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

[Justin]

The kids should be paying their own way if mummy and daddy can't afford it.

[paul]

My guess is that they live in an expensive area of the country, but that's not the whole story. The rest of the story is that inflation is much, much worse than the CPI will tell you. The Consumer Price Index doesn't include food and gas, which are two of the things mentioned above. This stems from the US government doing things like giving a tax refund for "economic stimulus" but not cutting spending. All that money they're giving back to us has to come from somewhere. It will either be borrowed from China, or fabricated out of thin air, which means the dollars in my pocket are worth less, which means I'm worse off than if they hadn't given me my "rebate."

Anyway the fact that some areas of the country are more expensive than others had made me think it's ridiculous to have income limits on things like Roth contributions. Someone making six figures in LA is middle class, and may be barely getting by. Why should they be excluded from a Roth IRA? They're not rich by LA standards.

[pauld]

Yes, there is a huge difference in cost of living in other areas of the county. In much of the NY Metro area you can make six figures and just barely be getting by. It's quite frustrating (especially with the current election politics) to hear people talking about people making six figures as if they're all rich fatcats who don't pay their taxes. In many areas of the country it is very difficult to get by on what many consider a high salary. This is especially true if you're young and didn't have the good fortune of purchasing your house twenty years ago.

[Ken]

I think these people are just living above their needs. Unless you have a medical emergency, disaster, loss of job or the like, they are just spending too much.

Another problem is that everyone needs to own a house, but are paying way to much for it.

[MrAtoZ]

FMF, you nailed it on the head in this case. Go to the Money "Middle Class Crunch" site and look at this interview with Julie Boone: http://articles.moneycentral.msn.com/Investing/HomeMortgageSavings/MiddleClassConundrumDoYouFitIn.aspx
She complains about not having enough money to buy a home, but she and her family still grocery shop at Whole Paycheck, and eat out "a lot," by her own admission. Yes, housing in the DC suburbs is expensive, but with one little kid, they don't need a 3000+ Mansion like the $1 million one depicted. They can find a nice Cape Cod or bungalow in Falls Church for $500k these days.

[Michael]

I live in on a $100K single income for a family of 4. While I have a good income, it just doesn't go that far. I do a good job at saving for retirement and putting money aside for expected expenses, but I struggle to fund college savings accounts and an emergency fund. So sure, we can point out all the things these people have that others don't, but the reality is that after taxes, retirement savings, insurance premiums, etc. $100K really isn't that much.

[paul]

Yeah I just looked at the article, and I agree, they are not really cutting expenses. However, it can still be hard to get by on six figures, especially if both husband and wife work. It's not as easy to shop and compare, and there are additional daycare costs, etc.

>=$100k can be barely getting by depending on where you live in the country, but in this case they seem to not be living as frugally as they can.

[Matthew]

Sadly, my wife and I are in this same predicament. We make about 150 per year before taxes, but when you subtract 2,000/month for a mortgage (3 bdrm condo in Chicago), and 3,000/month for child care (2 kids), and some student loans and other debt (even though it is at a great rate), at the end of the day, we are having a hard time making significant progress paying down our debt. This is true even though we are living relatively frugally (no big vacations, basic cable, rarely eat out, we arent funding 401Ks, etc.) So for our situation, 150K is a good income, but is not nearly enough to allow us to fully provide for our kids and to prepare for eventual retirement.

[Erin]

This doesn't seem unusual to me at all, if they live in an expensive area of the country like I do (greater Boston in my case). The number 1 issue for my family is housing costs. A "starter" house here can easily cost almost twice what it would in Omaha, Chicago, Houston, Buffalo, etc. We have though about moving to a cheaper area but haven't found a way to make it work yet. So don't be so quick to judge if you don't live in an expensive area such as Boston, DC, New York, or California.

[escapee]

I make a little over 100k/year (my husband stays home w/ our kid, so he's not making any money) and we are able to live very comfortably. We live in a major metropolitan area that is very expensive.

I think the key here is being OK w/ having fewer material possessions and comforts than other people in your so-called socioeconomic class. Our house is tiny compared to most people who make my salary (2 br, 1 ba- about 1400 square feet- a 60 year old house)We have old crappy cars, we buy clothes second hand when possible, etc. We don't have a lot of stuff.

