$350000 Salary barely qualifies as middle class in HCOLA

[HoneyBBQ]

Sept 19, 2019 17:45:50 GMT -5 haapai said:

I know that the OP is a week old but I can't help but find myself circling back on this article.  It's leaving a bad taste in my mouth and I'm pretty sure that it isn't just about envying folks who make five times as much as I do.  There are other things wrong with the budget submitted. 

Second of all, I need some sort of explanation of how a family grossing $350K annually lands up in a $1.8 million dollar house.  Is that normal in VHCOLA areas?  That's over seven times annual gross income.  How is this even possible? 

Well, I'm in that range.

Not sure what you mean by possible: possible a house costs that much or possible you can pay that much mortgage?

- a "nice" house in Seattle is definitely well over a mil. 1.5 would get you a 4 bedroom, 2800 sq foot house in Seattle proper (Seattle proper is VHCOLA, the greater Sea-Tac area is not, it's just HCOLA)
- put a lot down to get the mortgage down
- 2 income households where both make 6 figures, so HHI is 300-400k is common in Seattle

The idea of a house being 3x your income is tied to making an "average" salary for an average house. While a house may cost 5x in a VHCOL area, not everything else is 5x as much. So when you need to stretch to buy a house, in my mind the multiplier becomes larger because semi-fixed prices of food, cars, insurance, etc are not also multiplied by that number. Just houses. So if you pull in 25k a month, it's a lot easier to spend 10k on a mortgage than if you pull in 2500$ a month and put $800 toward a mortgage.

[hoops902]

Sept 20, 2019 13:39:31 GMT -5 HoneyBBQ said:

Sept 19, 2019 17:45:50 GMT -5 haapai said:

I know that the OP is a week old but I can't help but find myself circling back on this article.  It's leaving a bad taste in my mouth and I'm pretty sure that it isn't just about envying folks who make five times as much as I do.  There are other things wrong with the budget submitted. 

Second of all, I need some sort of explanation of how a family grossing $350K annually lands up in a $1.8 million dollar house.  Is that normal in VHCOLA areas?  That's over seven times annual gross income.  How is this even possible? 

Well, I'm in that range.

Not sure what you mean by possible: possible a house costs that much or possible you can pay that much mortgage?

- a "nice" house in Seattle is definitely well over a mil. 1.5 would get you a 4 bedroom, 2800 sq foot house in Seattle proper (Seattle proper is VHCOLA, the greater Sea-Tac area is not, it's just HCOLA)
- put a lot down to get the mortgage down
- 2 income households where both make 6 figures, so HHI is 300-400k is common in Seattle

The idea of a house being 3x your income is tied to making an "average" salary for an average house. While a house may cost 5x in a VHCOL area, not everything else is 5x as much. So when you need to stretch to buy a house, in my mind the multiplier becomes larger because semi-fixed prices of food, cars, insurance, etc are not also multiplied by that number. Just houses. So if you pull in 25k a month, it's a lot easier to spend 10k on a mortgage than if you pull in 2500$ a month and put $800 toward a mortgage.

It's also worth noting that if they make $350k annually, and the house was 1.8 million...it's closer to 5x their annual gross than 7x.  But you've given it a nice summary.  It's a lot easier to go way over the normal "range" when you're a high earner, because of those fixed, or semi-fixed, costs that don't increase at the same rate as your lifestyle may (and a 1.8 million house may have been much less when purchased and appreciated).

[haapai]

What makes you so sure that this family is saving up money before they spend it?  That monthly vacation cost of $650 certainly implies that $650 a month is being put into a designated account but is that actually what is happening here?  It also possible that this family just puts everything that they want onto credit cards and pays as much as possible each month and then divides up the payments in a way that seems to make sense.  (This might explain why they've got a crib line item when their youngest is two.)

They might be living paycheck to paycheck or they might be perpetually sitting on several grand in cash.  The article is quite silent on the matter. 

[resolution]

Sept 20, 2019 13:50:44 GMT -5 hoops902 said:

Sept 20, 2019 13:39:31 GMT -5 HoneyBBQ said:

Well, I'm in that range.

Not sure what you mean by possible: possible a house costs that much or possible you can pay that much mortgage?

