How to Earn $100k and Still Feel Poor

Here's another piece (this time from Yahoo) from a person who makes a $100k annual income and says it's not all it's crackled up to be. This one isn't as outrageous as our last guy (who couldn't make it on $350k a year), but the mere fact that "makes $100k" and "feels poor" is even in the same conversation is strange.

Here's a brief summary of their financial situation:

• The couple purchased a house at the height of the boom, before the housing bust. It doesn't seem like they stretched too far to buy it (it was a $183k house, owe $1,200 a month on the mortgage, and have enough to pay $250 extra on it each month), but they are left paying for a home worth far less today than what they paid for it.


• They have two kids in college. This is a financial killer and from what I'd guess, the main source of why things feel tight for them. They probably make enough not to qualify for aid but not so much that it's easy to afford college. And if they didn't save up in advance (I don't know if they did or didn't) then this puts them in a tough spot.


• Other expenses: $500 a month on gasoline and $1,000 a month on food. $350 a month for utilities, $300 for car insurance, $175 for Internet, cable and phone. $300 on a car loan. No other debt. Save 10 percent of income for retirement. $15k per year on college costs -- just for a community college -- which will soon more than double. Then there are taxes, of course.

So here's a rough annual budget for them:

• Income: $100,000


• Taxes (federal, no state income tax in Florida, and real estate): $20,000 (guess, they just say it is "high")


• Mortgage (including extra $250 per month): $17,664


• College costs: $15,000


• Food: $12,000


• Retirement Savings: $10,000


• Gasoline: $6,000


• All others noted above: $13,500

Amount left over for all other spending: $5,836

They have less than $6k left over to spend on clothing, vacations, eating out, gifts, giving, house repairs, and on and on. I can see how it feels tight. I'm not sure what they are going to do when the college costs double...

That said, the question she poses seems outrageous. She asks, "Is six figures the new minimum wage?" The vast majority of Americans would laugh at this thought.

But things are tight. Sure they could do this or that, but there doesn't seem to be much wiggle room in their budget. But how CAN'T there be wiggle room? So many people make so much less than this (the average income is HALF what they make) and somehow they make it. What gives?

What would you do in their situation? Do you think they have plenty coming in and that it's just an expense problem or is it honestly hard to make it on $100k these days? Let me know your thoughts.

Comments

[Aaron]

Covering their child's college costs them more than food, more than retirement and almost as much as their mortgage. Asking the person who is actually getting the education to come up with $7,500 per year isn't asking too much imho.

My parents were in a similar "too much for financial aid, too little to pay for college" situation so they simply turned to me and said "if you want it, figure out a way to make it happen". This meant working - in particular looking for jobs that had tuition reimbursement as a benefit. It also meant that I took school seriously and looked for ways to maximize its value to me. Now I'm planning to take the same route with my children. I simply don't understand the mentality of giving education to your kids for free.

[Oliver Roe]

I rarely comment on these things but I actually have something to say: get rid of that $15k college spend.

You as a parent are under no obligation to pay for your kids' college. Merit based scholarships are available, as are federal student loans (in the student's name). If the student does not have the academic chops to get merit scholarships and he/she doesn't qualify for government loans, private loans are an option (though an expensive one). This is how I paid for school, and it works. Also, make the kid get a job - that really helps defray the school cost (community college can actually be paid for entirely by the right student job) and gives valuable resume-building experience.

[Nick]

Yeah, I see college costs and the big one here. What about the kid working through college? Waiting tables can cover $15,000 in college costs and still leave plenty of time to study. I'd tell junior to get a gig before I'd complain on Yahoo that $100,000 isn't enough, especially when (after taxes) you're talking about 17% of your money going to that.

Also, my guess is there's a $30,000 truck involved in order to get to that gas bill. At $3.50 per gallon you're talking about over 1700 gallons per year. Assume 20,000 miles (which is very high) you're talking about 11.67 miles per gallon. If you're only driving 15,000 miles then you're getting less than 9 miles per gallon.

So my guess is they could sell their $30,000 truck, get a $15,000 car that gets at least 30 MPG, pay for one year of college with "the change" and cut their gas bill to less than $2500.

Unless my math is wrong or I'm missing something.

[Nick]

Just went over to Yahoo - Looks like this is also a problem:

We bought a new car this past year so our son could earn money for college delivering pizzas. He may need to borrow money for grad school.

New car to destroy delivering pizza? Wow.

Expenses: Our fixed expenses include ... 175 for Internet, cable and phone. and $300 on a car loan.

Seriously? 175 for internet cable and phone. That's a bit high if you're complaining that 100,000 is the new minimum wage... And a 300/mo car loan? I hope that's not for junior's pizza gig.

[KJ]

Their food budget seems high even with two teenage boys. When I was still at home (several years ago) my mothers food budget was around 800 a month and there were 6 of us total. Car loan - could they sell it and purchase a cheaper vehicle. Children's education - have the children take on this burden. Then down the road they could help repay this when able. It seems like they did save some for college expenses but lost a bunch in the market. Once the kids are no longer living at home, I'd recommend selling the home and renting a much smaller place. As long as they can make the payments, the house being underwater is only a problem if they're wanting to sell it. They could always cut education expenses now to have money to bring to the table when selling.