What I am saying here is that if you are content with living with less, it's possible to live very well on this salary.

[Adam]

well, it appears that housing costs will be coming down across the board. while housing at the coasts has always been expensive, this recent asset hyperinflation is tapering out and heading the other direction. so, even in Boston, we're on our way back to housing costing a reasonable portion of income and not being a substitute for retirement savings. This will put us back in line with historical norms.

[Anitra]

The key here is debt. You can be making six figures and still be broke, because you have too much debt. I'd be willing to bet this couple is just squeaking by on their mortgage, still has student loan debt for one or both spouses, and probably has loans on both their cars, too. There's no excuse for anything but a mortgage when you're making that much money for that many years.

(I say this as one-half of a young couple who could easily go down this same path if we don't get our debt paid down in the next couple of years.)

[Ryan]

First off, I'd like to congratulate the Giants for beating the Cheaters.

I could easily see how even in an average cost of living area, that $100K is not a lot of money. After taxes, ss, medicaire, health insurance, and 5% for your 401K, you'd only have $65K left, if that. Take away $10K to fund 2 Roth IRA's and you are down to 55K, take away a 2K/month mortgage and you are down to 31K. Groceries, utilities (water, gas, storm, sewar, electric, garbage) and you are down around 24K, take away payments for 2 student loans and you are down to 17K or so, take away payments to a 529 for a couple kids and you are down to 13K, you both need a car to get to work and back so now 8K. With this 8K are your variable expenses, gifts, entertainment, etc. Need to replace a roof that year, buh-bye! Need a new furnace, buy-bye!

[Toby]

I am 100% with you on this. If you are making six figures and you can't make ends meet, then you are doing something wrong. Period.

The high cost-of-living excuse is getting tired. "But I live in (New York, DC, Bay Area, etc.) and you won't believe the cost of a house." I live in a high COL area too. So what? Get over it or move.

The solutions are simple:

1) Make more money.
2) Downsize.

That downsize includes your house, your car, etc. If you are making six figures and can't make it, then you've let your "American Dream" definition get bloated.

I'll let you slide if you have higher than average medical costs. But if you have the usual rent/mortgage, car payment, bills, kids in college/daycare, etc. Cry me a river. The rest of us have the same problems and most of us are making half of what you are.

[Paul]

I agree with the comments on housing expenses. There are ways to cut those expenses further. One person said they have only basic cable. I don't have any cable. It is not, (I repeat) NOT a necessity.

Also, the couple in the original story mentioned the expense of putting their children through college, but they didn't mention what college. I'm wondering if they are attending private or out-of-state colleges. Also, are their children working to help cover the expenses? Once again, the things that some people consider necessities aren't.

I live in a town with a junior college and a state university. My plan is for my children to attend the junior college for as much of their course work as possible and then attend the local university. They can live at home and benefit from the lower tuition costs. Not as prestigious as some universities, but I know that the school you went to isn't nearly as important when getting a job as some people make it out to be.

[broknowrchlatr]

If you don't live within your means, you will be poor no matter what you're income.

For what its worth, $100k in the Cincinnati area with 2 kids makes you fairly well off. I'm 27 and I have a $180k home and get away with $35k+ a year in total savings for short and long term (retirement)

[Sarah]

I've been running the numbers for myself, based on actual experience and understanding of how much I can economize without breaking down, and I don't see how I could live in Manhattan in my SUB-275-SQ-FT APARTMENT, WITHOUT A CAR, on less than about $95K while paying my student loans and still saving properly for retirement and having an adequate cushion for emergencies (I have spent over $2000 on visits to the dentist in the past nine months!). Now, I make a bit more than that, but, honestly, if I were married with a kid or kids who needed daycare, the "extra" money in my budget that currently goes straight to student loans would be gone like *that*.

However, it does sound like this couple did not plan ahead for college and maybe hasn't been careful in other respects.

[Kevin]

$100k in any city should be more than enough to live on. Now, financing all their college costs on an annual basis is nearly impossible, but they should have been saving for that all along if they wanted to pay 100%. Let the kids get a job or take out a loan if they want to go to college. No time like the present to learn how the world of money works!