- a "nice" house in Seattle is definitely well over a mil. 1.5 would get you a 4 bedroom, 2800 sq foot house in Seattle proper (Seattle proper is VHCOLA, the greater Sea-Tac area is not, it's just HCOLA)
- put a lot down to get the mortgage down
- 2 income households where both make 6 figures, so HHI is 300-400k is common in Seattle

The idea of a house being 3x your income is tied to making an "average" salary for an average house. While a house may cost 5x in a VHCOL area, not everything else is 5x as much. So when you need to stretch to buy a house, in my mind the multiplier becomes larger because semi-fixed prices of food, cars, insurance, etc are not also multiplied by that number. Just houses. So if you pull in 25k a month, it's a lot easier to spend 10k on a mortgage than if you pull in 2500$ a month and put $800 toward a mortgage.

It's also worth noting that if they make $350k annually, and the house was 1.8 million...it's closer to 5x their annual gross than 7x.  But you've given it a nice summary.  It's a lot easier to go way over the normal "range" when you're a high earner, because of those fixed, or semi-fixed, costs that don't increase at the same rate as your lifestyle may (and a 1.8 million house may have been much less when purchased and appreciated).

It seems like in a lot of these cases, they do let their other expenses increase at the same rate. For example, this article from the Financial Samurai guy that is spending $2200 a month on groceries for a household of 3, and acting like its perfectly normal. www.marketwatch.com/story/youre-fooling-yourself-if-you-think-you-can-retire-early-with-kids-2019-09-17

[Deleted]

Their mortgage payment is only $3900/month, so if they're in a 1.8 million dollar house, it's probably one they've been in for awhile and it just appreciated.  Although, I'm skeptical this is an actual family anyhow and more of a made up one for the article.  Too many of the things are weird like having baby supplies for a 2 and 4 year old and the way they're handling taxes. 

[hoops902]

Sept 20, 2019 14:12:18 GMT -5 haapai said:

What makes you so sure that this family is saving up money before they spend it?  That monthly vacation cost of $650 certainly implies that $650 a month is being put into a designated account but is that actually what is happening here?  It also possible that this family just puts everything that they want onto credit cards and pays as much as possible each month and then divides up the payments in a way that seems to make sense.  (This might explain why they've got a crib line item when their youngest is two.)

They might be living paycheck to paycheck or they might be perpetually sitting on several grand in cash.  The article is quite silent on the matter. 

On an annual basis, they are saving $50,000.  Are you saying you consider a family that saves $50k/year on a $350k salary to be living "paycheck to paycheck"?  They're not living paycheck to paycheck, it makes literally no difference how much CASH they are sitting on.  That's not what living paycheck to paycheck IS.  If I make $100k/year, and $80k of that goes into an investment account, and the other $20k goes for expenses, and I never have more than $100 in cash at any moment...I'm still not living paycheck to paycheck.  

Living paycheck to paycheck means your income each month is almost completely going to cover your expenses each month.  Investing/saving is not an expense.  And they are not using all (or almost all) of their monthly income to go toward expenses...they're at least $50k short of doing that.

[hoops902]

Sept 20, 2019 14:15:31 GMT -5 resolution said:

Sept 20, 2019 13:50:44 GMT -5 hoops902 said:

It's also worth noting that if they make $350k annually, and the house was 1.8 million...it's closer to 5x their annual gross than 7x.  But you've given it a nice summary.  It's a lot easier to go way over the normal "range" when you're a high earner, because of those fixed, or semi-fixed, costs that don't increase at the same rate as your lifestyle may (and a 1.8 million house may have been much less when purchased and appreciated).

It seems like in a lot of these cases, they do let their other expenses increase at the same rate. For example, this article from the Financial Samurai guy that is spending $2200 a month on groceries for a household of 3, and acting like its perfectly normal. www.marketwatch.com/story/youre-fooling-yourself-if-you-think-you-can-retire-early-with-kids-2019-09-17

You can afford to let SOME increase at the same rate.  Note that individual's gas cost, their utility cost, their car payment, personal care products, health care, etc.  Many of those are not 4x what someone making $50k/year is.  I don't think it's "normal" personally, but pretty much anytime you have costs that are relatively fixed, you can afford to increase other areas either with the same growth rate...or higher if it's something you value.  

That's also a make-believe budget the guy made up to try to prove a very specific point.  And TO that point...they end up with no money at the end of the month, while still affording a home that's 8x their income.  The average family income couldn't do that.

The only real takeaway I see on that FIRE hypothetical is that it's very difficult to FIRE if you regularly overspend on big expense categories.  If you insist on living in areas of the country where the pay is outpaced by the cost to live there...you're certainly going to have a much harder time with FIRE than someone who lives in an area where the pay outpaces the expenses.

[haapai]

Sept 20, 2019 13:50:44 GMT -5 hoops902 said:

Sept 20, 2019 13:39:31 GMT -5 HoneyBBQ said:

Well, I'm in that range.

