Struggling on a Six-Figure Income

MSN money has some stories on middle class couples who are finding it difficult to get by financially. Many of them have legitimate problems (though much of their pain is self-inflicted by spending too much early in their lives), but one story stood out to me. This couple is having trouble making ends meet on a six-figure income:

"We consider ourselves middle class, making a six-figure income. We own our home and have two kids, one in college (and) the other attending college in the fall. We both have a commute to work of over 45 minutes. Even though our income is higher than those you mentioned, we struggle to stay afloat with the rising costs of car insurance, gas, utilities, food and other necessities. Because of our income, our kids don't qualify for any college financial help.

"It takes both of us working extra-long hours and penny-pinching everywhere we can to make ends meet. We cannot afford big vacations or anything extravagant. We try to build a savings, but every time we get some in the bank, something happens such as car repairs, house repair, etc., to wipe it out and bring us back to the start again. It is frustrating and depressing to work so hard and never get ahead."

Ok, I can see the fact that they may not qualify for college financial help, but is this a surprise to them? Haven't they been saving for these inevitable expenses? And what about "struggling to stay afloat with the rising costs of car insurance, gas, utilities, food and other necessities" and "working extra-long hours and penny-pinching everywhere we can to make ends meet"? Something's just not adding up here. They have an income in the top 20% of all incomes in the U.S. and they are struggling to make ends meet?

Anyone want to guess what the problem is here? My guesses:

• They're simply spending too much. They have no control on expenses.

• They didn't save much for college and are now strapped because they have living expenses PLUS college costs for two (and soon to be three) kids.

• They live in an expensive area of the country. $100,000 per year is a lot, but it's more in Omaha than it is in Los Angeles.

For some thoughts on the various issues surrounding this story, see these links:

• Move, Save Money, Become a Multiple Millionaire -- All in One Step

• My Best Financial Advice: Spend Less than You Earn

• 11 Great Ways to Earn More Money

• 529 College Savings Accounts: Preferred Way to Save and Could Provide Child's Nest Egg

Comments

[gtFMF]

@Zook,

"What can I say, both are paid off, both are clean, both are very nice and both are paid off. Both are very reliable. And ***gasp*** we paid them off and didn't spend $1000 a month for freakin' cars."

I guess depreciation and maintenace are free in your book....

True Cost to Own (edmunds.com calculation) for a 2003 Lexus ES for 5 years is $38.9k at an average price per mile of $0.52 cents per mile.
A 2003 Isuzu Rodeo has a True Cost to Own value of $34.8k for 5 years with average mile cost of 0.46 cents. I'm sorry I could not do a 2000 Lexus or a 2002 Trooper as they don't have data on 2002 and older but I hope you get my point.

Comare this to the 5 year True Cost to Own of a 2008 Volkswagen Rabbit 5-door which comes in at $35.6K. A new car might depreciate more but it will require much less maintenance and has better safety features and ratings.

But let's not turn this conversation into a which car is better/cheaper thread, I'm just trying to point out that just the fact that you already paid for your car and "invested" your money into a depreciating asset while I have decided to pay for mine as I go will probably cost just about the same in the long run.

"$320 a month for electric? Unless that includes heat, that is on the verge of INSANE"

$320 includes AC in the summer and heating in the winter. It's an all electric house with a heat pump. We're in Texas!!! $300 is normal for this part of the country. This is why you can't make categorical statements about what constitutes insane. We need heat in the winter and AC in the summer. Our lowest bill was in May and November of last year at $210 each.

@JD,

I see your point and I can see how you're saving substantially from your income. However "$2600/mo --> $32k/yr are our everyday expenses including daycare" would simply not cut it for me when OUR daycare cost is close to $2k in itself. That is a choice WE decided to make and pay for.

@anon,
"Our electric bill is $35/mo and heat is $60. I’m not denying the fact that prices are rising and $100k doesn’t always leave a lot of breathing room, but your expenses are EXTREMELY above normal."

Please define normal. I don't have a heating bill, so your $60 is extremely above "normal". We have A/C bills because it gets up to 100+ F in the summer time and it's pretty unbearable and I like to kep my house at *gasp* 78 degrees in the summer and *oooh* 74 degreees in the winter when outside temperature can stay in the 20s. I could have bought a $140k house but I have decided that I wanted to live in a neighborhood that shuts out blue collar and riff-raff simply based on the etry fee of $200k+. Again, that was OUR decision. Could I move back into our previous 1200 sq ft house that cost $90k to save money? Sure I could! Would I make that sarcifice at this point in my life? Absolutely not! Anon and the others: you still seem to miss my point. I'm not whining, I'm just simply stating that just because someone makes six figures they don't necceseraly have a lot of money left over to galavant around on especially when you throw two kids in the mix.