To Matthew - sorry to be harsh, but I see nothing "sad" about your situation. You're making $150k a year. Even if you are taxed at 35% for all that income, which you're not, that would be $52,500. Subtract that, your $2,000/month in mortgage and $3,000 in childcare and you still have $37,500 leftover for everything else. If you're having a problem living on $3,000 a month after childcare and a mortgage, I'm sure about 99% of the country would gladly switch places with you.

[Early Retirement Extreme]

These people aren't poor, they're simply close to broke. Probably because they are trying to maintain a lifestyle that was acquired on credit a few years ago - well now there's interest to pay. Big surprise!

We make less than six figures, live in a $400k home area (used to be $500k) and still save more than half of our take home income - that's $3000-4000 a month going into savings. I've been wondering why it's possible for us and why it is not possible for "them". What do they spend their money on? We pretty much have the same amount of furniture, appliances, etc.. Then again, I also notice how they have an extra bathroom they never use or an extra bedroom that is filled up with stuff that they never use.. How there's a complete lack of smell of cooking in the evenings (does everybody eat out?). How people even have their garages filled up with discarded (but perfectly fine) furniture, TVs, bicycles, ... presumably the garage is used as an overflow reservoir for the stuff that goes in the front door. Therefore they are "forced" to park their two and sometimes 3 vehicles (one of which is usually a Jeep Wrangler) in the driveway and sometimes on the street. These aren't cheap old cars either. And they were probably financed. Hearing some people's clothes budgets also makes me cringe. People actually have a budget for that? How much can they spend when a suit lasts a year? How many shoes can they possibly need? But the biggest problem is usually housing costs. I usually ask why they don't move to a state with half the rent and the same income. This is never a popular suggestion. I like my home (even though they complain constantly). I like my job. It's convenient, blah blah... think of the children. Right, gotcha!

[KH]

I don't want to tell anyone they shouldn't have kids, so please don't flame me, but I think kids is a big factor in this. They are expensive: food, room, clothing/diapers, child care, etc. If you don't take all that into account before having kids, then it's difficult to feel too sorry for people with kids who are complaining about making ends meet. That goes for any salary level. My wife stays home with our 4 kids and we live off $100k. My latest raise will go towards starting 401k, more funding to college accounts, insurance, and additional funding to savings (currently 1.5 months pay).

again, not to be harsh on Matthew, but what do you expect when you have a live-in nanny? (And if you are telling me that you spend 36K a year on day care and it is not a live-in nanny, then damn are you overpaying.)

[FS]

Sounds like they need a budget/spending plan!

[Matthew]

Well, with 3000 left, about 1500 goes towards student loans, and about 1000 goes towards food, diapers, gas, etc... That leaves us with 500 bucks. 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. We looked into a nany and a nanny would actually cost more.

My point is at the end of each month, it is hard to fund our 401ks, and help put aside some money for the kid's education on our current salaries. Are we struggling? No. Are we getting ahead? No.

[gtFMF]

Me and my wife make $130K+ gross annually. It corresponds to about $3,450 net every other week after 401(k), insurance and taxes. So that's $6,900 a month (plus $6,900 annually into emergency savings via two extra paychecks). From that $6.9k we have the following expenses:
- $1,900 daycare for two kids
- $250 student loan
- $1,500 mortgage
- $800 car payments
- $400 gas cost
- $400 utilities
- $100 phone and internet
- $450 property tax
- $150 homeowner's insurance
- $100 car insurance

The above are just our fixed expenses to the total tone of $6,050. That leaves us with under $900 for groceries, other living expenses and entertainment. I can't even imagine how anyone can afford two kids on less than six figures......

And every time I hear a car commercial stating "only $29k" for a new car I think "Are you out of your friggin' mind?!?!?!" How can you call it "only"?

[gtFMF]

Early Retirement Extreme wrote:We make less than six figures, live in a $400k home area (used to be $500k) and still save more than half of our take home income - that's $3000-4000 a month going into savings.

