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August 22, 2014


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$130K is a ton in most of the Midwest outside of CHI and the south outside of ATL / MIA. It's not much on the coasts if you want to own a home. If not, it's sufficient.

An effective tax rate of 24% all in (fed, state, local, property, sales) is not at all bad. Our tax rate's always held steady at about 25% even when gross income was in the mid 400s last year, so that includes all the extra ACA taxes on Medicare. I just don't think that's a killer.

I doubt my wife and I will ever hit that income in our working lives, but for the most part, I feel like we've achieved the American Dream - owning a home with a white picket fence, raising 2 children through college, and hopefully retiring comfortably in a few years. We live in a low cost area in the Northwest, which has helped, but I suspect, like many others who read this site, we have always been careful with our money, and avoided wasting it on things like the latest, greatest gadgets or new cars every couple of years, or attempting to be stylish and keep up with the Joneses.

My family makes about $130k (we live in northwest Florida) and I've made a few comments to my husband about how privileged we are to enjoy such an idyllic life. Also, it's easy to spen $1000 on food when you eat out regularly as well.

$130k not only puts you near the top of American income, but in the top .5% (maybe even higher) of global income. So I'd argue that it's definitely a "dream", when you're making more than 7 billion people and less than a few million.

The expenses they list are probably in line with what most people below that income level "dream" of - as Jon notes, it's certainly possible to live a very happy, fulfilling life on far less (e.g. how many people *need* a 4wd SUV??).

There are lots of other things people can do to be happy that don't involve a high income - live close to friends and family, find meaningful work, have more sex, be involved in their community. As Jon notes, people tend to get hung up on the money and "stuff" as a path to happiness when for most people it should be a very small part of things.

They forgot to add in $80,000 to be able to afford lots of hookers. I wouldn't feel rich without a nice hooker every few days.

I frist read the article when it came out and laughed out loud. I find the premise of the whole article wrong. Since when has the american dream include a 4wd SUV at $11K as essentail? Other items listed see way out of line and when did they become part of the american dream? This direction of thinking lead us to the subprime mess and the whole great recession.

This looks more like the american nightmare if people think this is the way it should be. Debt up to the eyeballs.

FMF's $650 grocery budget (with two teens) has my attention.

I'd love suggestions on getting our grocery/food budget down. We have one child (2 years old) and we spend on average about $1000 month between grocery stores and restaurants. It's usually split about $350 restaurants $650 groceries. This includes all cleaning supplies and general Wal-Mart purchases, as I don't separate "household" from "groceries" as a budget line item. So, we may not be that far off depending on what is generally considered groceries. I know that we could eat out less and cook more, but I've found that my home cooked meals are not all that inexpensive (perhaps because I love meat). Also, my restaurant budget usually includes buying a meal from someone in a networking context. Are we out of the realm of reasonableness here? Any suggestions or thoughts?

ASR - does your grocery budget include paper towels, dog food, baby supplies, garbage bags, toilet paper, cosmetics, bottled water, etc., or just food staples? You may want to buy this stuff online and in bulk. For example, I bought 400 hefty tall kitchen garbage bags for $30 online and 96 rolls of paper towels for $35. Just scan the deal sites for this kind of stuff. Also, a certain retailer has a subscribe and save option that gives you a 20% reduction off retail prices for a lot of items.

ASR --

We probably have $100 a month or so from eating out (in addition to our "food" costs which is at-home eating).

Some thoughts on saving money:

1. Have a frugal wife who's a good shopper. :)

2. Buy in bulk. We were Costco members and since we've moved have now joined Sam's.

3. We don't buy a lot of junk food/snacks. Our meals are meant to cover from one meal to the next.

4. Drinks can kill you on costs. We drink mostly water.

5. Desserts too. We eat them sparingly.

Car - To spend $11K/yr on a car, even a nicer one, they must assume replacing it frequently. Average costs go way down if you keep each car for at least 10 years.

Groceries - We spend $400-500/mo. with two small kids. As a family, we eat out only a few times a month, but I often get free lunch at work.

ASR - Stock up when the things you like are on sale. Plan meals around what is on sale.