@Kevin,
"@gtFMF - Leasing a car? That says it all right there. What a waste of cash. No matter what the money factor rate is or whatever you're talking about"

I can empirically prove to you that if you only plan to keep your car for 4 years it is always cheaper to lease than buy, especially with manufacturer subsidized lease programs and inflated residual values. Now if you plan to keep it until the wheels fall off then by all means buy! When I acquired my previous cars I knew that I only wanted to drive/keep them for 4 years and I budgeted for it accordingly. This time I know that I will have more important things to blow my money on suchs as daycare and other child related costs, so I have decided to purchase a cheaper vehicle and keep it until the wheels fall off.

I love cars, I enjoy driving good quality cars and I enjoy spending money on it. However you'd never see me hanging out at a bar chugging down $50 worth of alcohol or spend $5-$8 a day on cigarettes or other tobacco products.

This time I'm compromising my love for cars for my kids' future hence I'm buying a value hatchback.

Oh, and the extra $7k a year? That's so me and my family can go to Europe, just like we do every year :-). That's the price we pay for having relatives abroad. It's another choice WE made.

[Tim]

I have to weigh in on this. I agree $100k should be sufficient if you have children ONLY if the income comes from a single provider. $100k won't allow you to get ahead if both parents are working. If both parents are working, you will need to pay for child care, most likely 2 cars, work clothes, etc etc.

Tim

[zook]

This is like hitting a moving target. $1000 a month for cars is nuts. First you called me out and said it couldn't be done. I tell you my cars and how they are paid off and reliable. Then you comeback with an indepth presentation on depreciation.

I'll keep it simple. You don't have to spend $1000 a month on cars. Come up with whatever else you want.

[Lawrence]

First I fine it interesting that this post and comments has hit a nerve with people.The thing about these posts are that the same argument could be made for any income levels. People will agrue that 50000 is alot of money or that it is poverty.The same will be said for 75k , 100k and so on. I am not sure why people need to dispute gtFMF. He was simply saying that with kids and some of the extra luxuries in life six figures doesn't go far. Car payments or not, Why would anybody want to work extremely hard and not enjoy some vice.A nice car, vacation, tv, etc. these are a reward for success. That said my wife and I take home approx. $7500-$8000/ month. Even after child care and all other expenses (ie. Mortgage on a $300000 home)we do all right. We do not live frugal or cheap by any means and still save 2500-3000/month. So I do not agree with the six figures or less and children is hard or you live paycheck to paycheck.I will argee that a valid argument can be made for it also.

[J in FL]

@ Lawrence
Yea, I agree... I don't see why this thread should become a flame fest, but I definitely see that it has struck a nerve. Like I said: it's all about the COML. The argument can and will be made at pretty much any income level. What is "nuts" to one person might not be "nuts" to another. However, perhaps there's something else going on? Maybe a little envy? Because someone else is making more money or is in a better position, ect, ect. Just something to think about...

[LotharBot]

Lawrence,

I think gtFMF struck a nerve with several people when he said he couldn't imagine how anyone could afford kids on less than $100K a year. I think that statement was flat-out wrong. You can raise 2 kids on smaller incomes, you just have to make different lifestyle choices.

gtFMF is correct that, if you're making that much money, it's possible to spend most of it supporting your chosen lifestyle. And he's correct in saying that it's his chosen lifestyle, and he has every right to it. But he's made it sound as if his lifestyle is the only valid one, as if those who'd spend the money differently are wrong, and as if his circumstances "make" his lifestyle necessary. On the flip side, other people have treated him as though his lifestyle choices are foolish and wrong, often judging his decisions based on limited or incorrect information. I think a lot of people need to chill out, take a step back from the discussion, and decide what's important.

In the context of the larger argument, J in FL has it exactly right. It's all about the COML -- the cost of MY lifestyle. If you find that your COML is too high for your income (as in the original post), it's time to make some hard decisions as to how to change your lifestyle. If your COML fits just fine within your income (as for gtFMF), then go ahead with your lifestyle.

[Zook]

Lawrence, I am specifically targeting $1000 a month for cars as my point of contention. That and spending $4000 a year for electricity. Hey, enjoy life all you want. Spend $50K a year on electric and cars for all I care.

The fact is too many people live above their means. Too many people think it is acceptable to spend $20K a year on electricity and cars and call YOU or ME out for "not understanding".

I am sorry, if you make $100K and spend $20K on electric and cars, things will be tight.