No offense but I call BS on this statement. If you make less than $100k there is no way your take home is $6000-$8000 (double of the $3-4k monthly saving) and you can save half of it. Also, I wonder, how old are you? Do you have kids?
I'm 31 and I have two kids (one is less than a year old and one is 3+). I have 28 years left on my mortgage and I owe $210k on a $270k hosue. I have no credit card debt or any other debt besides the mortgage and a student loan that has $15k left on it. My net worth is right around $150k. For us kids are the biggest expense at over $2k/month for childcare and diaper/formula.

[Sara]

I could definitely see how a 100k income could be eaten up quickly between expensive daycare, a mortgage, and student loans, well before you get to anything that most people consider "luxuries," especially when the 6 figures are coming from two combined incomes and not from one high-earning provider. I myself probably would have put off having kids until I could at least pay down the student loan debt, if not move to a higher income level or to a less expensive city, but different people prioritize different stuff. 3000 a month in childcare expenses makes me break into a sweat just thinking about it. Yikes.

[Richard]

I don't care how much you make 2 kids in college will break almost any bank. I'm don't think a 45 minute commute helps. The commute plus coming home to bills that seem to increase each month can break you down mentally. I've been there and done that. If they live in a rich area then they have to put up with hearing vacation, new car, new purchase stories this can't help their mental state either. I'll have to agree with the statement regarding kids being expensive. You need to do a realistic assessment of how much kids cost. I know millionaires who say kids are expensive. We have no kids and after 401k, bills and entertainment expenses my wife and I have around 12-1500 cash left over, which we put in high interests MM. We are planning to have 1 kid and had to postpone this until our 30's because of college and CC debt. I'm expecting a life of comfort to sheer financial terror once we do. I expect our savings to be gone and living paycheck to paycheck one kids come.

Google the NY times story, "Working Class Millionaires" it provides a unique perspective on the middle class.

[susan]

Yea Giants!

I think it's all relative, whether the salary is 5,6 or 7 figures, it's not what you earn but what you spend that creates the abyss of indebtedness. I should know, I'm crawling out of it and the only way out is to cut expenses and pay as much against debt as possible.

I hear stories of these incredible people who made minimum wage and saved half a million dollars throughout their lifetimes by socking away $25.00 every two weeks. They lived meager existences and had these impressive savings that they gave to charity.

Those are the awesome ones we should consider patterning our fiscal lives after, they are heroes.

[mike]

gtfmf,
You wonder how some people can afford kids on less than six figures. For One most people don't spend over 11% of there take home pay on a car payment(s).
Matthew,
400 hours of daycare a month is 13-14 hours per day 7 days a week. Is that 200 per child for a total of 400?

[db]

When childcare is costing $300 a month, I think it's high time to sit down and evaluate whether or not it wouldn't be better to downscale your lifestyle so that one parent (the one with less earning power, of either sex) stays at home and raises the children themselves.

[LotharBot]

gtFMF, you're having a hard time imagining how anyone can afford 2 kids on a lesser income. My parents had 8 kids over the course of 19 years, never had an income over $85K, typically gave between 15% and 20% to charity, are now living on my mom's part-time public school assistant wage, and still managed to do just fine.

Here are a few things they did:

1) Live in a cheap area and find a house under market. $1500/month implies a $250K mortgage. With 2 kids left at home, my parents are likely to pay under $100K for an appropriately-sized place. If they didn't have their old house to sell, they'd be looking at $450/month payments (selling the old place will more than cover the cost of the new place though.) If you can make $130K/year in an expensive city, you can make $100K/year in a place like Denver or KC, and spend a ton less on housing.

2) Consider carefully... is the second job actually worth having? Once kid #3 (me) was born, my mom stopped working. Paying for childcare for 3 kids, plus a car, gas, insurance, prepared foods, and on down the line can all but wipe out a second income. Between your childcare expenses and half of the car payments, gas, and insurance, you're looking at $2550/month, or about 37% of your combined take-home pay. If the split between the two jobs is 50/50, the second job is netting you something, but if it's 65/35, the second job is actually of negative financial value.

3) Avoided debt other than their mortgage. They went to school on scholarship and paid off their remaining loans quickly. They opted for used cars. Repairs can be a pain, but you can get a lot of repairs for less than $800/month.

4) Reduce costs across the board. We never had cable TV, didn't rent movies, only rarely ate out, and mom cut coupons and planned her grocery trips carefully.