I'm sorry they feel squeezed, but the are paying their bills and saving. That is NOT poor. I think the big problem is their perception of what they dreamed 100k salary would buy them. The dream wasn't based in reality and now they're unhappy. I also thing their perception of what it means to be truly poor is very skewed.

Personally, we are a single income family making around 50k a year. We have a toddler and are saving towards his education. We have two vehicles. We rent our current 3 bedroom house. We go on nice vacations and still save 20% of gross income for retirement. we have basic cell phones, the low end satellite package, and high speed internet. We occasionally eat out but normally enjoy great food cooked at home. I do not consider us poor. Would it be great if we had more income to spend on fun things? Always. But we are in no way poor. I'll also add that we live in the Pacific Northwest.

[Susan]

I have to laugh at the audacity of "is six figures the new minimum wage?" These people need a reality check.

[Young Professional Finances]

I really don't like that they said they bought a new car for their son and are still complaining about this. With that said, I can see how things are tight for them. I actually don't think 100K is that much money for a family with 2 kids. Yes, people survive on less and yes, I don't think they can say they feel "poor" but I can understand it being tight.

As far as having your kids pay for college, some parents just want to be able to handle that for my kids. I was lucky enough that my parents told me to just focus on school and don't worry about getting a job - they just wanted me to do the best I could. I want to be able to do that for my kids also (of course, still teaching them the value of a dollar).

So while I don't think they can say they "feel poor", I can see how 100K with two kids in college still makes things tight.

[Old Limey]

Pretty soon a lot of families will be forced to tell their children that going to college is not a God given right or written into our constitution.

That's what happened to me. My father was a fireman and in 1950 married women with children in England seldom worked. Money was tight and I used to hear my parents discussing whether or not they could afford to have my shoes repaired this month or whether my sister got the winter's coat that she needed. They also rented their whole life.

Like many others of my generation I have never spent a single day as a full time university student and yet I have the British equivalent of a BS in engineering and also an MS in engineering, both obtained part time. The BS came while I was living with my parents as an apprentice and handing over half my wages to my mother, and the MS came after I was married, living in the USA, had a full time job and two children.

Today's families have been brainwashed to expect that a wonderful life is a God given right. Travel the word like we have done and you will see that it certainly isn't the case everywhere. Bright, hard working, conscientious young men and women can find a way to succeed in the world even when their parents don't have the money to spoonfeed them. Where there's a will, there's a way, but it comes with a lot of hard work and a lot of scarifice.

Sometimes I think it's better to be born into a working class family where money is tight, it forces you to be thrifty, appreciate what you have, and it makes you work much harder to attain your goals.

[Des]

I think the problem is the perception that $100k is more than it really is. When these people think of $100k salary, they imagine they can just pay for college for two kids, drive and eat whatever they want, etc. But $100k isn't infinite, and it still needs to be budgeted to get the most value out of it. The sentiment is also expressed by commentors that see these folk's $100k salary and think "They're rich! They need a reality check." They're not rich, not nowadays. They are well off, middle class, but not rich. They can't spend as if they are.

[StLouisKaren]

First I'd like to say "Great Job" on getting the boys to go to community college for the first two years of their college education. It makes great sense to get the basics out of the way at a lower cost! But I'm wondering why their tuition is so high. I'm going to our local community college and a full semester course load - 18 hours - is only $1584.00, plus books. Are they not living in the college's district? And if not, why didn't they go to their own district school?

Second, I think the grocery budget is out of control! She needs to find an Aldi or similar store to shop at for their basic groceries.

[ranch111]

I make approx. half of that, have two small children and my wife stays at home, but after core expenses have 16K left over per year. It's just a plain old money management problem. The problem is this guy can't manage money. The other thing I'm doing is investing NOW for college. We also are in a good position on our retirement funding.

The secret is no debt besides mortgage, start saving early and often, live on less than you make. Pound that into people's heads long enough and it might sink in, but I doubt it. We are a special breed.

[Karyl]

Gosh, their expenses seem really high, and I’ve lived in Arlington, VA where money was super tight and we made things work. IMHO here’s how they could save if they spent like my family:

1)I’ve read in a guideline that a family of 4 can spend $125 a week on food. It’s been hard for me, so I try for $600 a week, =7200 a year. Savings: $4800
2)We’ve always bought used Hondas, one cost us $7600 and the 2nd one after we totaled that one cost us $11,000. Theoretical savings: $14,800
3)With said type of cars, our monthly gas bill is: 180 a month=2160 a year. Theoretical savings: $ 3,840
4)If they can sign up with USAA, insurance costs will go down also. We spend about $184.58 a year. Savings=$115
5)When things were really tight, we did without internet and cable. HDTV was good enough, and we used our local Starbucks or library for wifi access. Phone only cost about $27 a month. Savings: $148 a month or $ 1776 a year
Theoretical savings with the way we spend: $25,331 per year. My husband and I also got through college through merit and work scholarships. They could also cut their college expenses that way. Just sayin……..if they didn’t have college costs and spent like us, they can free up a total of $40,331 a year. Easier said than done, but totally doable.

[jim]

I wrote about this one myself when it first came out. The "Is six figures the new minimum wage?" line from her warrants a reality slap.

Frankly this family has virtually nothing to complain about... nothing. No hardships I can see. They aren't lacking for anything. new car, nice house, full paid college, adequate retirement savings, etc.

$100k is upper middle class. What they choose to spend it on is their problem.