And I would stop with the silly stuff about hitting a nerve. This is a friendly, quality finance blog. No one knows how much I make or how much anyone else makes or where anyone else has been in life. Why even go there? A nerve struck by silly comments on a blog? It takes a lot more to get to me. This is just a simple debate, discussion going on. Nothing more.

[gtFMF]

@Tim,

"I agree $100k should be sufficient if you have children ONLY if the income comes from a single provider."

Thank you! There is a HUGE difference between single income making $100k and the second half staying home with kids vs. dual income making $100k. The added expenses for two income are substantial (In OUR case to the tone of $30k+, your mileage may vary).

@Zook,

Would it be different to you if I said: "I have two new cars fully paid for and I'm putting $600/month into savings so I can afford two new cars again in 7 years plus the maintenance cost on my current ones once they're out of warranty"?

Because unless you come into some windfall every time you need a replacement car you better be saving up for it, buddy!

And my question is why would I want to pay off something that has an effective interest rate of 1.2% APR or 5% APR respectively if I the interest on my second mortgage (I have a pool loan, I have already accounted for it in my above figures, value of the house, mortgage balance, payment, etc. just never mentioned it separately, didn't want to piss people off by stating that I actually have a pool that cost me $40k) and on our student loan is 7.25%?

The "in-depth presentation on depreciation" was the actual estimated True Cost To Own any vehicle. It is:
"The Edmunds Inc. True Cost to Own (TCO) pricing system calculates the additional costs you may not have included when considering your next vehicle purchase. These extra costs include: depreciation, interest on your loan, taxes and fees, insurance premiums, fuel costs, maintenance, and repairs. Search below to view the TCO of any vehicle."

For more information on this matter feel free to visit: http://www.edmunds.com/apps/cto/CTOintroController

You can argue all day long that your cars are already paid for and they are in tip-top shape and require no maintenance/repairs. Based on the big numbers and research data, they will indeed need repairs, it's just a matter of time, and all the money you have tied up in your cars could be earning money somewhere else or could have paid off something with a much higher interest.

If you can't comprehend the couple paragraphs above and can't understand that just because your cars are already paid for doesn't mean they don't cost you money (opportunity cost, anyone?) I recommend taking a finance 101 course.....

@Lawrence,
"He was simply saying that with kids and some of the extra luxuries in life six figures doesn't go far."

Thank you! I appreciate you taking my post at face value and not trying to imply that I meant to say something else with my words.

@J in FL,
"Like I said: it's all about the COML. However, perhaps there's something else going on? Maybe a little envy?"

I agree about the COML, however I wouldn't know about the envy part..... Now if someone else would post in this blog entry claiming "Hey we're making $200k+ and we can barely make it" it might be a different story :-).

[gtFMF]

@LotharBot,

"I think gtFMF struck a nerve with several people when he said he couldn't imagine how anyone could afford kids on less than $100K a year."

I guess I have to agree with you that I might have mistated my original premise about the raising 2 kids on less than $100k. It is certainly doable and is being done by lots and lots of people. What I probably meant was it would be very hard for ME to live a life with the limitations and sacrifices that would come with having two kids on a less than six figure salary. It would probably be enough to sway ME from having kids altogether. It clearly doesn't sway the majority of our society sho earn a lot less than six figures and the ones who birth children into WIC and food stamps.

"But he's made it sound as if his lifestyle is the only valid one, as if those who'd spend the money differently are wrong, and as if his circumstances "make" his lifestyle necessary."

I have to apologize if that is what my statements sounded like. I certainly not meant it to sound like that. I am very grateful and pleased with my life and lifestyle and I firmly believe in the "Live and let live" mentality. And as long as your way living does not cost me anything I am perfectly fine with it. I also agree that it seems like people were coming down a bit too hard on me for something they might not be able to relate to.

[gtFMF]

@Zook

"That and spending $4000 a year for electricity"

The problem is that you don't seem to understand that just because you only spend $35 a month on electricity wherever you live everyone else in the US should be able to cover their electricity usage similarly. It took me a while to find relevant data but here it is:
http://www.eere.energy.gov/states/state_specific_statistics.cfm/state=TX

Residential
Texas Residential Consumption of Electricity Per Capita 2001:
Per capita consumption of electricity in homes: 5,502 kWh.

