This Couple is Killing Me

Check out this couple profiled on CNN Money. A summary of their financial situation:

• They currently make $133,000 combined.
• They recently had a second child and wife wants to work part-time.
• This will bring their income down to just over $100,000.
• They can't afford to do this because they have too much debt (mortgage, home-equity loan, auto loan, and credit cards.)
• They need to cut debt by $500 a month and other expenses by $1,300 to make the finances work.
• The mom says, "We really have to think about it."

What????????!!!!!!!!

Let me be a bit more clear: these two make a great income -- over $100k even with the wife's salary reduction -- but they can't afford to live on that amount. Now their hopes and wishes for their family are put on hold because they haven't been able to control their spending and show no signs of wanting to start.

This is just one more in a long line of examples of why over-spending is the worst money move anyone can make.

Now the one thing not mentioned is what part of the U.S. they live in. As we all know, $100k in St. Louis goes a lot farther that $100k in New York. That said, if cost of living is beating them down, I just have three comments:

1. See, I told you that where you live can have a big impact on your finances.

2. No matter where you live and what you earn, you still have to spend less than you make. It's simple math.

3. $100k is a decent salary even if they live in a costly city. Granted, it's not a wonderful salary for people living in costly cities like Boston, San Francisco, etc., but it's certainly not poverty level either.

In short, they have over-spent and now have so much debt that they can't live like they want to. And unfortunately this seems to be more of the rule than the exception in America today -- people simply spend way too much. Don't believe me? Then check out the low median net worths in America today and then tell me what you think.

Comments

[Matt]

Touch'e

They made there choices and now they have to live with them. They will not change until they are forced to. Even then they might not change.

They may wake up one day and say "How did we get here"

[Rich]

My fiance and I live in DC and make a hair over 100k combined. This is one of the more expensive cities to live in the country. Yet we own a home, and are still able to save somewhere in the range of 40% of our take home pay.

This just meant that we saved longer and harder for our down payment, and bought less house than what we were told we could afford. And you know what by saving for a 20% down payment, our housing payment is actually less than we were paying in rent. While we see some of our friends who used 3.5% down payments on FHA loans, and bought more expensive houses and we see them struggling month to month.

[Carol]

This couple should get a grip; that is, a grip on their spending.

[Rob Bennett]

"It's simple math."

It is and it isn't.

In an objective sense what you say is certainly so, FMF. These people should be planning for early retirement rather than struggling to keep their heads above water and it is their own bad choices that have caused their problems. All that I sign onto.

I don't agree, though, that it is ONLY math that is at issue here. As you note, there are MILLIONS who have caused this sort of pain to themselves. Those people cannot all be dumb or they wouldn't be able to hold jobs paying six-figure salaries. And they cannot lack willpower or again they wouldn't have those jobs -- it takes willpower to get and keep a six-figure job.

So what is going on? It's not an intellectual deficiency that causes this sort of problem. It is an EMOTIONAL deficiency evidencing itself here. Lots of people are scared to even look at their personal finance numbers. That's a reality.

The personal finance field needs to focus less on numbers and more on emotions. That's where the real action is, in my assessment.

Rob

[Kevin]

Moving to a low cost area may make financial sense, but that seems a little extreme. Why not take the argument all the way and move to a third world country?

I have roots where I live. Friends, family. The things that make my worth living. Yeah I could pick up and move to the plains of Iowa, but then what?

[FMF]

Kevin --

Iowa is actually a nice place. ;-)

The "move and save money" issue has been debated here many times (including moving to a foreign country.) It's just one option for people to consider and especially those looking to make a dramatic change -- like one parent quitting/reducing work.

[Jim]

I wouldn't bash the couple in question too much. THe article seems a little contrived. It says they "live comfortably" currently, that they "They pay their debts, save for retirement, even have room to splurge on [stuff]." It says they have a "$3,600 monthly debt load" for a current $11,000 monthly income which is really not bad.

I don't see the coule quoted as saying they can't live on the reduced income or making excuses or whining or anything at all. The just have the one quote ""We really have to think about it," which is not in any context.

The couple in question lives in Fairfax county Virginia which is greater DC area and one of the highest income counties in the nation.

[Sunil from The Extra Money Blog]

easy for me to believe, and anyone who follows the national statistics on debt. the American economy has piled up $4.3 trillion in consumer debt, not including debt backed by real estate (mortgages). that is bigger than most economies of this world. wow . . .

[Tristan]

Kevin -

I know personally how hard it is to relocate. I would say start "roots" in a cheaper state (I live in Kansas) so that your future generations can be rich.

[Nick]

I'm one of those folks who lives right outside NYC and works in NYC. I make a very good salary, for sure. But I totally agree with the where you live issue. I often say to my wife that it would be nice if our families were from cheaper areas of the country where we could have a higher standard of living. But I don't let it get in my way.

Too many people let "where they live" cripple their finances. They use "it's expensive to live in NYC" as a crutch to spend too much. Sure, housing is way more expensive in and around NYC than almost anywhere in the country, but other financial decisions can help offset that - at least partially (like when my wife and I moved right outside of NYC to avoid the 3% NYC income tax. After offsetting the commuting costs and reduction of housing costs that savings alone paid for 3 months of rent.

I do think it's just math. There is income and spending. If you spend more than what comes in, you're in trouble. Also, too many people are focused on what the "payments" are, not what the "price" is - with cars for example. That's a great way to be broke.

:)

[David]

You do have to admire that they thought about this problem before having the kid.

@Kevin: I had never heard of cities with income taxes until you mentioned it. Thanks for bringing that to my attention. One more thing to keep in mind when I pick places to live in the future.