They save $13k a year between retirement and paying extra on the house. Not poor.

They are spending $15000 a year to send their 2 kids to community college. Plus she says one son contributes $5000 a year. That makes no sense to me. Community college doesn't cost $10k a year. (they're in florida and I checked rates there). Maybe she mispoke and they are not going to community or maybe she's sending them to some sort of private junior college.

They bought a 'new' car so her kid could deliver pizza. thats the source of the $300 monthly payment. I'm sorry but thats just not a good move. Buy your son a beater and save $3600 a year.

Their IRS bill would be maximum $10,650 plus another $5650 for ss/medicare. Combined thats $16,300. But that doesn't count any deductions or credits. Since they are spending $15k a year on tuition + books they should qualify for the American Opportunity Tax credit to get a $2500 tax break. That brinks their max tax bill own to $13,800.

Some of their other bills could undoubtedly be trimmed. Personally I think $1000 a month on food for 4 people is pretty high. Its not abnormal but its not frugal either.
I think the $500 in gas is likely due to 2+ adult drivers. $500/month would equate to 30k miles a year at 20 MPG.

[Mark]

I do think these folks have a perception problem. Buying a new car so your son can deliver pizzas? Ridiculous!

At the same time, this idea that kids can easily cover their college costs with part time jobs is a joke. Tuition inflation has far exceeded the general rate of inflation. Old Limey, you are out of touch. IT'S NOT 1950 ANY MORE! It's not that college is a God given right, folks....it's that today's young are effectively forced into going to college if they don't want to live in poverty or semi-poverty for the rest of their lives. Sure there are some jobs that pay well that don't require college degrees. But let's be honest....there are a lot fewer of them today than there were 10, 20, 30, or 50 years ago. That said, the kids could be asked to pick up some of the tuition tab.

[Matt]

The gas usage sounds excessive but everything else is about the right area. They probably could cut some areas but $100k is what you need to run that sort of household with those type of expenses. So what can they do?

Where can the cut spending?(gas,car,food)
Where can they make more income?( who does not have a job in the household? wife?, kids?)

I am in a silimar boat with expenses but wifey and I both have jobs and we feel comfortable with our lifestyle.

[John Z]

I'll say the same thing others have said...$1,000 a month on groceries? Are you kidding? We're averaging around $600 a month and dine out once a week and get take out about once a week for dinner. My wife and I each buy lunch (subsidized at my work place) a few times a week. Granted, we have two small children. However, we throw out very little in the way of food..I regularly take left-overs to work for lunch or we eat them for another dinner (since my wife works and doesn't cook every day).

Was this family also featured in a TV piece? My wife said she saw something on TV about a family spending $1000 a month on food but the wife would throw out all the food in the frig before the next shopping trip.

[Bad_Brad]

A bunch of things here:

* No one is holding a gun to their head saying that they have to pay $250 a month extra on their mortgage. It may be a prudent move to pay off that debt more quickly but it is not required. There's $3,000 per year in liquidity right there.

* No one held a gun to their head and said they had to buy a house in a location where they would have to spend $500 per month on gasoline. Egads! I live in an area of the country where gas is more expensive than that and my wife and I spend about $100 per month. They must commute at least 30 or 40 miles each way to and from work. Now, they can't physically move their house, and relocating to a place closer might not be feasible. But they could either look into telecommuting one or more days per week, and/or getting a vehicle that gets better mileage like a hybrid, and/or take public transit.

* I call shenanigans on $1,000 per month in groceries for two people. Unless they are buying only super-high priced organic stuff and tons of expensive meat and wine and so forth. The wife and I feed a family of five on about $750 per month. There MUST be room to cut here.

* $300 per month for car insurance is ridiculous. I pay less than $500 every six months for full coverage on two vehicles - which is less than $100 per month. Do they have really horrible driving records, or really expensive cars, or both?

* $175 per month for internet, cable, and phone - they should look into savings here. They might be able to reduce their cable package, or drop some useless phone options that they're being nickel/dimed for. Or there might be some bundle and/or combination of services that would save them money every month. I bundle all three of these with one company and pay a little over $100 per month. $175 seems high.

* On college costs, have they looked into scholarship opportunities? They might be surprised at what's out there. I got a $500 per semester scholarship years ago for being a paper delivery boy for my local newspaper when I was a kid. I wouldn't have even known about it if I didn't do some research. They should look into it. There are all sorts of random scholarships out there.

[Mert]

They are spending a lot. Period.

$1000/month for food? Come on. And, why are their children not getting loans? And I find $500 on gas and $300 on auto insurance pretty high.

Cut just $300/mo from food, $200/mo from insurance and gas, and get $10k of loan each year, they will have an extra of $16k. That makes one extra mortgage payment each month! And i did not even tell them to cancel the cable (which I dont have), to eat really fugal (which we do all the time) etc.

Good Lord, people's perceptions, that's pretty awesome.

[Nathan]

OK, granted, no one making $100K/yr is struggling. But putting things in perspective, let's consider some things.

Let's say I make $50K one year, and find a higher paying job the next year, $100K. But...

1. $50K means about $3600/mo after taxes. $100K means $6800/mo after taxes. Even though their salary doubled, $400 extra gets taken for taxes.