Our income is about $100k more than they say you need yet I think we spend less on the basics and extras - we own our home and older vehicles. We have always spent more on education and a lot on charitable donations and we save quite a bit since we are in our fifties (and we don't trust the government to not make a comfortable retirement as difficult as possible).

I have no idea what we spend on food but it is probably about $500/month for 2-1/2 people. FMF is on the money on how to save on groceries.

Young Limey: Yes, my grocery budget includes paper towels, dog food, baby supplies, garbage bags, toilet paper, cosmetics, bottled water, etc. I'll check into Amazon for the non-perishables as you suggest. Thanks!

FMF, I think avoiding snacks and drinks would help. Also, I suppose I could print out this page and give it to my wife (suggesting that she become a better shopper) but that'd probably be hazardous to my health! Thanks for the comments.

I'd say something > $100k is realistic. I'd multiply the figure by the cost of living index for the city in question.

The methodology is interesting. I don't know why they'd assume just one car since most households have 2. In fact the average spending on transportation for a household making over $70k is above $14k.

I always think the food costs are a bit high. The amount of money spent on food doesn't tend to scale as much as other goods when you make more money. It will usually level off unless you start eating out a lot more (probably why many people start to see their food costs run up).

I also agree with many of the people talking about including the cost of living. Where you live and what you live in is HUGE!

I thought there were a lot of fluff costs in there, too. Food costs aren't double in the San Francisco Bay Area (where I live) compared to elsewhere. Prices are maybe 10% lower in other areas compared to here.

Agree that the $11k/year on the car seems high -- I guess this is why they consider it part of the "dream" lifestyle.

Husband and I are right around that income level but don't quite feel like we're "living the dream" -- the biggest factor is graduate school debt, but we also live in a relatively high cost area (not as high as the big east coast cities) with lower salaries, which the labor market is generally willing to accept because of the quality of life offered here and tight job market.

I think that only a narrow slice of the population is really able to achieve a $130k income without incurring some kind of student loan debt (although I realize FMF has written extensively about this) so the lack of debt in this analysis seems like a missing piece of the puzzle.

The significance of your current total income is entirely dependent upon your age and the year that you plan to retire. Without those two pieces of data it doesn't mean a whole lot. The main reason is because of the impact of inflation in the years ahead.

Where you currently live and where you plan to retire also has a huge impact upon how you stack up if you want to live the American Dream. If you live in one of the states with the lowest living costs then $135K/year will enable you to live like a king. However the differences between one of the cheapest states in which to live compared with one of the most expensive states is like the difference between two different planets. In Silicon Valley for example there are many locations where the minimum cost for a home is now over $1M and it becomes higher the further you go up the penisula towards San Francisco.

@YOUNG Limey

What is the deal with the prostitutes ?? How is that on topic ?

I agree with the "where you live" wholeheartedly, on two fronts.

First of all, there is the actual dollar cost difference in comparing one area to another. In my region, 130k is an excellent salary (probably nearly four times the average). I am close, but not quite at that level, and we feel very blessed because that has enabled my wife to stay home with our kids and allowed us to give consistently to our church, while living comfortably if not extravagantly. Where I grew up, I would probably need to make double my current income to even approach our lifestyle.

Secondly is the peer pressure. While we live in a nice neighborhood, we are not in an area where everyone is trying to "keep up with the Joneses" nearly as much as where I come from. Back in my home town, there was a certain constant undercurrent of one-upmanship. Not that we bought into it, but it's nice to not feel that pressure everywhere you turn. Spending to fit in with the crowd or your neighbors can kill your budget very quickly.

One aspect of "where you live" is that some areas can undergo tremendous change. We came to the Santa Clara Valley in 1960. At that time the largest industries were the growing and canning of fruit. I worked for the Lockheed Missiles & Space Company that had just arrived after the city donated a lot of land for them to build their facilities. The company started very small and peaked out at 35,000 employees by the time the cold war ended. Shortly after I retired in 1992 the number of employees had dropped to around 5,000 and today it is dwarfed by companies such as Apple, Google, Cisco, Intel, AMD, HP, Adobe, Siemens and a great many others. The very latest addition is a new $1.2 Billion stadium for the SF 49'ers.

