Now $1 Million is Not Enough to Live On

We've already covered one story of a couple who can't make it on $100,000 a year and another who can't make ends meet on $250,000 a year. Now, here's a family who is struggling to make it on $1 million a year. Here's where it all goes:

• $1 million in compensation for a year
• -$500,000 -- half of pay is in deferred stock
• -$250,000 -- taxes
• -$50,000 -- Wife wants to upgrade their Hampton's rental
• -$60,000 -- Private-school tuition (one kid in kindergarten and another in second grade), ballet and fencing lessons
• -$60,000 -- Mortgage (for 1200 sq. ft. apartment in NYC bought for $1.4m -- ha!!!!)
• -All the rest and then some - housekeeper, babysitters, gym memberships, therapists for husband and wife, plus couples therapist

Cry me a river...

Ok, I'll give them a break on the deferred compensation and the taxes. He really earns $500,000 a year (which is still good BTW) and a boatload of that goes to the government. So he has $250k to live on. Should be enough, right?

But he's got two other problems:

• First, he lives in New York City. Very expensive. $250k in NYC isn't the same as $250k in St. Louis, Cincinnati, Nashville, etc.
• Second, he and his wife can't control their spending. It's a DEADLY money mistake -- the worst you can make. No matter how much they earn, they'll always fall behind if they can't control their spending.

The result? They are racking up debt every month. Get this quote:

"I don't know where it goes every month, but I know my credit card is being used to pay for it."

Ugh.

Well, I guess it's true that $1 million isn't what it used to be. ;-)

Comments

[bb]

Demostrating low financial IQ.

[Eugene Krabs]

You know, I can cut them slack on just about everything except spending. Agreed with taxes and stock options, but I'd also throw real estate in there. I mean, if I had to live somewhere like that because that's where the high paying job is, then yes, I would move there too. I also wouldn't cry over owning a piece of property that's worth $1.4 million on the market (although I would look for something cheaper).

But the spending. Wow. Resorting to credit card to cover costs? Even crazier.

[JM]

His math is a little off or the narrative got cut off somewhere. He says after the rental repairs, tuition, and taxes, he has $140k. Then he says he only has $12k a month left after those. Which is it, $140k or 12k?

[Dee]

@JM - $12k/month = $144k annually.

[MC]

Funny! Nice that with that $500K/year his retirement is pretty much taken care of. Weird that he doesn't seem to realize that his cash flow does not make him rich--so why is he trying to live like a king?

[jim]

Its got to be a joke if the word "struggling" and "hampton's" are used together.

The tax bill is exaggerated. His income taxes would be less than $189k. $136k to IRS, $35k to NY state, $18k to NYC.

If this is supposed to be serious then I wonder how someone so horrible with money can become a vice president of a bank?

[JM]

@Dee- I figured that out. But still, the article made a poor transition, especially considering $140 =/= $12k a month exactly.

@MC- Well, taking that $500k/yr into account as a retirement nest egg, he is doing pretty well. He could just retire after the 5 years and live comfortably if he took control of his spending. Unfortunately, that seems pretty unlikely reading the article.

[brooklyn money]

Suck it up, sell the place, move to a rental in a good neighborhood so your kids can go to public school and ditch the Hamptons place. Total savings on just the last two changes = 110K. This is not rocket science.

[Squirrelers]

Ridiculous. Upgrading a Hamptons property?

Granted, it costs more to live in some parts of the country than others. That said, no matter what zip code you live in here in the U.S., you can live well with that kind of annual income - AND save handsomely for retirement and other needs.

[Julie]

"Mike, who is a vice-president at a top-tier bank."

He can't even manage his OWN money. I shudder to think what he's doing with other people's five days a week...

[Barrett]

@Julie - he probably has hired people to manage the bank's money. Unfortunately he's not smart enough to do that with his personal money. If you have any details on him, pass him my contact info, I can manage it for him for a fraction of what he's over-spending :P

[Bad_Brad]

This guy is in BANKING!!!???!!!

Sheesh. No wonder we had to bail out the banks. Good freakin' Lord.

Did the guy even think about:

* Consolidating the therapists to one and bargaining for a discount - or better yet, ditch the therapists altogether and get to Church where you'll get the REAL answer to your "problems"
* Telling his wife "no", or at the very least "wait until my deferred comp vests" on the Hampton upgrade
* Refinancing the mortgage on his apartment
* Finding a cheaper private school or (GASP) opting for the public schools zomg!!!!!!!111!!!
* Ditching the ballet and fencing lessons and opting for something cheaper and less snooty - I don't know, youth soccer, or maybe gymnastics?
* Ditching the housekeeper and telling the wife (who I presume stays at home since no mention of her income) that she can reasonably clean a 1200 sq ft space

Holy overspending, Batman.

[Lurker Carl]

Who in their right mind spends $60K to educate a 5 and 7 year old for one year?