My wife and I opted for a slightly different strategy: we're waiting to have kids. We have 2 new cars both paid off, we'll put 20% down on a house this summer, and we've got some remodeling funds in place. Once we have kids, she'll stay home to take care of them, or possibly work part-time as a consultant (particularly if I can work 4 10's and eliminate a day of childcare.)

Anyway, the point is, there are definitely ways to cut costs. It's just a question of what you think is worth spending the money on. Kids are expensive, but if you plan accordingly and spend wisely, you don't need $100K/year to make it work.

[db]

Sorry, I meant $3000 a month in my post above, not $300.

[db]

And....children aren't the problem. Our insane modern lifestyle and our expectations for what we "deserve" is the problem.

[gtFMF]

LotharBot,

1) We live in a house valued around $270k in the DFW metroplex in Texas. We used to live in a $90k house but the neighborhood became the 'hood and we decided to buy ourselves out of the questionable area into a place where I can send my kids to public schools (our school district is exemplary, has been ever since) and not worry about riff-raff moving in next door.

2) The second job is actually worth having. My wife actually makes a bit more than I do. It would not make financial sense to quit for either one of us. And don't think for a a second that we wouldn't need 2 cars even if my wife or I stayed home. And to paraphrase a co-worker's quote about stay at home moms being cheaper than $1k for childcare: "Don't you think that my wife can't blow $1k in a month on buying stuff while home with the kids" :-). Note that I am not agreeing with this quote.

3) We have two car payments, one is $450 and one for $350. One is a lease due up in 3 years the other one is a new purchase. We used to lease cars as it is cheaper than buying for the exact same vehicle for the exact same term than buying. Now we have decided to buy as we plan to keep this one for longer than the usual 4 years we have been going on a car before. $800 a month might sound excessive to some for two cars, neither of our two cars are luxury vehicles, they are a 4 door family sedan and a 5 door compact hatchback. If I take out the two cars from our equation because let's say we own them outright that would still require me to put at least $400 a month into savings to
a) cover the repair expenses and
b) save up for two new cars in 8-10 years time.
Sure, you can buy used cars for a bit less but by the time you account for maintenance and repairs I'm not so sure you're coming out that much ahead, let alone risking getting stranded on the side of the road with two small children. Even if you take the entire $800 post tax out of our net income we'd still be making 6 figures.

4) We don't have cable TV, we have the $10 on-line movie rental package for entertainment, I haven't seen the inside of a movie theater in 3+ years (another perk of parenthood). Having two workers in the family it's hard not to eat out every once in a while, so we do. I'm spending $20 a week on lunch and so does my wife.

Make no mistake about it, I'm not complaining about my situation, I am very happy with what we have and where I am in life. I'm 31, my wife is 30 and we have 2 kids that will be out of the house by the time we hit 50. I don't expect my big ticket expenses (mortgage and childcare) to go up but to go down especially relative to our salaries as they will keep increasing. I was just trying to point out that even earning 6 figures, having two kids and a decent home can make you live from paycheck to paycheck.

Now there is one more thing that I did not include in the above mentioned budget and that is about $12k gross annually in employee bonuses and another $30k in stock option excercises. These go straight to pay down mortgage and other debt obligations.

db,
"And....children aren't the problem. Our insane modern lifestyle and our expectations for what we "deserve" is the problem."
The "sense of entitlement" (what I call the pehnomenon) is definetely huge in this country. I personally don't have it, I'm very happy with the way things are going for me, I'm not the one who says the government should raise the $5k limit on childcare tax deduction, I'm not the one who thinks I deserve more from the goverment or that I deserve this or that. I'm just simply stating that even though me and my wife make $160k+ between the two of use annually, after paying for our "deserved" amenities there is not much to show for it with having two kids in daycare. But thanks to current media and TV that keeps feeding us with stupid stuff like "only $29k for this new SUV" or "$1600 for this Disney trip? We can do that" our preception of what middle class should be is seriously flawed and mistaken.

Oh, and there are areas in Canada where if you make less than $75k annual you're eligible for welfare programs and government aid.

[aaktx]

Live below your means and 50k can feel like 100k. I hope these people's rebate check does not go toward buying stuff.