2. Typically, people earning a certain salary dream about what they would do if they had more. This usually includes buying a house that they believe they could grow into. The logic seems very sound, when you're thinking it through. We can afford it now, and 5% annual appreciation means more equity in a more expensive house.

3. Yes, people get by on an average salary. But they also don't save. When you get more income, it can be frustrating because you don't see your lifestyle changing all that much. That extra $3000 gets sucked up into college savings, emergency savings, retirement savings, project savings, etc. It really can seem like you're "barely getting by" like the rest of America, until you realize how little they are able to save.

4. Other things that people would call "luxuries" add up, too. Private school, if you can afford it, is hard to say no to, especially considering the quality of education in public schools.

5. Gas prices affect everyone who drives. If their new job is further away from their house, that can cut into any income increase, too.

Just remember this ... people judge their financial situation by the amount of disposable income they might have at the end of the month. It really doesn't matter what a person actually makes. Being responsible (saving, private school, etc.) eats into that income, and makes the bottom line seem less sunny.

If a person only has a couple hundred dollars left over at the end of the month, and something bad happens (loss of income, new roof, etc.), they feel the same squeeze as middle income families. It may not seem like it, but the prospect of cutting your retirement savings, or pulling your kids out of a great school ... it sucks. You can tell them to quit complaining because their situation isn't as bad as yours, but it won't matter. They hurt just like you do.

[Mark]

For many people, whatever they earn seems merely average and many of us are convinced that anyone earning double the amount we make has it easy.

I think there is also a perception that $100K is a huge amount of money which should allow one to "do anything" and "live well". So really what these people have discovered is that even with $100K, it is not possible to do and have everything. But maybe at $200K, ... or $500K ...

Too often, the expenses expand to fill the available income - and sometimes a little more!

Sometimes I look at my own expenses and wonder how I ever grew them so high. I spend only 50% of my gross income, so I am far from struggling - but even that is 5 times what I spent 10 years ago.

Then I notice that I drive a newer vehicle, live in a more expensive neighborhood, pay somebody else to do the yardwork, eat at more expensive restaurants, buy clothing in department stores, etc., etc.

[retirebyforty]

If they are feeling the pressure, there are a few things I would do.
- They are paying a lot of money for transportation. See if they can get rid of the car loan. Perhaps trade it in for a used car OR just share one car.
- They can move closer to one of their work. This will reduce their mortgage and transportation bill at the same time.

If it was me, I would still pay for college and encourage the kids to help out with some part time work. I think paying for college is worth it.

[Kemosite]

I make about half $100K per year.

With that, after the bills we pay for housing, utility, etc. for our family of 5, we have exactly no money left over in the budget for kids education, retirement, or discretionary purchases and opportunities to go out for entertainment or dining out. These are extra, if some money to enjoys these opportunities presents itself.

If these items were removed from the budget of someone making $100K, I'm sure they would feel much less of a pinch.

[SavvyFinancialLatina]

Hmm...My parents both made about 33K a year. I have a little brother, and they still managed to saved about 5K a year. Granted we did not have a lot of luxuries, if any. But I have seen people who are poorer than us. My parents lifestyle taught me to appreciate money. I did not go to a private school. Public education sucks, but I will make up for it by going to the public library and checking out books to read. I would read about 1-2 books a day from ages 8 to 18. This family could probably downsize their house, their cars, and their food budget, and they would have so much more liquid cash.

[Elle]

If you read the actual article, she is expressing that she doesn't feel rich. There is a difference.

Feeling poor would be not having those discretionary funds for things like cable, internet and phone (which may or may not be necessities). Feeling rich is to "sip Mai Tai cocktails at a resort", "buy pricey tech toys", and "have money to burn," in the author's own words.

They 'feel poor' because their net worth is lower than they expected it to be at their age. They 'feel poor' because they only have a few thousand dollars a year for discretionary spending.

BUT, they are 'rich' because they are pre-paying their mortgage to stay above water. They are 'rich' because they CHOOSE to help their boys attend college without incurring student loan debt. They are 'rich' because they save 10% of their income for retirement. They are 'rich' because they didn't fall into the debt trap.

This article isn't meant to be whiny. It is meant to say hey, this is reality. $100k is not as much money as I imagined it to be. Yes, they could cut out the college expenses and kick the kids out of the house (or make them pay rent), but then they would not be living their values-stay out of debt, help out the kids, teach the kids good financial behaviors.

[Apex]

@Mark

You said: Old Limey, you are out of touch. IT'S NOT 1950 ANY MORE! It's not that college is a God given right, folks....it's that today's young are effectively forced into going to college if they don't want to live in poverty or semi-poverty for the rest of their lives.

You have regurgitated the baloney that is being spoon fed to every potential student these days. Many people are getting degrees in fields for which they will never find employment. More people are going to college now than ever and some of them have been tricked that college is the path to good jobs with good wages. That is a drastic over-simplification which is true for some and definitely not true for others. One thing it is for many is a path to decades of debt for which they will never find a job that can adequately compensate them for the cost and debt they still carry to get that degree.

Far too many people believe the key is going to college. This is as true as the statement that the key to flying is having wings. It depends on what kind of wings and how you use them. The key is not going to college, it is getting a degree that will be in demand and valued enough to compensate you for the cost of getting it. Ever hear a high school student talk about what they will major in by using those kinds of ROI terms? They don't even realize they should think like that.

