. The defintion you have given better describes living below your means.

I think you have to look at income like you do any statiscal measure. Income is a single, measurable variable (and is reported to the IRS as a specific number every year). When you plot out the number of people with a given income you would expect to get a bell shaped curve. The actual data from the 2003 tax year doesn't look like a pretty bell shaped curve, but it still plots out as sort of a bell shaped curve. (Side Note: Part of the reason it might not look pretty is the use of varying size ranges for income, e.g $5k ranges up to $10K of income, 10K ranges up to $50K of income, $25K ranges up to $100K of income, and $100K ranges up to $200K of income). Here's the link for the stats:
http://www.irs.gov/taxstats/indtaxstats/article/0,,id=96981,00.html

Next you have to decide what you want to use as a reference population. Two common reference populations are the local population or the national population. I think that most people would logically choose the local population as their reference since the local area also influences living costs. Having said that, some people will have a low income no matter where you place them in the country and others will have a high income no matter where you place them in the country (Bill Gates comes to mind for that one). Others, and I include myself in this category, would change categories based on where they live. If I were to live in Boston or San Francisco and make the same salary that I currently do, I would consider myself to fall in the middle of the range. However, given that I live in Northern NY, where expenses are not that high and incomes match, I consider myself to have a high income.

Once you have decided on a reference population and drawn your bell shaped curve (or, in the case of IRS data, not so bell shaped), you then have to decide what arbitrary cutoff point separates the various levels of income. Typically this is expressed as a percent of the population or sometimes as a raw figure. For example, the top 1% of the population or the top 5%, or those making over $150K. Based on the not so detailed IRS data, I would fall into the top 12.8% nationally. I don't have statistics for the local population, so I can only guess where I would fall in relation to the rest of the local population.

Also, if you take a world perspective, then the average American has a high income. I earn more in one day than the average Afghani earns in one month (maybe even one year). Again, everything is relative. You just have to know which population you are drawing comparison to.

How that person lives with the income that they have is a completely different issue.

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Author: 42rocky2005 Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 232365 of 308881
Subject: Re: Income: How much is high? Date: 7/20/2006 2:23 AM
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AMT is most definitely not just for the rich any more..

Sorry I guess the joke was obscure. AMT is a big issue in "high income", high cost of living areas, mostly blue states which is why the president(whose support is from the red states) is willing to let it ride.

rocky

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Author: Booa Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 232404 of 308881
Subject: Re: Income: How much is high? Date: 7/20/2006 12:39 PM
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"High income" means making enough that you can buy whatever you need, buy enough of what you want to be content, save part of your income, and not feel pinched.

--------------------------------------------------------------------

I'd say that concept might be better termed something like "well off" or "comfortable" or, dare I say, "happy."

I personally know a bunch of people who make $300,000 or more a year, spend it all, and feel pinched. But I think that those people have "high incomes" by any reasonable definition of the term.


Ah, I think we need two terms--"high income as judged by the people not earning the income," and "high income as judged by the people earning the income." I would say my dad earns high income, but since he makes less than he did in the 80s, working harder, he is often angry and feels slightly cheated about his income situation. I would say my mom makes a fairly high income, but because she does some foolish things with her money, not to mention doesn't balance her checkbook, she has to be careful with her daily expenses, because occasionally she loses her head and buys her only grandchild a pony, or a jungle gym, or a trampoline. (I was kidding about the pony, though if the grandchild wanted one, I have no doubts that one would appear.)


--Booa

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Author: Frydaze1 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 232418 of 308881
Subject: Re: Income: How much is high? Date: 7/20/2006 1:50 PM
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"High income" means making enough that you can buy whatever you need, buy enough of what you want to be content, save part of your income, and not feel pinched.

I love your definition!

DH and I make enough to get all of the bills paid on time or early, without shuffling funds around, pay down our debt (which is considerable, since we spent many years being stupid), contribute to 401(k)'s and savings, and treat ourselves to nice dinners and occasional vacations.

We make enough that if we CHOSE to, we could pay off all of our debt very quickly. But we choose to spend a little more now, and pay off our debt at a moderate rate.

I think that simply having that choice makes us "rich."

I compare this to my good friend who has spent the last 10 years keeping the air-conditioning and heater off, buying only the least expensive food she could, and wearing clothes until they were nearly indecent, just to get the rent paid - not on time but before being evicted. She wasn't spending too much, she just didn't have enough to be able to make choices.

I'm proud of her though: in the last 6 months (thanks to a better job that still pays considerably less than I could live on) she has continued her LBHM life and paid off all debt, gotten her bills 2 weeks ahead, and saved enough to start making plans to house-shop next year. Now that she has choices, she is (in her view and mine) "rich."