[zook]

gtfmf-

Dude. My man. 800 a month for two cars is crazy. That is a boat load. We have two, very nice late model cars and before we paid them off it was 400 a month. 100k is a good chunk of change and it can be tough in our "world", however it is amazing to see what some of you consider "fixed" expenses. 1000+ a month for cars will eat you alive. A friend of mine is doing that now. Not a pretty sight. Its a good debate going on here. I can tell you one thing. If my wife and I made 100k we would be kicking some serious ass right now.

Its always amazing to hear folks complain. It is ALL relative. What about my grandmother who raised four kids by herself on DOLLARS a week. If you make 100k, pull up your freakin boot straps and slap yourself in the face. Get a grip. Folks are getting by on half of what you make.

[gtFMF]

zook,

$400 a month for 60 months at 5% equals $21k principal balance. You're saying you have bought two nice late model cars for $21k? That's $10k a pop after TT&L. Unless you're driving Kias I don't buy it. $800 a month for two cars is exactly correct at 5% interest 60 months with $0 down. The average new car purchase price is $25k. $400/month is for a car that sells for $19K + TT&L at 5% interest. This is "below average" new car. I also used to lease $38k cars for $450 a month without blinking an eye.

As I have stated I am not complaining. I just simply stated my income and budget and how we spend our money. It is very easy to spend six figures without even realizing it. And what about my dad who had to walk to school 10 miles in the snow uphill both ways, every day? ;-).

And just as I stated earlier, fine you don't have a car payment now, but how much are you stashing away every month so when the current "nice late model car" will be a heap of junk in 7-8 years? By then you better have $20k saved up for a new one. Or better have $16k saved up every 6 years for a 2 year old car. That's $200/month per car not counting maintenance cost. Or are you going to fit the car payment into your budget in 6 years down the road? So even if you own your cars you better stash away (suprise, suprise, seems like I stated this figure a couple posts above) $500 a month for two cars for future car buying power and maintenace cost.

And just as I stated earlier even if you take out the $800/month from our budget for cars you still need a 6 figure income to cover our expenses.

I know that in 2 years my payment for daycare will go down to $1k and in 4 years it'll go down to practically nothing. So I should be able to make some headway on college funds at that point for the little rascals then. And in the meantime I'm hoping for huge bonuses and stock options to pay off our mortgage.

One final time, I am not complaining, but I can definetely understand people living on the edge with $100k+ income.

[J in FL]

"And what about my dad who had to walk to school 10 miles in the snow uphill both ways, every day? ;-)."

lol... that's awesome

gtFMF, I read your posts... I can see where you're coming from. And everyone else. I think it can be tough at pretty much any "middle class" income level... it all depends on what we spend our money on and what our expenses (fixed or not) are. Basically, it's what is important to each of us. That's why these types of threads, although entertaining, I usually don't participate in... everyone has a different COML. (notice the M in COL... not Cost Of Living, but Cost Of My Life... MY being the key word)

[MetaMommy]

I just saw an episode of a series called Maxed Out. The couple were bringing home $11K (i.e., after taxes), but they were living paycheck to paycheck (spending ~$12K per month). Bills were going unpaid, their credit cards were feeling the pain, there was no savings or life insurance, and they were afraid they couldn't afford to have a second kid. Mortgage & taxes came to ~$1800 per month. Daycare for their son was ~$1K. Everything was reasonable until you got to eating out, where they were spending $1500/month. In fact, 65% of their income was going to discretionary spending, and they had no idea because they never sat down to analyze their budget.
I'm sure the family you mention could do with sitting down to check for leaks in expenses. For the sake of the parents and the kids, who probably don't know anything about money, either.

[LotharBot]

gtFMF: "I was just trying to point out that even earning 6 figures, having two kids and a decent home can make you live from paycheck to paycheck."

There's a tiny/huge problem with your statement: the idea that your circumstances "make" you live from paycheck to paycheck. You can end up living paycheck to paycheck on $130K + bonuses, but that's a result of your decisions, not a result of your circumstances. It's not that you couldn't raise two kids on a smaller income, it's that you couldn't raise two kids on a smaller income AND make the lifestyle choices you made. Those may be the right choices for you, but they wouldn't be the right choices if you had a different income or different priorities.