[RB Boren]

The result? Sounds like the guy is on track for a Dickensian result.

[Crystal@BFS]

I think you said it with "Cry me a river..."

[Matt]

Sorry no sympathy from me.

[BD]

Blech. People like that are insulting to people like me, who make things work on wages that are below poverty-level. If I made as much as that guy did (assuming a 250K take-home per year), I'd be a millionaire (with a literal million in the bank) in less than 4 years.

[asrai]

Stop buying into (literally) the New York lifestyle.

Single moms can raise children with poverty level wages.

[kitty]

Living on 1M is hard, this is why they need therapists. Funny that people who can't afford therapists don't need them. I'd tell them to get friends they can talk with.

In reality 250K net in Manhattan isn't the type of money that allow one to live high society lifestyle with Hamptons upgrade, babysitters, housekeeper. They should learn this. How about one live-in who handles both housekeeping and babysitting? A 1.5 mil apartment in Manhattan isn't large, it should be easy to clean, and kids are in this expensive private kindergarten half of the day. Why do they need so much household help?

"Who in their right mind spends $60K to educate a 5 and 7 year old for one year?"
I don't understand that either, but I've seen even people with much lower incomes doing it.

Poor rich people. This is just too funny.

[kitty]

@bad_brat I agree with you on all points but this one: "Ditching the ballet and fencing lessons and opting for something cheaper and less snooty - I don't know, youth soccer, or maybe gymnastics?"

Ballet and fencing aren't "snotty", plenty of middle class parents have kids taking ballet lessons. They are also not interchangeable. Ballet is really good for the girls, it develops grace of movement that gymnastic doesn't, also posture. Plus, these aren't interchangeable. Kids that are good at one sport/art aren't necessarily good or interested in another. Just because you don't understand ballet or consider it "snotty" doesnt' mean it is. I am really sick of people who diss arts like classical music, opera and ballet as "snotty".

[kitty]

Sorry for multiple posts, but I just read the article. I liked this part:

"So now I have $7,000 a month left. And I don't mean to sound like a snob or anything but I do have a housekeeper, babysitters, gym memberships, therapists for me and my wife, plus our couples therapist."

It seems like if he only were to get rid of therapists and consolidate housekeeper and babysitters into one live in, he'll have more money left every month than most people live in. He doesn't even need to cut anything else. Also, the article doesn't mention his wife's salary. If she doesn't work, then why do they need a housekeeper and babysitters for? Help to clean a 1000 sq ft apartment?

[Harm]

One of the best finance books I ever read was "Getting By on 100,000
a Year" by Andrew Tobias ("The Only Financial Guide You'll Ever Need").
The book was published in 1980, and is a collection of stories,
of which the book's title is one. It's also about a guy living in NYC,
who also has a place in the Hamptons, and can't control his spending, and is
generally clueless (occasional cocaine use, LoL).

[Tyler]

I love how a bunch of people who have no idea what they are talking about are commenting on this post.

First, lets be clear- ITS NOT $1mm. Its $500k. $500k is in 5 year vesting stock. Employees at LEH and BSC had a lot of stock that most of you apparently would have claimed as income.

$1.4 mm for a Manhattan condo? Must be a small place.

The guy apparently needs a therapist and a couples therapist- sounds like a cost of aquiring that income.

Send your kids to a public school in Manhattan? Yeah right.

Move? Nope. Not an option if he wants to continue along that career.

$50k for a summer home upgrade? That might get you a 3 bedroom off a busy street.

Takes money to make money- part of the reason he earns $500k in a performance based bonus is because he spends money. To be in the game costs money. To earn that income costs money.

[kitty]

@Tyler - I think you should read the article. Yes, 1.4M is a small place, it's only 1000 feet. Sure, moving is not an option because this is where the job it. This is fine. But:

1. Is a summer rental in Hamptons a necessity? How about giving it up and maybe figuring out some cheaper vacations e.g. in Catskills. It seems if you are making 500K and live in Manhattan, Hamptons rental is not for you. Hampton's rental is for people who make a lot more money.

2. These people have $7000 left after expenses every months but before the housekeeper and babysitters. This is more than what most families make. OK, so he needs a therapist because he works so hard. How about his NON-WORKING wife who can't be bothered with housekeeping and childcare? Does she need a therapist too? They have 3 therapists for 2 people one of whom is not working.

3. How much housekeeping does a 1000 sq feet apartment require? Could his NON-WORKING wife do it herself?

It seems to me that if they were to leave everything as is and only save on type of things that a non-working wife can be reasonably expected to do herself, they'd be well within their budget. Who knows, maybe her mental health would be better too and she'd not need a therapist or a couple therapist.

Incidentally, I live in Westchester county, NY, about an hour from Manhattan, so yes, I do know about prices in Manhattan.