That is 22,000 kWh for a family of 4 such as mine. 22,000 KWh at 12.9 cent/kWh is roughly $2,838 annually. This number is an AVERAGE. It also includes households of 1 and households of 5+. It also includes households who use natural gas for heating in the winter time in TX and the ones that are full electric, such as mine. This also includes houses that are 900 sq ft and McMansions that are 10,000 sq ft. It also incudes households who keep it 68 in the summer and 65 in the winter and families that keep it 78 in the summer and 74 in the winter. It also covers households who don't have a pool and households who do and spend $50/month in electricity just to keep the pool pump running 8 hours a day.

I'm just trying to show you that my $300/month AVERAGE usage is not that off the wall when you take things into consideration. It's not like I leave the house and turn the AC to 58 or the heater to 80 and leave the fridge open with a space heater running..........

[aaktx]

I live in a Texas Mcmansion and gtFMF is correct about our utility bills. We live in a deregulated market which has resulted in higher than average electric/gas bills.

[Lawrence]

@ Zook
When I said struck a nerve I did not mean that it made people mad it wasnot directed at you, but that there is over 60 comments on this post which is highly irregular. I think everyone's comments are just and the discussion is interesting.No more ,no less.

The money thing was just to refute the notion that kids and six figures above or below is hard because I don't think it is, but I agree with you that it could be if you spend $1000/month on cars,etc .

.

[Steve]

After reading these comments I think the most concerning thing is the cost of childcare and electricity in some parts of the country.I can imagine spending $2000- $3000 a month for child care. To be honest I enjoyed reading the posts more than the actual article. Everyone has a slightly different point of view on things and the debate make for an interesting read.
@Zook
I completly agree with you that the cost of vehicles per month that some people pay is crazy(personal opinion). $1000/month is a good chunk of change for sure. Not that gtFMF is stretched by his payemnts but others do for sure. I have seen this many times before
I will not name names but I know someone who pays $750/month and makes 60k. The funny thing is he can't figure out why he has no money. I couldn't believe that someone who pay 20% of their take home pay for a vehicle.

[Steve]

That last statement doesn't make sense. Replace "who" with "would". It's late give me a break.lol

[Minimum wage]

For sure I think $100K per year is real chump change these days even though I can live on much less and make 5X over this figure per year. No offense to those making less than that but inflation and hidden costs make it easy to have the money evaporate before you know it. The killer costs nowadays: housing (big #1 here) cars, hidden fees (have to spend time fighting and avoiding these), entertainment (all the monthly plans), eating out and general transportation costs. Children up the ante exponentially if you factor in nannies, private schooling, hobbies... all this before college. It's really just a damn treadmill.

I'm addicted to saving money and living a lifestyle well below my earning but the difficulty is that my job is so tremendously challenging (managing 600 people). So sometimes it's hard to judge if it's worth it. Nevertheless I'm annoyed that our culture penalizes savers so much and the status quo is to spend more than you have. I want to have enough tucked away to be ready to walk away when my wife & I want.

Don't know where to go from here, so much has already been said on this thread.

Minimum Wage (not)

[Minimum Wage]

Oh and I am free to preach since I pay more than $150K a year in taxes into the kitty.

-MW

[BradM]

I earn 78k a year, my wife is currently in school full time. We rent, which is 1500 a month and due to living in California, we both own cars we make payments on. After food, rent, gas, health insurance, car insurance, credit card debt, school loans, cable/internet/utilities .. we never get ahead. It's hard to imagine but somehow at the end of every month we barely eek by to get to the next paycheck. Granted in 2 years any more income will be gravy... for now it's rough.

[K.]

The problem is that people want to live the middle to upper-middle class lifestyle on a working-class to middle-class budget. They want to keep up the appearances. If you're struggling on a 6 figure income then you seriously need a reality check. Clearly you took on things you couldn't afford (children not being one of them -- most people in this country earn less than 60k and still manage to raise families just fine) be it a home, cars, educational debt, entertainment, etc. You just have to step back into reality and cut back!

[EasyChange]

It can be difficult for sure, even with high incomes, to make ends meet. Although the numbers were different, I can definitely relate. I was in a tight spot after buying my condo.

Here's my $0.02.

If childcare is the big problem, was this planned for? I know that even the best plans go awry, but I am curious if people consider (or actually do) run the numbers for having a kid before they do. From clothes, to food, to medical care, to daycare, it is a huge string of costs. I hope that people care enough about themselves and their children to come up with a plan A AND a backup plan B to cover these costs before they embark on a planned pregnancy.

Second question/point: If it is not possible to reduce expenses, what about simply generating more income? Its shocking, but I was able to generate several thousand dollars of side income last year, mostly working at home. Provided that there is some free time, then this technique can be used to make more money. Then, simply use this money to pay down debts to reduce overall monthly interest being paid.