Moving from the $90k house in the 'hood to the $270k house in the 'burbs is a lifestyle choice. It might be a good one, and it might be worth every penny, but it's optional. You could also move to a $130k house in a moderate neighborhood, or a $39k house in a tiny town in central Kansas. Buying new cars, spending $16k for a "nice late model car", or even having 2 cars instead of 1, is a choice. You could be tooling around in an '88 Ford Taurus wagon you spent a couple hundred dollars and a couple of weekends on, or a 10-year-old Kia you got for 5 grand, or a brand new Hummer you got for 50 grand, or even a 10-speed bike. (BTW, chances are, your auto loans are at a worse rate than your mortgage. Consider using the first part of that $42k in bonuses/stock to pay off your cars, which will free you from some monthly obligations.) Having dual incomes is a choice, and might be a good one if the incomes are high enough and the added expenses are low enough. But it's also possible to have only one income and one person at home keeping expenses way down.

I understand how people can live on the edge with $100k+ in income. I also understand that it's their decisions, not their income, that have them living on the edge. Very often, when people are in that situation, as their incomes rise their lifestyles change, and they *still* end up living on the edge. In gtFMF's case, it sounds like his choices are well thought out and he's living within his means. In my parents' case, they raised a lot of kids on a decent but not huge income because of the choices they made. In the OP's case, the choices are not as well thought out, and he might need to make some hard decisions as to what luxuries he can do without. Hoping for a larger income is not a good solution; making the decisions you need to make to live within your means is.

[anon]

gtFMF
I would actually suggest you put a lot more into your 401k or Roth’s.

Your housing costs either go to show the real difference in the cost of living depending on where you live or the size of houses that people think they can afford when they really can’t. I have a house in the top 20% price of my town and my mortgage is less than half of yours. My utilities, phone and internet are closer to $200/mo compared to $500. Turn down the heat, get rid of your premium cable, etc. My home insurance is $450/YEAR and yours is that much per month?!?

Considering your car payments, seems like you have 2 cars that are over $20k each. If you save up $800/month you could buy 2 cars with cash that are $27k each after 5 years.

If you average 24 mpg, $400 in gas means you drive 100 miles per day – where are you going?!? Move closer to work!

I think in your case you would do a lot better financially if one of you stayed home to take care of the kids. You are spending way to much on gas and day care.

[JD]

@gtFMF
Early Retirement Extreme isn't full of BS.

Our income is $101k:
$21k goes to income taxes
$10k goes to church/charity
$23k goes to retirement savings
$5k is property tax, homeowners and car insurance
$10k goes into savings (college, cars, vacation, house prepayment)
$2600/mo --> $32k/yr are our everyday expenses including daycare

We are 30 with 2 kids. We will have our house paid off in 4 years and be able to retire at age 40. It's all about your priorities and what you choose to spend your money on.

[Kevin]

@gtFMF - Not to pick on you but $800 for two cars? Holy cow. That is a ton of money being tossed away on depreciable items. You can easily find a 2-3 year old really good car for under $15,000 and have your payments be around $225. That's exactly what my wife and I have done with our past 2 cars.

We bought a 2003 Mazda Protege in 2005 for $11,000 and it's already paid off. I bought a 1998 Jeep Cherokee in 2002 for $12,000 and paid it off 1 1/2 years early. And we'll keep them until they die now that they're paid off and we're pocketing that extra car payment each month. It feels really, really good to transfer $250 a month to our money market instead of seeing that car payment be taken out.

You say you have no sense of entitlement, but your actions certainly speak louder than that.

Instead of saving an extra $7,000 annually from those extra paychecks, why not pay down the car loan or student loans? Assuming you have a decent emergency fund already, of course.

[Don]

The American Dream has gotten bloated beyond all reason. Our houses are way too big for our needs. There are more cars than there are drivers. Everyone owns more electronic gear than they can use. People eat out more than they eat at home. We pay for things today which used to be free, e.g., water. If you don't spend at least $1000 a year on Starbucks, you're really old-fashioned.
No wonder everyone is in debt, and the whole mess is in danger of crashing down around us.