There are plenty of paths that don't have to involve a university. Many of those going to university have chosen degree that will not be worth the cost.

So I agree completely with Old Limey. College is not a God given right. People are not forced to go to college to live above the poverty line. Many who go to college and get a degree, will still find themselves living in near poverty for decades because college is not the magic elixir that you seem to imply it is.

[Catherine]

I want to add to comments by Limey & Apex.

While I would always encourage education, I don't agree with the push for young people to head to college straight out of high school. Most people who go into college around age 18 will NOT finish a bachelors in four years. Not only is it not for everybody, it isn't even for the majority who think it is. The college keeps you money, regardless of how worthwhile your experience was or how prepared you are to attend.

In my own family, my father went to school after finishing a tour of service in the Navy. Our mother's parents funded her education by renting out rooms in their home. Among my eight siblings who went to college, only one went straight from highschool and finished in four years. The rest of us took a gap year or two to earn the money or attended less than full time some years.

The spending is out of control for this family.

[Apex]

@Catherine,

For many students a gap year or two would be very helpful. Go out and find out what it is to get a low skill job. Then decide if you want something better or want to work your way up through OJT. If you decide you want to get an education, you are more likely to be more purposeful about it than the typical path now which as echoed by Mark's claims is just go to college and that gets me out of poverty. Not true.

And as you have said there are many paths for which college is a very good choice and for a number of people that is clear from the day they graduate high school. I would guess that is no more than half the people who are currently attending. The other half, have subscribed to Mark's theory and many of them will be sorely disappointed.

[Kurt @ Money Counselor]

This accounting makes it easy to see why middle class and lower families (and I'd call this example family upper middle class) can't pay for college without taking on significant debt.

In my opinion, their food and gasoline costs are excessive by about 1/3rd. But without details on their commute and type of vehicle(s), hard to judge about the gas. Some might question the wisdom of the extra mortgage payments during these college years, depending on their rate.

The reality is that while the kids are in college, spending on vacations, home improvements, etc. must necessarily be restrained. Paying cash for higher education would make many relatively high-earning families feel "poor." It's expensive, period!

[Old Limey]

Well for once I'm happy that Apex agrees with me. One of the reasons that young people feel the need to get a college degree is that the USA has lost many of its former great industries that used to employ a great deal of highly paid union workers. As a Democrat I was surprised that Bill Clinton pushed so hard for NAFTA and seemed to believe that we could replace heavy industries with Hi-Tech. While our Hi-Tech is the best in the world, it doesn't have its products made here at home. Apple didn't become the most valuable company by employing lots of production workers here in Silicon Valley, those jobs all went to FoxConn in China. Many of the Hi-Tech workers also aren't home grown, they come from India and other places with H1B visas courtesy of the US government. I have met many young people in my grandchildren's age bracket that go to college, a lot haven't a clue what they want to be, and they bitch and moan a lot about having to compete with very smart Asian students that study a lot rather than leading the active social life that they do. As Apex said, they do seem to think any degree will do which turns out to not be too valuable these days if it's in pyschology, business, marketing or economics where the supply is a lot greater than the demand.

I'll tell you how you become rich if you're very smart. You go to Stanford University, become pals with a fellow student and form a company called Instagram that currently has 13 employees. You then sell your company to FaceBook for 1 Billion dollars. The founder, Kevin Systrom, has a degree in Management, Science, & Engineering. The co-founder, Mike Kreiger, has a degree in Human - Computer Interaction. Stanford University and the University of California at Berkeley have been the incubators for quite a few of the most successful companies in Silicon Valley.

[jim]

Elle said : 'If you read the actual article, she is expressing that she doesn't feel rich. There is a difference.'

I see your point. Theres a big difference between thinking your poor and not feeling rich.

However the title of the article is "How to Earn $100,000 and Still Feel Poor" So apparently she feels "poor" (or maybe allowed an editor to title the article contrary to her feelings?)

Plus she did equate making $100k to "the new minimum wage" which I don't think is a lot closer to "feeling poor" than "not being rich". Thats just unrealistic and whiny.

[MC]

Well this article is no surprise.

$100K annual income for a typical family of 4 does not mean that they are rich--it just means that they are doing OK: that they can probably manage most of the elements of the american dream middle class life if they are careful: to have healthcare available, to buy a reasonably priced home & a car or two, and they can help their kids attend a reasonably-priced college & also save a little bit for retirement.

No, they can't afford luxury vacations, expensive home furnishings or expensive hobbies.

If they feel "pinched" I think they need to ask themselves what else are they wanting, and then adjust their spending to get it.

What they don't need is more money just to spend thoughtlessly so they don't feel so poor. Instead they should spend less & save it for particular goals.

For example, I think they should save at least twice as much as they currently do for retirement. Because they're saving for 2 adults, not 1--and that retirement fund might have to be split in half should they divorce sometime in the coming years (yes it is very common). Since they have kids in college these people are at least in their 40's---unless they have a HUGE pile of money in retirement accounts already they should be saving at least $10,000 EACH per year, or more.

Or they might want to save up for a larger emergency fund. They might also prefer to save for a once in a lifetime trip, or for their children's weddings.

How to do it?

I imagine that "food" bill must include eating out, since at least $300 higher/month than what groceries could possibly cost. So, maybe they could just eat out less frequently and save up to $3600/year?