[jim]

"$50k for a summer home upgrade? That might get you a 3 bedroom off a busy street. "

So are we all supposed to now feel sorry that their Hamptons beach retreat isn't large enough or something?? Basically that defense is just pointing out that hes not even getting a good vacation for all that money.

Sorry but spending $50k on a summer house is still $50k. Thats about what MOST people take home in a year.

Whining about it doesn't make anyone feel sorry for him.

[Tyler]

So Kitty, what makes you think I didnt read the article? Did you? Where does it say his wife doesnt work? (From what I can read its says nothing about his wife working or not working.)

I think it would be hard to have a quality lifestyle on 500k per year in NYC.

What costs 10k a year in Maine costs 100k in the Hamptons. Most of you take your cost of living and apply it to a place that is very expensive. The cost of living adjustments dont even come close when you want a similar quality of life for yourself and your family.

You couldnt get me to move to Manhattan for that compensation.

Jim- he didnt write about it. His friend who had the conversation with him wrote about it. He wasnt asking for someone like you to feel sorry for him. I bet he'd feel sorry for you if you asked him.

I think the point that people seem to be missing is that $500k doesnt go as far as people who make it thought before they made it. Many say " well if i made 500k id do abc or have xyz" and it doesnt work that way. Make 500k in Manhattan, and live the life that allowed you to make that 500k, and I am pretty sure most of you wont be able to live the way you think you can.

Make 500k, live in Manhattan with your family, then judge. Make 75k, live in MN and judge? No thanks.

Could this person not have the cleaner, the vacation rental, the private schools? Sure. He could also eat Wonder Bread and rice for every meal.

[kitty]

Tyler - the article always talks about his income, then refers to it as the total income of the family. If the wife had been working then her income would have been factored in. So saying that she doesn't work is a reasonable assumption. If she works but makes so little that it doesn't make a difference, then maybe it's not worth for her to work and she needs to do her own housekeeping instead? If she has high enough salary to matter than he has more than 500K.

I live near NYC in an expensive area (though not nearly as expensive as Manhattan), I also have friends in NYC. Neither of them makes anywhere close to 500K, but they live either in the burrows (e.g. Bronx) or Washington Heights (Northern part of Manhattan, North of Harlem). But I agree with you on that if his job requires him to maintain certain status by say not moving to Washington Heights or one of the Burrows, and his work hours are too long to consider commuting from NJ or Westchester, than 500K isn't that much. Not enough to afford high lifestyle of the rich and famous. Especially, as I'd imagine his work requires him to dress expensively.

The problem is - he is treating it like it is enough for the high lifestyle. A rental in Hamptons is a luxury that someone earning 500K and living in Manhattan can't afford. There are cheaper ways to take vacation like say Adirondacks. A housekeeper for a 1000 sq feet apartment is a luxury. Again, it's the question of whether or not his wife works. If she doesn't, she really shouldn't be living the high lifestyle of a socialite wife and cook and clean. Do they really need 3 therapists? What kind of personal problems they have that requires 3 therapists?

If you look at what the article says, leaving everything as is and just ditching the household help and the therapists would give him extra $7000 a month extra. Not bad.

In all fairness, we don't even know if the story is true. It's all hearsay, but if we are to discuss the article, we have to take it at face value; otherwise, there is no point of discussing it.

BTW - you probably noticed that I do understand that 500K don't go that far in Manhattan. It's nice, it's more than all of my NYC friends have, but it's not enough to count among the "rich and famous". BTW - a daughter of a friend of mine is a cardiologist/surgeon, her husband is an ophtalmologist. I don't know how much they make, but I'd imagine it's a little under 500K, maybe more like 300K. But being young doctors a few years past residency and fellowship in their field, they have lots of student loans - she went to Harvard Medical School. They also own an 800K house in NJ right across the bridge from Manhattan where both work. They have 3 young kids - being a doctor and knowing all about risks of late births, she had two of the three while still in residency, and I believe they might be in private schools too. They have a live-in nanny for both childcare and housekeeping. No therapists though. They don't live high lifestyle and don't have much left after the bills, but they still live in budget and do manage to save a little and go on nice vacation once in a while.

[M&M]

How is 1000 sq ft small?!?! I live with 2 other adults in a 1 bed, 1 bath (with a half finished basement) that comes to 800 sq ft total(600 ground floor, 200 basement).

I would absolutely love to see what would happen if you took two people in completely opposite income ranges and lifestyles and switched them. After all they say to truly understand another person you should walk a mile in their shoes.

[BD]

@ M&M: So go rent the movie "Trading Places" with Dan Akroyd and Eddie Murphy. It's exactly about "two people with opposite income ranges and lifestyles being switched". Hilarity ensues! :D

[Aaron]

"Could this person not have the cleaner, the vacation rental, the private schools? Sure. He could also eat Wonder Bread and rice for every meal."

So if I can't buy a BMW, then I might as well live in a cardboard box? Good to know.

[Goner]

One million is the new $100K. Thanks Ben!