[gtFMF]

@J in FL,

"everyone has a different COML. (notice the M in COL... not Cost Of Living, but Cost Of My Life... MY being the key word)"

THANK YOU! Since we have just added the extra child to our family we had to start looking at our budget how to afford the extra $1k a month for daycare. The budget or COML I have posted above outlines just that.

@anon,
"I would actually suggest you put a lot more into your 401k or Roth’s"

We actually don't qualify for Roth, our MAGI was over the $166k cutoff for 2007. We're putting 6% into our 401(k) with 100% company match that is fully vested.

"Your housing costs either go to show the real difference in the cost of living depending on where you live or the size of houses that people think they can afford when they really can’t. I have a house in the top 20% price of my town and my mortgage is less than half of yours."

We live in a $270k home with a mortgage debt of $210k. It's a 2300 sq ft house (the national average size of new homes, mind you) on 1/3 acre suburbian lot.

"My utilities, phone and internet are closer to $200/mo compared to $500. Turn down the heat, get rid of your premium cable, etc."

We pay $70 for cellphone, $46 for local phone and ADSL. My water, garbage and sewer is around $100 a month. My electric bill averages out to about $320 a month, last month's bill was over $400. We have no cable or satellite TV services just rabbit ears. We cancelled satellite over a year ago after realizing we never watched it anyway.

"My home insurance is $450/YEAR and yours is that much per month?!?"

Our home insurance is $1500 a year. Our PROPERTY TAX is $5500 a year.

"Considering your car payments, seems like you have 2 cars that are over $20k each. If you save up $800/month you could buy 2 cars with cash that are $27k each after 5 years"

Like I said earlier we have a leased vehicle that is up in 3 years and we financed a brand new $19k vehicle at 5% for 5 years.

"If you average 24 mpg, $400 in gas means you drive 100 miles per day – where are you going?!? Move closer to work!"

$400 is actually more like $350, last month was a bit off. Our cars drink premium fuel so the budget covers about 100 gallons of gas a month which is good for 2200 miles. I work 15 miles from home, wifey works 25 miles from home. That's 80 miles between the two of us a day. We also go to the zoo, playground and to buy groceries every now and then. We live in Texas, there is no public transportation here and a 15 mile commute is considered short.

"I think in your case you would do a lot better financially if one of you stayed home to take care of the kids. You are spending way to much on gas and day care."

I think not. When each of us brings in $70-$80k gross it makes no sense to quit working.

@JD

Early Retirement said they save $3-4K a month on top of spending the same every month. He wrote:

"We make less than six figures, live in a $400k home area (used to be $500k) and still save more than half of our take home income - that's $3000-4000 a month going into savings"

That means $6-$8K take home income on less than six figures. That is what I called BS.

@Kevin,
"Instead of saving an extra $7,000 annually from those extra paychecks, why not pay down the car loan or student loans?"

One of the cars is a lease with a money factor well under market rate (1.2% APY). The other car is at 5%. The student loan will be wiped off next year from some stock option excercise. This year we paid off our second mortgage at $30k.

Thanks for everyone who participated in this discussion, I thought I'd share my experience with others. Some took it as griping or whining or demands for entitlement, I certainly did not mean it that way. I simply wanted to show how someone who makes well into 6 figures blows their money with 2 kids in suburbia, Texas.

[Zook]

Since I have been called out... :o)

We drive a very nice 2000 Lexus ES300 and a loaded 2002 Isuzu Trooper.

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.

[Zook]

And my good Lord.

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

You got probably $12-$15K a year for cars/insurance/gas and you spend close to $4000 a year for electricity?

You are damn near $20K to drive and heat your house. That is craaaaaazy.

[anon]

I said 401k OR Roth. Saving 12% of your salary (incl. match) is not nearly enough to retire comfortably, especially given your high cost of living.
I don’t know why your utilities are so high. My house is only slightly smaller than yours (1900 sq ft) on the same size lot and cost $140k. 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.

[JD]

Why don’t you read my post again. I said I spend $2600/mo and save $2750. So it’s not BS. Our income is $100k but after taxes, retirement and other savings are taken out, the “take-home” is $3900/mo.

[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. Turn that thing in and buy a cheaper used car for cash when you get one of your $7,000 extra paychecks.