At 15% interest on debt (which might even be low if you have cc debt), every dollar that is paid saves more than a penny each month in interest. That extra money you save is then plowed back into your debt. Over the course of just a few months, a good debt snowball can be formed to seriously improve your situation.

I am generally convinced that many many people who "struggle" with debt either are spending more than they can afford, or are saddled with old debt and interest. Reducing expenses as much as possible and starting a debt snowball (perhaps with a second/third job) is the answer. Its not "new", but it does work.

[Funny about Money]

Matthew explains: "The 3000 in childcare is for a local daycare and that is what really hurts our finances. I agree that it is expensive, but they are watching two kids for about 400 hours a month, which comes out to less than 8 dollars per hour."

Been there, Matthew; done that. If you're spending $36,000 a year for child care, then the parent who earns the lowest salary is probably devoting at least half of her or his salary to pay to put the kids in an institution. Now subtract the cost of that parent's transport to and from work, lunches out, expensive office clothing, dry-cleaning for said expensive office clothing, taxes, and pre- and post-tax benefit gouges, and you don't have much left.

In that case, you might consider having the person who earns the lowest salary quit her or his job, take up an occupation that can be done in home, and raise the kids at home until they're ready to spend their days in grade school. If almost all of one parent's pay is going to child care and to the ancillary costs of working, then trudging off to work every day is a waste of that person's time and energy.

Since it's not good for an adult living in the US to step out of working to raise kids -- it shafts the person in Social Security credits and makes it difficult to get back on track once the kids are old enough be warehoused in school -- it might be worth considering a move to a part of the country where housing prices are more reasonable. It's not smart to shell out two grand a month to live in an apartment when you have two kids and an income that scores in the "fairly ordinary" range for your metropolitan area.

[ChicagoGirl]

These comments are fascinating. Some years ago I moved from a medium-sized Midwestern city to Chicago. I got a 50% pay raise basically as a COLA. But my COL stayed about the same! Sure, my rent went up, but because I was now in a big city with great public transportation, I was able to get rid of my car, which offset the rent increase. It amazes me to see people spending $1000/month on cars--but in some cities, a car is necessary. Maybe not a $20,000 car, but a car nonetheless.

Now I own a small condo in a prime location in the city. My property taxes are only $1400/year. My electric bill is $25/month. People should think about these things when deciding where to live IMO. A city that seems like it would be pricey can be surprisingly inexpensive. Of course, I don't have kids, and the public schools in my neighborhood aren't great. Even so, with what I'm saving v. living in a more expensive area, I could hypothetically afford to send any hypothetical kids to private school!

[Jennifer]

My family earns a $100k+ income and we are also struggling. But I will admit that this is because of past mistakes (debt). We live in an expensive area (Boston) but think that we would be doing okay if we had made better choices in the past. Now that we are on the right track, I think that we will be okay on this salary (though still not able to indulge in many luxuries).

Over the past year we have paid off $14,000 of debt and though this is pretty good I do often feel that we should be able to pay off much more. If you listen to the Dave Ramsey show you hear callers all the time saying they paid off $20,000 or more in a year making less than $100K. So I know we could do better.

[Maria]

There's an old saying: If your outgo exceeds your income, then your upkeep will be your downfall.

Some people think they have to have the BEST of everything all the time. That word 'BEST' can be very expensive. Put God FIRST and give tithes and offerings FIRST...Also, why not buy a cheaper, more affordable home, shop most of the time for clothes, etc. at thrift stores, eat out less and at inexpensive places, etc? Then there would be money for savings left over. Encourage college ADULTS (they're usually not kids, as in minors if they are college age) to be independant in getting a job to pay or at least help pay their way (this will free up money for you and your honey to take vacations!)...buy USED vehicles that are in good condition and new enough to be safe to drive, thus lowering your monthly bills on them, get rid of credit card debt and pay cash instead and make out a budget and stick with it. This is all said in love and I hope it helps someone.

[Dividends4Life]

There are very few income problems, generally it is always an "outgo" problem. Excellent post! I plan to include your article in my weekly carnival review this Friday.

Best Wishes,
D4L

[FFB]

Couldn't get through all of the comments but my wife and I make over 6 figures combined but barely see ourselves getting ahead. We live in NYC. We don't own a house but we do own our co-op outright. Our car is a modest Toyota Corolla, also owned outright. We have two kids, one of which is in daycare at $1100/month. We save some and contribute some and try to live frugally. I'm not crying poverty by any means but it is difficult to see how we will own a home one day. Oh, and we don't have the best of everything either (see Corolla). It may be hard for someone outside of NYC or another expensive city to understand but it is difficult to truly get ahead.