I also agree with the recommendations up-thread: they spend way too much on cars. Sell the gas guzzler & buy a cheaper, more fuel efficient car instead. Sell the kid's car and tell him to use what he's earned so far on his pizza job to buy a junker.

I also agree that the kids need to have jobs and they need to use that money to help pay for their college costs.

I also agree with: think about selling the big house and downsizing when your kids move out.

[jim]

Catherine said: "Most people who go into college around age 18 will NOT finish a bachelors in four years."

That is correct. Most students don't finish in 4.
However most students DO finish within 5-6 years. 6 year graduation rate is about 64% at nonprofit schools and much lower 22% at for-profits. (yes thats still a lot who drop out) The reality is that many students end up taking longer due to changing majors, poor planning or life events outside their control or what have you.

Still, I do agree with your point that many 18 year old kids aren't quite ready for college and might do better if they wait some.

[jim]

BTW, even after 6 years there area about 14% of students still enrolled trying to get their BS. So within 6 years that means 64% get a degree, 14% are still working on it and 20% have dropped out.

Interestingly to me the drop out rate is MUCH higher for students who were older when they started school.

For students who were 18 when they enrolledd the drop out rate was 16.6% but for 19 year old freshmen the drop out rate was 26%. For students who start school after age 30 the drop out rate was 56%.

Apparently waiting a year or more before you start college does NOT result in higher completion rates and in fact the older students drop out more.

ref :
http://nces.ed.gov/programs/digest/d10/tables/dt10_343.asp

[Steve]

"I’d feel a lot richer if I could take the $183,000 we spent seven years ago and buy a home twice the size today in a better neighborhood"

Sums it up to me. If they made $150K/year they'd have a bigger home and otherwise identical finances.

[Mark]

@Apex & Old Limey. You both talk as if college degrees aren't that important, but you both have them. Old Limey points out that regardless of which party is in office, jobs, even better paying ones are easily outsourced or automated away. But I think you guys are guilty of selective reading as I DID say that the kids should be required to pay for some of their own tuition/expenses.

I totally get what people are saying about liberal arts and other non-marketable degrees. People definitely DO need to be more aware that some degress will do very little for them in the work world. But at the same time, lets not kid ourselves. It's an undisputed fact that college is A LOT MORE expensive than it used to be. And where are these mythical good paying jobs for those who don't graduate from college? Yes, there are a few, but not that many.

I personally feel sorry for today's young folks. They are getting dumped on in many ways. They're not going to get the Social Security or workplace pension benefits their parents have. They're paying more in tuition and student loans than their parents did (adjusted for inflation) and yet a lot of folks seem to think they're spoiled. Maybe they are in the short run, but the rude awakening is coming.

[DCS]

It actually does say they saved for college and that the money is in securities they are hoping will appreciate to help pay for their sons' university education.

I also suspect their gas cost is high because they are most likely paying for gas for the son delivering pizzas. I hope therefore that their $300 for car payments aren't all for the "new" car he's using to make those deliveries. If they actually bought a $300/mo. Car so he can contribute $5000/year for college then he's not really providing anywhere near that much. Take away $3600 and you he's really putting $1400/yr net towards college. Add in the gas and I wouldn't be surprised if it was COSTING them money to have him work.

Hopefully that's not the case. I have to assume that car payment figure is for multiple cars and the son's car is new to him, not brand new. Then his hard work is at least helping to some extent.

[Luis]

I think the whole family needs to prepare for college both financially and psychologically. I think it is then proper order to go to college after high school. Reading pf blogs will help kids decide on a major and to be realistic which college they can afford. The alternative for poor planning is the military.

[Ron]

Americans continue to have to pay for more items than prior generations. I base this point on an extreem observation that I made in the 1940 Census. Annual wages for the folks I was looking at was somewhere around $1200, obviously some more and some less. Many of those folks had a rent cost of around $8-$12 while the rest owned a home valued at about the annual wages of $1000. Probably little to no mortgage, no college costs, food was either grown or minimally purchased, taxes were nearly nothing and insurance was non existant. Actually, there was little outside costs beyond the living expenses that a person wanted to spend. It is little wonder that the standard of living in America has risen to such levels since that time. I whole lot more money is needed today just to get to the starting line i.e. insurance, college, retirement, etc. It will be interesting to see what the future holds for generations to follow but I would suggest something has to give at some point.

[Old Limey]

Ron:
The reason "Something has to give" before very long is that our country has been overspending far more than any of its citizens, primarily starting from when George W. Bush took office and the Supreme court took the election away from Al Gore. Our budget deficit is now over $1 trillion and our national debt is $15.6 trillion.

If it wasn't for our position as leader of the free world and that the dollar is the reserve currency of the world we could easily be in the same situation as a few of the European countries. They didn't get there as the result of starting unecessary wars and having a bloated military stationed all over the world but from creating cradle to the grave welfare states. However the results are similar.

[Catherine]

DCS hit the nail on the head. It is costing them a pretty penny to deliver those pizzas.

This family made a series of decisions that are freewheeling, high-spender kind of decisions. Over time, they became aclimated to that level of consumption and now it no longer feels 'rich' or 'special' to them. This tells me they haven't been minding the gap. They are overpaying for their home and they are overpaying for food. If they reign in these expenses, they can create a bigger gap and feel a little richer.