Yes. I think I'd like to add to your definition:
"High income" means enough money to pay all of the bills (and other necessities) on time, have debt going down and savings going up, and have enough left over to make choices.

Frydaze1

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Author: Gingko100 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 232419 of 308881
Subject: Re: Income: How much is high? Date: 7/20/2006 1:59 PM
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Yes. I think I'd like to add to your definition:

"High income" means enough money to pay all of the bills (and other necessities) on time, have debt going down and savings going up, and have enough left over to make choices.


I guess I'm confused but I don't think high income has anything to do with this - you can have a high income (as someone notes above) and still be completely spendthrift. I wouldn't say someone who makes $300K isn't high income - even if they blow all their money and have debt. I would say they aren't wealthy - there's a difference between income and wealth.

The first is how much money you have coming in. The second is net worth and how you use what you have. I would say being wealthy meets the definition in the header. But high income?...nahhhhh.

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Author: Gingko100 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 232421 of 308881
Subject: Re: Income: How much is high? Date: 7/20/2006 2:01 PM
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And yes, double negatives ARE confusing...sorry!

To state my point a little more clearly - "I WOULD say some one who makes $300K IS high-income, even if blah blah blah..."

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Author: SRenaeP Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 232427 of 308881
Subject: Re: Income: How much is high? Date: 7/20/2006 2:43 PM
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"High income" means enough money to pay all of the bills (and other necessities) on time, have debt going down and savings going up, and have enough left over to make choices.

I guess I'm confused but I don't think high income has anything to do with this - you can have a high income (as someone notes above) and still be completely spendthrift. I wouldn't say someone who makes $300K isn't high income - even if they blow all their money and have debt. I would say they aren't wealthy - there's a difference between income and wealth.

The first is how much money you have coming in. The second is net worth and how you use what you have. I would say being wealthy meets the definition in the header. But high income?...nahhhhh.


I guess everyone will have a different definition. I fulfill the definition at the top but I don't feel that I'm high income and certainly not wealthy. I do acknowledge that there are some people who WOULD consider me high income but I don't think anyone would mistake me for wealthy. My defintion of wealthy means a really high net work (maybe $1M in investable assets or something).

-Steph

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Author: jeffbrig Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 232435 of 308881
Subject: Re: Income: How much is high? Date: 7/20/2006 4:35 PM
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On a serious note, I've been considering whether I want to go the lawyer route - I've got an engineering background and an analytical mind (also, I enjoy a good fight), but I want to get a better idea of what awaits me before making that sort of commitment.

My advice is - don't do it. I'm an engineer, DW is an attorney. I've always been fascinated by law (and enjoy talking about her work), and growing up I always said I wanted to be a lawyer. After DW finished, I seriously thought about going to law school, but decided not to. Why?

The cost of law school is substantial. You can either keep working and spend 4+ years doing law school at night (ugh), or you can quit your day job and do it in 2.5 years if you do summers. The problem is, you either kill yourself for 4 years, or you give up a ton of earnings to finish faster.

Once you get out, odds are pretty high that you'll start your legal career making less than you did as an engineer. You'll also work more hours (DW's firm sets a target of 200 billable hours each month - ridiculous, IMO). You may plug away for 5 years for a firm, then get tossed because you're not bringing in new clients.

You may have the potential to make more long-term, but there's a lot of risk in that. Meanwhile, you're just making a lot of money for the partners. Want to hang your own shingle? Very difficult without prior experience, odds of failure are probably similar to any other type of business.

Reminds me of something someone told me a long time ago: When lawyers eat, they eat well. But engineers always eat.

Anyhow, I decided I have a good thing in enginering - flexible hours, a lot of autonomy, nobody breathing down my neck every day. Pay is pretty darn good too. It just doesn't make sense to give this up for law school.

On the other hand, if I was suddenly laid off....


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Author: FiddleDeeDee Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 232457 of 308881
Subject: Re: Income: How much is high? Date: 7/21/2006 8:46 AM
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Once you get out, odds are pretty high that you'll start your legal career making less than you did as an engineer

Pardon me for being a buttinski, but I just wanted to comment here.

As a lawyer with specialized engineering knowledge, I would imagine that you would be well suited for {insert engineering speciality here} law, and that as a double threat, you could do quite well.

I have a friend who got her Ph.D. in Computer Science in the 1980s, then turned around and went back to school and got her law degree. The reason being, she saw a lot of legal issues that would be coming up in the new world of computers and internet and she wanted to be on the ground floor of what she saw as a fascinating career.

I will now try to stop being a buttinski.

Andrea

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