[Mark]

Two words, McMansion.

[Frugal Momma]

We are a low 6 figure family in Boston. We live fairly frugal no McMansion here and are able to save a bit as well. You would think with a 100k income we would be rich, however some months it is tough.

[Anon]

After reading the comments, something that surprised me was the lack of attention paid to student loans. College expenses for instate undergraduate tuition in my state have doubled in the last 10 years. A typical college--state or private increases its tuition by nearly 6% per year without any increase in value. In fact, the value of an undergraduate degree has decreased as more people are getting those degrees and there is more competition for jobs. Everyone seems to think that young professionals must be rich! Look at the 6 figure incomes lawyers and doctors are making RIGHT AFTER THEY FINISH SCHOOL! Most don't even have kids yet, they must be SWIMMING in disposable income. It's just not true. I finished law school in 2005 and the average student in my graduating class was carrying $75K in student debt--and my school was ranked in the top 10 law schools in the country for giving out scholarships and financial aid (not loans). This student loan burden means that the average person who gets and undergraduate degree from an in-state college will work for 14 years before they have actually netted more than their counterparts who started working after high school, due to their debt load. Those of us who continue to graduate or professional school not only miss out on income while we're in school but have crippling debt loads afterwards. My husband and I together have over $1400 a month in law school loan payments--AFTER consolidating all the government loans at under 3%. We each have less in loans than the "average" student who graduated with us. Also, not every (or event he majority) of law jobs pay the 6 figure salaries people imagine we have. Add in malpractice insurance on top of that and it's no wonder that so many young professionals are struggling financially. Additionally, when you go to work for a law firm, there are expectations about how you will present yourself to the community. I was actually told by my former boss I must purchase more expensive clothing, shoes and jewelry, and a nicer car or my career would suffer. The unchecked rise in the cost of education is only made worse by the fact that the government's answer is to just provide more loan money--you have to pay it back, and it comes from somewhere! It is sad to work so hard in school to end up saddled with this kind of debt, work constantly just to pay it off, and to have to refuse to take the types of jobs that would be meaningful to you (public service and pro-bono type work) because there is NO WAY you can afford to pay back your loans on that salary even if you lived with mom and dad. I think this problem is only getting worse and I hope it gets more attention in the future.

[Sick of Debt]

Last year our household made $47K and we were able to take care of our $1100/month mortgage, have a child, visit relatives for a week, camping for 4 days and take care of $25K worth of debt. We go out to dinner once a month ($30 to 40), my wife stays at home with our child and we still have a little fun money. This year we'll be making around $60K and doing $4K worth of house projects, take care of $20K worth of debt, put $6K into an emergency fund and still take care of all our daily expenses (and 2 weeks worth of trips, 1 mission and 1 family). (We live in a suburb of Chicago)

It's all about priorities.

sick of debt

I agree with your statement about priorities, but your numbers don't make sense. 47,000 gross doesn't leave enough for $25,000 Debt repayment and $13,200 Mortgage Payments. And net would leave 47k-25-13=9000/12=$750/month.

$750 per month for Groc, Electricity,Insurances,child expenses(diapers,etc),dinners out ,vacations and so on.

[Heidi]

I am 31, live in an 1930's 1300 sq foot home in Iowa (purchased for $180k), and both my fiance and I drive late model cars (his 2000 Corolla has over 220,000 miles). In the five years we have been together, we have never taken a vacation. We brown bag our lunches and don't eat out more than once a week (and then it's the cheap mexican place up the street). We don't have designer clothes or shoes. We don't have cable (not even basic), no internet, and no land-line phone (and our mobile phones have the cheapest plan available). Oh, and we also each work two jobs.

We have no kids, yet we're barely making it on $125k a year.

Why? Crushing student loan and credit card debt. We made some very, very bad choices in our twenties and will be paying for them throughout our 30's. If I lose my job, we have enough in savings to get through one month, but that's it (I bring in 2/3 of income).

It's an awful feeling to have so much debt. I take full responsibility for my choices and work two jobs to correct for it - but I totally understand how someone can earn six figures and still be broke.

[Kripal]

people are simply spending beyond their means . look at the wii sales on ebay 20-30K wii's are sold for $325-375 range .