Thus the city we live in that was founded in 1777 as one of the California Missions, only has a population of 116,000 but industrial growth has surrounded it. We bought our first home in 1963 for $27K, and in 1977 sold it for $90K to buy a home in a custom area for $107,000, which has appreciated greatly since then. Since then the land for building ranch style homes has all been used up and construction these days seems to be only 4 story condominiums.

The outcome is that it's impossible to forecast how "where you live" will change by the time you are ready to start enjoying your retirement.

My wife and I make about 120k combined. We are 28 and 26. We own two rental properties in Boston. I totally agree with the above. I feel like we are living the dream. We have so many friend that make just as much but don't have anything to show for it. It's all about how you manage your money and additionally living below your means. We spend about 1200 per month on food/eating out. It's expensive to live in the city. I honestly don't think making much more would make us any happier. Anything more is just a bonus.

I think the American dream is freedom to live where you want to live, worship how you want, and work in what and how much or little you prefer. There is a financial element to it, which is being able to clothe, feed, shelter and get basic health care for yourself and family without having to work 80 hours week. That number is of course hard to pin down but no where near $130k/year.

I can see where you are coming from with a number no where near $130K/year. However if you plan to retire close to 58 which is the age that my wife and I retired there are at least three other items to consider.

1) What retirement income will you likely have between you? Pensions help a great deal as does social security once you reach 62 but they may not be sufficient.

2) It really helps to be debt free when you retire.

3) Ideally you need to have a stream of investment income that along with item (1) will be sufficient to fund your retirement lifestyle. We did a great deal of travelling overseas between 58 and 78 and that is very expensive when you add up the cost of airfares, food, accomodations, and the cost of guided tours, particularly river trips in Europe which we found to be most enjoyable.

We raised multiple children and lived in decent neighborhoods in a reasonably high cost of living area and never came anywhere near spending what they suggest. I guess we just didn't vacation enough, go out enough, spend enough on food or clothes, or put enough into retirement, etc. to be comfortable. Yet somehow over the years we managed two trips to Disney World, a three week trip to Europe, an anniversary cruise, plenty of camping trips and visits to family out of state, savings for college and retirement, etc. I guess we're just not living comfortable and aren't really living the dream. Dang, and I thought we weren't doing bad, go figure :-).

$130k/year is a ton of money. Not many people make that much money in Portland and it's a pretty expensive part of the country. I'd say over $100k is pretty darn good. You just need to have moderate expectation. I guess the "dream" means spending a lot of money.

Once "everything is paid for" then you ARE living the dream, I never had much debt (a 19 month car note at age 23 and a 30 month mobile home note at age 26 and lastly a short term computer lease for my business at age 33. All were paid of early. I purchased my home cash, vehicles too. I went through college on "work" , "begging" and "grit" thus no loans. SO at age 47, with $2.85M~ I said that's enough! While the cost of living always rises, focus on less spending, more investing and long term when young. By middle age your goals will be easy to envision as nearterm.Living with the used car, on a budget and considering EVERY dollar (not) spent by mid life the American dreqam can be reality...It's really not that hard, it just takes TIME and persistence!

Real estate is the huge issue. I read Old Limey's posts about Silicon Valley when he moved there and can't begin to connect that to the reality of when I was presented a chance to move there. Taxes are (relatively speaking) a national problem. But some area (like Silicon Valley) have become downright unaffordable even to people making double that 130K number.

I'm also surprised by the reaction that 130K is so unattainable. It is nothing to sneeze at, but (if you treat that as a household number)it isn't unimaginable on 2 incomes. (Of course, that's not saying there is not also a lot of fluff in that 130K.)