I earn 6 figures. My spouse and I drive cars that are 12 and 13 years old respectively, and we have no intention of replacing them for several more years. We limit ourselves to one tankful of fuel in each vehicle per month. We live in the NY Metro area, which is far more expensive than Tampa. I lost my job in the 2008 financial debacle that bankrupted my employer, took my health insurance and any hope of ever collecting a pension. We feel rich. And we felt rich all the way through a 13 month bought of unemployment because we had maintaned a very large gap between income and expenses in the preceding decade.

We faced not just the job loss, but health issues that prevent my spouse from regular work. He's in the difficult place between not well enough to bring in a regular paycheck, but not disabled enough to qualify for benefits. Either or both of these things can (and probably will) happen to every family. Having been through that makes a 'new car to deliver pizza' seem like the most extravagant expense in the world.

[Apex]

@Mark

I said "there are many paths for which college is a very good choice"

As a degree holder who has benefited from that degree I obviously think it has value. However not all degrees are created equal and neither are all students. In addition there is a cost to obtain that degree and sometimes the cost is very high compared to the value the degree offers.

What I and I think Old Limey are trying to point out is that people are not making a distinction between value and cost when getting a degree. The first mistake is that they assume all degrees have reasonable value and while they may understand some are more valuable than others many believe that any old degree is far more valuable than having no degree. This is not true. Some degrees are hardly worth any value at all and some have a much lower value than the student thinks they do. The second mistake is assuming that the cost to obtain the degree is nearly irrelevant. This problem is partially caused by the belief that was found in your comment where you just have to have a degree or you will be in poverty. I think for a number of people a degree has also become social pressure. Everyone who is anyone gets a degree now a days so not getting one is kind of like dropping out of high school used to be. It means you are a loser, part of the under class, a bum. You can put any label on it you want, but I think that mentality is real. As such, you must get a degree and when the belief that it gets you out of poverty is combined with the social pressure, well, cost is nearly irrelevant at that point.

The problem is these are both merely perceptions and unfortunately perception has no impact on the cold brutal facts of the real world.

Degrees used to be more distinctive and there used to be far less of them. When that was true they were rare, and highly sought after. They told the employer a great deal.

Today there is an over-supply of the number of people who have a degree. They are no longer rare. They are also no longer distinctive in the general sense. Some are but so many watered down degrees have been added in order to allow the pool of degree holders to be expanded that saying you have a degree without further qualification is a nearly meaningless statement.

So it's not that I think college degrees aren't that important. It's that there is no such thing as any statement you can make about college degrees in the aggregate. It's like saying transportation is important. But there are many kinds of transportation, jet, car, bicycle, horse and buggy. If someone offered you transportation from N.Y. to L.A. do you think that statement alone is sufficient to know if it was a valuable offer? A jet would be very valuable, a car reasonably valuable, a horse and buggy or bicycle, pretty much useless.

That's how meaningful it is to say that a college degree is important or valuable. Unfortunately most people believe a college degree is a jet. A lot of them get a horse and buggy. Unfortunately most of them pay for a jet regardless of what they actually get.

[Jen @ Master the Art of Saving]

I couldn't imagine making 100k a year and feeling poor. We make around 40k a year and I don't feel poor, granted I'd like to have more to save, invest and travel. I'm guessing they're living rather extravagantly and could benefit from examining their spending. $1,000 a month for food? OMG, that's more than our rent; our grocery spending for 3 people is around $300 a month and I'm trying to cut that down.

[John]

I make 96K in LOS ANGELES. You have to factor, where are they making the money. I have a very tight budget. I do not have money to pay for braces or a termite spray that I have been putting off. Here in LOS ANGELES 100k is the new minimum wage. I pay 2300K in mortgage alone. God help me.

[Therman]

I love that this topic has garnered such interaction. I have a few thoughts:
1 - My family (2 adults, 3 young kids) earns 100K a year. This is WAY MORE than enough money for us. After we're finished paying off debt, life will be nice. There will be an extra 2k a month of disposable income.

2 - I believe that a job right out of high school trumps college right out of high school ANY DAY. Earn money vs spend money. Goof off and party vs goof off party and have an income. Real life skills vs practical knowledge. Networking opportunities vs low quality networking opportunities. Working also gives you a better understanding of if you like to do something or not.

3 - $1000 a month on food is disgusting.

[Mark]

@Apex. I don't disagree with your assessment of college degrees. But I think you and especially Old Limey came off as awfully breezy about the realistic prospects for those without degrees these days and also about the reality that college is much more expensive than it used to be.

I do think the way college is done needs to change. The costs have reached the point where it's adding less and less value to the taxpayers as well as the students. But realistically, the individual student doesn't have control over the reality that fewer and fewer good paying jobs are available to those without college degrees. That said..I get it. A fair number of people with liberal arts degrees might have been better of if they just started working right after high school or if they got some other kind training.

[Mark]

To those of you who can't imagine feeling poor on 100K, I say that you can feel poor on ANY income. That's simply because expectations can always outpace your income (although I do agree, some people seem to be better at controlling their expectations than others).

To those who say they feel poor on 100K because they live in some expensive place....to an extent I sympathize...but for many it IS possible to move somewhere else or to rent instead of have a mortgage, etc.

In short, the name of the game is controlling expectations. Just about ALL of us think our incomes should go further than they do. It's just human nature. But our incomes are what they are and we either have to find a way to earn more or adjust our expectations accordingly (or both).