[Tyler]

I love that we pay a 33 yr old assistant principal 78k per year in salary alone and a literacy coach 65k per year in salary. Annualized and benefit adjusted, these are inspiring incomes.

She clearly cant cut back her work schedule until that debt is paid off. Get rid of the 63k line of credit and the credit cards. Should take her about 2 years of working full time to get those debts paid off. Then they are in a position to make a decision.

[Squirrelers]

This couple seems to be living for today, and not thinking about the future except nominally, perhaps. The tone of this whole issue seems to be centered around cutting their expenses at the expense of the lifestyle they want.

My take is that they should pay themselves first, live on the remaining money, and avoid debt. I wonder if these people even think of things in these terms!

[brooklyn money]

Do not even get me started on the NYC income tax. That said, if I moved to NJ, it would not be any gain, because I'd have to pay extra to commute each month -- that alone equals the tax. Right now my transportation costs are less than $100 a month. So it kind of evens out.

[Josh Stein]

@David - just don't move to any city or village in Ohio, then.

[Crystal@BFS]

It's just a matter of priorities. This couple prioritizes their current lifestyle over the idea of having the wife stay at home part time. Most Americans in general prioritize what they want over staying debt free. Until they conciously change their priorities, they will stay in the exact same situation...

[ranch111]

My wife stays home with the kid on 50k a year. I wouldn't trade that for any car payment, home equity loan, boat payment, CC debt, etc. Kinda have to scratch your head on this one.

[EM]

"The personal finance field needs to focus less on numbers and more on emotions. That's where the real action is, in my assessment."

I totally agree with Rob. If people were to rely just on the logic of the math, people would simply have to look at the numbers to be motivated not to spend more than they earn.

However, "I want" and "I need" are driven by emotions, and therefore people get into financial trouble. It's amazing how difficult it can be for a grown-up not to give in to his or her inner child.

[Money Reasons]

The looked young, perhaps they should start calling Suze Orman's "Can you afford it" segment of her show (lol).

No, really, since they are young, perhaps whey will mature with respect to their finances! There exists a good number of blogs out in the blogsphere where the bloggers have done exactly that. That being where they have dug themselves out of (sometimes) massive levels of debt...

[balor123]

I live in Boston. If you stick to conservative 3x income limits, then 100k won't get you a livable home in a decent school district in a commutable lot (commute costs usually make up for savings). Frankly, I see it hard to live here in under $200k, which is unfortunate because my household income isn't anywhere near that (and I'm an Ivy engineer with double masters). Moving to cheaper part of country is often times not an option (my wife is in grad school) but ironically enough people around here seem to strongly support policies that encourage high costs of living like restrictive zoning and backend taxes, despite living under financial distress. Daycare costs are out of control here.

My advice for them is: you dug yourself a hole and you have to dig yourself out the hard way. Moving to a cheaper area is one option. Part time work, cooking more, dropping one car, selling house and renting, etc - that's your life for several years.

[Goner]

People do spend too much and they have an entitlement attitude. They do this their whole lives, drive cars which in actuality they cannot afford if they are to save for retirement at the same time and generally live for decades beyond their means.

All the while I forgo the nice car, which, like many of you reading this, I could easily go out and pay cash for. I forgo the pricey vacations, the huge TV with options and do-dads that I will likely never use. I buy at garage sales, use coupons, eat at home, etc.

Then, the government comes along and tells me that I have to support those people through higher taxes and other transfers. I will lie to avoid this -- I will conceal assets from this thieving government -- and so should you.

[7daysforward]

A 68k salary in Fairfax County is not going to get you very far. Anyone who thinks that is right has never lived anywhere near DC. Commuting itself is likely taking a far chunk of change since you waste at least a gallon of gas a day sitting in traffic. Unless you go fast food its near impossible to go and get a dinner out for <$20 a person at the cheapest place. Not saying they couldn't cut out eating out but, there's not really much options. Everything here is inflated except the salaries. I would vote DC area pays the worst in salaries when compared to cost of living then any major city.

I'm guessing its their mortgage dragging them down. Most condos even in this poor market cost 250k and its impossible to see a townhouse for less then 500k. If they are in Alexandria, VA I'm guessing its more like 600k if they live in a modest townhouse.

[Mica]

One sentence is telling the truth: "Over-spending is the worst money move anyone can make." And if you realize that you can make a difference.

[Everyday Tips]

I blogged about this story too. This couple infuriated me because the mom kept referring to her 'lifestyle'. I wanted to smack her. I believe they were going to save 500 dollars a month in daycare expenses if she went part time too.

I know where you live makes a difference. However, they never alluded to cost of living at all. Based on their incomes, they wouldn't have been able to lead their lifestyle as it was described in a high cost of living area anyway (even with both full time). Therefore, I deduced they did not live in NYC, LA, etc. Could be wrong though I guess...

[Sallie's Niece]

I don't get how they are netting $11k a month on $130k a year. We gross $143 a year and only bring home $8300 a month. Either they're not saving for retirement at all or my taxes just suck. Or both?

[Kristi F]

Why is it that people automatically judge them for their money issues because they make above average wages? Those wages don't ensure that you run into the same problems as people who make less... As usual, people want to jump on the bandwagon and judge others to feel better about their own situation... What it boils down to is that they are operating on a tight budget as many others are, regardless of income... If you make $20K and think making double ensures that you don't ever have to deal with debt, that's not true... I bet 1 out of 100 on this blog would actually make more money and then actually use it toward debt... Most people love the extra security a little money brings and then it is eventually absorbed into their family budget... Let's all work together to find out what works!