[san francisco parent]

One thing that always strikes me about these discussions of how far a six figure income "should" go is how little history there is to the discussion. My husband and I make very generous salaries (I'm pushing $100k and my husband is well over that mark) and according to most people who don't make that much, we should be on easy street. But we just started making these incomes a little over a year ago, when we got out of graduate school. We spent a long time in school because we worked along the way so we wouldn't have student loans, so we're actually better off financially than most of our peers in similar jobs. I think our savings are healthy, and we have no debt, but we have only one car and are nowhere near being able to buy a house. We live in San Francisco because that's where we found jobs after an extensive national search. The rent on our 2-bedroom apartment is almost exactly the median for the city ($3k/month) and our son's preschool, which is subsidized by my employer, costs $1500/month (non-subsidized preschool in the city is more like $2000/month). That means just paying the rent and child care bills costs us almost $55k after taxes and including subsidies. I'm not complaining because we like our lives and our jobs and the city and our income is more than generous, but if we were making "only" $100k (especially if we didn't enjoy the child care subsidy or if we had any debt) our situation would be very tight indeed after paying for things everyone can agree are necessities like groceries, utilities, and health insurance.

We considered moving out of San Francisco to a somewhat less expensive suburb (still very expensive by national standards) but the savings on housing expenses would be eaten up by the cost of a second car, the higher cost of local preschool, and the loss of time spent with our son; currently I can walk to work and his preschool (which is on site) and my husband has a short drive. Another alternative would be to toss our hard-earned education and take much lower-paying jobs in a low cost-of-living area that have nothing to do with our training and that we wouldn't enjoy much. We considered this as well, but ultimately decided being viewed as spendthrifts by the under six figure set was a smaller price to pay.

In the long term, I know that our high salaries and good savings habits will overtake our current circumstances. We probably won't always be living in a small 2-bedroom apartment, with no television (let alone a flat screen), one older car, and dinners out less than once a month. But I also realize that we're comfortable now in part because we made some good choices early on; we eliminated all our debt before having our child and we put a lot of time into education despite the initial costs in tuition and lost income. Those decisions are the real reason that we can do better on our salaries than many of our better-paid colleagues, but there is no way we could have predicted how much they would mean at the time we made them.

The combination of a few sub-optimal choices early on with a high cost-of-living area and kids can easily whittle a six-figure income down to survival level. I've made some good decisions and some bad ones, and I realize I'm lucky that the bad ones weren't too debilitating and the good ones were really good. So I do sympathize with many people who have trouble making ends meet on salaries that are high by national standards. Even though everyone could be more frugal than they are.

[deepali]

I live in downtown DC. I work at a non-profit. I can put an entire paycheck (I get paid twice a month) towards my debt if I want. I am single with no kids, which means I don't get all the nice tax breaks that married folks with kids get. So honestly, I have little sympathy for anyone in the top 20% of the income ladder not being able to make ends meet (unless you've got enormous medical expenses). I watch people with several kids and much lower salaries make it through. If they can do, then there really isn't any excuse.

[juststoppingin]

I read through this whole post and was really surprised that no one mentioned the two things that bother me most about this discussion. Number one, the comment about "the riff raff or blue color" people moving into the neighborhood. Wow! What an elitest you are. I would rather live the rest of my life making what I do, than become like that. Secondly, your kids spend a 100 hours a week at daycare? Regardless of the cost that is just wrong. Do you love your money and your lifestyle more than them? My kids went to daycare for quite a while also for barely over a 45 hour work week. No, I may never have what the rest of you have, in a monetary sense, but my kids will know who I am and not segregate people by how much house they can afford.

[Poor Student]

Struggling with a six-figure income? Give me a break here. I can understand if you live in a big city and expensive area, but so do I. Yes, I don't have kids, but I'm making less than $20000 a year and I'm all on my own (no money from parents).

Car payments? If you are struggling, why not get a used, usable car? Is that beneath your dignity? If so, you have to pay for it. If you are struggling with it, maybe you should set your sights lower, like I do. I paid less than $4000 for a totally workable, reliable car. No problem whatsoever except for a non-working power window (which I can fix for a few hundred bucks, but I don't have money even for that!)

I have no cable TV--of course that's out of the question. I live in a rental place that costs less than $600 a month.

Yes, I'm cheap, but I'm forced to be so. If you don't want to be cheap, if you want to drive your $30000 car, live in a $400000 home, have cable TV, a big screen TV, maybe a second car (maybe a big SUV gas guzzler), then don't complain. And if you are struggling to get what you WANT, all power to you, but it is not as if you HAVE to have all those things.

Like what is mentioned above, I am single also, and receive no tax breaks for that married people with children get. I don't even see why they should get any help at all. Married couples are the ones with economies of scale. So my advice to you people making six-figures is: work hard and pay for what you want or shut up and downsize.