[Old Limey]

A lot of the problems seem to come about when people feel a strong need to keep up with the Jones's. My youngest daughter (age 51) divorced her attorney husband in 2008. The culminating factor was the death of her 8 year old daughter from brain cancer. The daughter was the glue that was holding them together. After a couple of years a girlfriend suggested that she take a look at e-harmony online dating. She did, and on the second date she found the perfect match. Knowing him well now my wife and I realize they are made for each other, and to top it off he is an engineering manager at one of the big HiTech companies, and as a man is everything that her ex husband wasn't.
I mention this because he is an example of exactly what this article is all about.

His ex wife was a social climber and big spender and he was too nice to stand up to her. Their home was a gigantic mega mansion in a gated community where he is now stuck with paying $700/month fees for a country club and golf course that he never wanted and $15K in property taxes. The wife had elaborate murals painted throughout which make it very difficult to sell at $1.9M. The three children went to a private school, two are now attending college in another state and the third recently graduated from John Hopkins and her BS in economics finally landed her a job that pays $40K. The wife's parting shot was to take enough money out of their savings to buy herself 2 new BMW's, a sedan, and a convertible.

My very frugal daughter moved in with him about 9 months ago and since she gets a huge amount of alimony in addition to her portfolio, which I have grown from $2M to $2.6M for her, she pays rent and buys the food which works out well. Bottom line - it only takes one social climbing big spender in a marriage, with 3 kids away at college and flying home a few times/year, and driving cars also provided at Dad's expense to end up where you can even feel pinched for money when making $250K.

[Apex]

@Mark,

If I implied that you could easily get a high paying job without college I didn't mean to. It would be tough to get a high paying job without college. There are some (like electrician, plumber, oil rig operator, etc that can pay very well on a trade school degree but most jobs will not.)

My main point was that while mediocre paying jobs are going to be more the norm for people without a college degree, there are now a lot of people going to college to get a degree so they don't have to get a mediocre paying job who will still end up with that exact type of job and 4 earning years will be gone and debt accumulated to get no better of a job. So I am not claiming high paying jobs are not rare without a degree. I am claiming that for a number of people with degrees they are also rare, as rare as if they didn't have a degree at all.

You are right that college is getting way more expensive. I feel that makes my point even stronger. College is now so expensive that you have to make sure it is going to pay off. Many people just assume it is and that is now a very expensive mistake rather than a minor one.

College is great for many people. For people at the margins they think it opens the doors to a better life but for too many of them it may just leave them right where they started in a worse financial position than if they never went. That's the reality that I think very few people realize is possible.

They believe it's a can't lose opportunity. And once people believe something like that, that's when they make very poor choices just like most everyone who ever got taken by a con. Nearly every con has a can't lose opportunity flavor to it somewhere. For too many people, college has become a con. And like all cons, you don't know it until it's too late.

[Kenny]

How much motivation does this family have to save more?

If this is "Super High", then I suggest the following:

1. Figure out more Tax Deductions using an TurboTax
2. Get some Credit Cards to get Gasoline/Other Expense Rewards
3. Reduce the Mortgage Rate on Home via Refinance
4. Reduce Car Loan within the Mortgage Refinance
5. Switch to Smaller Car if possible without ANY new money
6. Turn off Cable TV with a Digital Antenna
7. Turn down the speed on Internet with lower cost choice
8. Cut back on Food Expenses by cooking from scratch
9. Have kids pack lunch bags for their college
10. Reduce Restaurant Meals, or Step Down on Restaurant choices
11. Create Efficiency during Car Travels
12. Have kids do the chores that might be outsourced
13. FOCUS on giving GREAT Education to kids so that they make $200K when they grow up, and BORROW more to give them the needed education < NO COMPROMISES here
14. Increase savings from above and increase contribution to 401(k) which will reduce tax burden
15. Take 'driving vacations' and not 'expensive vacations' while kids are in college
16. Live 'frugally' for another 2-3-4 years until kids are in college - Such is life
17. Send wife to better job if she is working, and if not, send her to work
18. Send kids to work for more hours, until grades do not get affected
19. Reduce all borrowing and refinance with Net-zero costs everytime the broker calls to reduce mortgage by $25
20. Do ALL of the above in 2012 with an ASAP model

WIN-WIN......Tough, but WIN-WIN.

Been there.....Doing Some of This......Have Kids in College......Overcoming Challenges......Switched to Netflix as my TV......Etc.

Kenny

[Steve]

For those arguing that the college spending is too high: I just combed through the FAFSA calculations yesterday. Any income above a certain amount is considered as 47% available for college costs. At $100,000 gross income this family is almost certainly past that threshold. Like taxes, it's bracketed - so passing the threshold doesn't mean that 47% of all their income is expected to be spent on college, just 47% of each incremental dollar. On the other hand, the 47% is expected to come from a combination of present, past (savings), and future (loans) income. In fact, I'm almost surprised the family isn't spending MORE on college costs every year.

For those arguing that the parents should just leave it up to the kids to pay their own way for college: sorry, it just doesn't work like that. The financial aid rules assume the parents are willing and able to pony up their calculated share of the burden, and they make it quite hard to get around that. The only loopholes are things like marriage, active military service, or a documented adversarial (i.e. abusive) relationship.