In my case, I didn't have/make much for a good chunk of my youth, and although I am pretty dumb generally, I worked very hard to develop one salable skill, which I took with me to live in a generally crappy country overseas (but with stunningly beautiful, intelligent, and naturally frugal women, thankfully). I stayed there for 7 years and went from near zero to just over 1 million. I didn't like the work or location and so always had one eye on the calendar, but I got through it and met the love of my life too. We've just built our dream home in a warm and beautiful state, got that whole life set up, and paid cash for everything. I retained a few online clients who are very loyal to my venture and that more than covers our expenses. I make less than $130K now (though I was pulling in about 200K there, by the end, with free housing) but with a free and clear house, low taxes, plenty of free time, and a lovely wife, I consider that I did pretty well. I 'retired' at 47 apart from the somewhat sporadic but lucrative online work I still do. Anyone can do what I did, but you can't shy away from skill development.

I wanted to add, to anyone who is now in the shoes I once wore, i.e., in your mid-20s and considering that you've got plenty of time to make your fortune, well I have to say: a decade can go by in a blink, and though you'll still be relatively young and with full health and strength, you'll likely be looking at 40 coming up. That put a fire under me, luckily. I also see scads of young people who may have a degree or even two, but who have no real skills. Nearly every liberal arts degree counts here. They are bitter and pointing fingers at "Corporate America" about why no one will hire them and pay, say, $130K a year but none every will when there are tens of thousands out there just like you: generally perceived by anyone who can pay you as skill-less despite your youth and good looks! Many people in the crappy place I lived in where incredibly motivated to develop multiple skills and get themselves out of there too. I wish more Americans followed that example, especially before they're too old. Time really does fly.

My comparison to the American Dream article:

Housing Expenses: Article - $17,062, Ours - $11,400
(although we plan to upgrade housing eventually from our starter home to about $24K - seems high, but does save on taxes, this will actually cost us an extra $6,938 over the example, not including tax savings).
Savings of -$5,562 (future Extra Cost +$6,938)

Groceries: Article $12,659, Ours - $9K (this includes diapers and formula)
Savings: -$3,659

Medical Expenses: Article $9,144, Ours $30K, but one time expense, normally only about $6K max.
Extra Cost: $20,856 (future Savings $-3,144)

Car Expenses: Article $11,039, Ours $10,400 (until car paid off, but there is always another car, so won't include future savings)
Savings: -$639

Education: Article $4,000, Ours - $500 max (infants - basically just educational aids and toys)
Savings: -$3,500

Clothing and Apparel: Article $2631, Ours - $1500 max (so many second hand clothes for babies given to us)
Savings: -$961

Utilities: Article $1956, Ours $3480 (for some reason trash removal and water are nuts in our area)
Extra Cost: $1524

Family Vacation: Article $4580, Ours $500 (none really right now with 2 newborn babies, but will increase in a few years, added something just for hotels when visiting family)
Savings: -$4,580

Entertainment: Article $3,667, Ours $500 (not much with 2 infants)
Savings: -$3,167

Restaurants: Article $3,662, Ours $5K (we are pretty high on this one just for take out food since no time to cook with 2 infants).
Extra Cost: +$1,348

Cable, Satellite, Internet, Cell: Article $3,100, Ours $1560 (prepaid phones only).
$avings: -$1540

Miscellaneous: gonna call this a wash just since hard for me to quantify right now.

Taxes: Article: $32,357, Ours - about $18K, and will be a little lower due to the babies.
Savings: -$14,357

College Savings: Article - $4K, Ours - $0 (will probably start a fund in a few years, but our plan is not to pay for college, just to assist)
Savings: -$4K

401K: Article - $17,500, Ours - $7,400 (We have lots of capital due to many frugal years before we had kids, so I kind of oversaved early, so don't need to save as much now. My interest earnings far exceed any additional savings I add to the pot. Also, my employer has a generous pension, decreasing need for savings.)
Savings: -$10,100

Total Income needed for our American Dream:

Unfortunately, we only make $96K of salary +$3K from very part time small business which is slowly growing, but we had a huge planned medical expense this past year which we saved for. Our main strength though is simply tons of capital available to us due to extreme frugal living/savings for about 13 years (prior to kids) and although our standard of living has increased, we haven't gone spend crazy either - we are moderately frugal now. I didn't include interest off of the capital since I really never spend it, just reinvest.

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