[Victoria]

Moralists in here seem to lack empathy and a willingness to understand people who make $100,000 and above. As I see it, yes, there may be those who were prolifigate and "need" luxuries they can hardly afford, but there's also a large majority of people who vested their career and training (and school tuition) into a specialization that turned out not to pay well because market demands or unforeseen tragedy. People who live close to the line are particularly susceptible to a vicious cycle.

Consider the sports physical therapist who, after vocational training and years of practice, suddenly cannot find any job openings except in LA, Miami or New York, and he's already got liabilities on a house, car and kids in a region where he was comfortably making it. Suppose the highly-specialized atomic physicist who, after a few years working for the government, gets his NASA program scrapped by the current administration. Every man has some dignity that he owes to his own constituents, and certain cities where very specialized jobs are located are simply less affordable than others. Only 3% of the median income can afford San Francisco Bay Area housing. Nearly 50% of Minneapolis wage earners can afford theirs.

Besides, it is relative. Psychologically, "wants" ALWAYS become "needs" in the norms of an advancing society, and it isn't our place to judge others. Is schooling, clean water, a 80-year life span, dental care and clean linoleum flooring considered 'wants' or 'needs'? Is dignity? How much are you willing to compromise before your identity has a crisis.

For those who are boasting that they are getting by with $30k household income, when I was young and naive, living in developing countries implementing projects, I idiotically held your types in contempt as well. I never spent more than $200 a month, and I was crass enough to rub it in to those who couldn't get by on ten times my expenditure, probably causing a lot of undue frustration, stress and pressure to others dealing with a financial crunch. "Haha you pathetic losers," I would not-so-subtly imply to anybody lamenting about making ends meet, "I'm living fine on $2,000 A YEAR, saving SO much more than you and even traveling while I'm at it and even having a nice apartment to myself plus eating out every day!" (Note: in the same place, some Westerners could barely eke it out $1500 a month. They "needed" English-speakers to help with everything.) I'm humiliated at my rude indiscretion now and I realize my initial privilege helped me attain that low-cost living circumstance, but imagine how you would feel if someone smacked your financial demise in your face before trying to fully understand the taxes, decisions, tragedies and costs that put you there. In certain places, living costs are simply crushingly high and you just can't make any mistakes.

This is not to excuse, but to understand the dilemma that some of our 6-figure commenters are in. Surely some were stupid with their habits and deserve financial slavery for life, but scoffing and rubbing salt on the wound is counter-productive and doesn't solve problems.

I would recommend these hacks:

- Become close with Jewish-, Chinese-, Japanese-, Indian- or Polish-Americans. We know negotiation and money. In fact, a majority of your friends should be these ethnicities. They tend to be professionals, tend to earn more, their cultures transmit habits and financial wisdom that have made their communities wealthy, legally. I swear, my boyfriend became that much richer after he started dating me and talking to my parents regularly.

- If your children gain admittance into costly American colleges, consider universities in Canada, Australia, UK, South Africa, or in Continental Europe.

- For housing costs, it is a mortgage, use www.lendingtree.com to have banks compete for your busienss for a better rate.

- Ask saavy tax accountants and business owners for loop holes in deductibles. (My parents pass such knowledge to us. Our family makes $150k, my dad owns a business, everything is expensed, taxes after all deductibles was $850 USD for 2007.)

[anon]

to chime in on the car issue: I have a 1994 subaru with about 180k miles on it. I paid 3k for it five years ago. In total for maint I've paid about 200. That includes a new 5 year battery (70) and oil changes. No other issues have come up. The car is great, gets decent mileage, and in five or ten years I'll happily buy another car that is 10 or so years old for what is basically pocket change and drive that for 10 more years. My husband and I make about 53k combined (before taxes) and we save about 1400 a month not counting Roth IRA or our employer matches (which we do full match on).

It's all about finding the comfort zone where you can live. I know that for us, if we ever make over 100k, it won't mean luxury cars or a huge house. Those aren't the things that matter to us.

[Early Retirement Extreme]

@gtFMF - I was just googling around and saw your comment.
Gross income+gains in 2007 was $87k for two adults aged 32 (and one dog aged 4). Effective tax rate (fed+state+...) was 12%. Cost of living was $24k or so. This left $52k which makes it fairly easy to buy $29k cars in cash and avoid car payments altogether - not that we would ever pay $29k for a car. Not all of this money is saved but a good bunch of it is. The monthly budget:

Car payments: $0
Utilities: $60
Food: $150
Rent: $1400
Gas: $75 (current figures, was $50 last year)
Car insurance: $50
Phone+internet: $100
Health: $75 (I got really good benefits)
Stuff insurance: $0
Misc: $100