Not sure what you mean by possible: possible a house costs that much or possible you can pay that much mortgage?

- a "nice" house in Seattle is definitely well over a mil. 1.5 would get you a 4 bedroom, 2800 sq foot house in Seattle proper (Seattle proper is VHCOLA, the greater Sea-Tac area is not, it's just HCOLA)
- put a lot down to get the mortgage down
- 2 income households where both make 6 figures, so HHI is 300-400k is common in Seattle

The idea of a house being 3x your income is tied to making an "average" salary for an average house. While a house may cost 5x in a VHCOL area, not everything else is 5x as much. So when you need to stretch to buy a house, in my mind the multiplier becomes larger because semi-fixed prices of food, cars, insurance, etc are not also multiplied by that number. Just houses. So if you pull in 25k a month, it's a lot easier to spend 10k on a mortgage than if you pull in 2500$ a month and put $800 toward a mortgage.

It's also worth noting that if they make $350k annually, and the house was 1.8 million...it's closer to 5x their annual gross than 7x.  But you've given it a nice summary.  It's a lot easier to go way over the normal "range" when you're a high earner, because of those fixed, or semi-fixed, costs that don't increase at the same rate as your lifestyle may (and a 1.8 million house may have been much less when purchased and appreciated).

I was hoping that you'd glom into what I had to say about the interest currently being paid.  At a 3% interest rate, $1900 a month in interest expense implies a principal amount of $760,000. 

I was also hoping that someone else would construct amortization tables and use goal seek to get a better sense of when the last refinance was and for what amount.  I just wasn't up for all of the math and logic involved but it sure would be interesting to see the results. 

[hoops902]

Sept 20, 2019 14:33:44 GMT -5 haapai said:

Sept 20, 2019 13:50:44 GMT -5 hoops902 said:

It's also worth noting that if they make $350k annually, and the house was 1.8 million...it's closer to 5x their annual gross than 7x.  But you've given it a nice summary.  It's a lot easier to go way over the normal "range" when you're a high earner, because of those fixed, or semi-fixed, costs that don't increase at the same rate as your lifestyle may (and a 1.8 million house may have been much less when purchased and appreciated).

I was hoping that you'd glom into what I had to say about the interest currently being paid.  At a 3% interest rate, $1800 a month in interest expense implies a principal amount of $760,000. 

I was also hoping that someone else would construct amortization tables and use goal seek to get a better sense of when the last refinance was and for what amount.  I just wasn't up for all of the math and logic involved but it sure would be interesting to see the results. 

Yeah, I started looking at it, then i realized "ya know what, I don't even know if they actually paid 1.8M for the house, or much lower and it appreciated, or when they bought it or refinanced it or whatever" and then I gave up.  My quick look at it yielded the same results as yours, an implied principal amount MUCH lower than the house price, which meant any assumptions I was going to make about the rest of it were highly variable.

I agree it would be interesting to have a few more facts to see that though. Living in a "1.8M house" that you bought for 1.8M is a lot different in my mind than living in a 1.8 M house that you bought for 1M and put 20% down on (particularly on their salary).

[haapai]

You too?

I'm fairly certain that there is a more efficient way of examining how long it has been since the last refinance than building a plethora of speculative spreadsheets.  I just couldn't find it last night either. 

[haapai]

I think that the secret is to look for similar proportions of principal paid, interest paid, and ending principal.  Start by figuring out what kind of 30-year payments you'd need for a $100k loan at a variety of interest rates. Then you crank out the amortization tables for those loans and program at least one cell to calculate the relevant proportion(s).  What you are looking for is the payment in which the interest is 95% of the principal paid and the ending principal is also an appropriate multiple of the principal paid.   Then you boost up the payment to $3900 and use goalseek to change the begining balance number.  Actually, you can skip that last step, but it is a handy way of checking your math. 

At some point you should probably check out 15-year and 20-year mortgages as well just to verify that such proportions never occur in the interest rate range that you consider reasonable. 

I'm not up for it tonight either.

[Rukh O'Rorke]

It does look like this is a Frankenstein budget - not submitted by a real family but cobbled together from multiple sources and filling in the blank via interpolations. 

[giramomma]

I dunno about the "baby" supplies.

Maybe they are just lazy and haven't retitled the catagory "kid" supplies.

Kids don't stop needing stuff after 1. We actually now, have spent more in car seats for #4, after 16 months, than the first 16 months of her life.

For the first year or so, we could use one infant buckseat. If the ILs didn't watch her, we wouldn't have needed an extra base.

But, then she grew. And needed two car seats. Because it's just not possible to buy one car seat for three drivers. DH and I don't have an extra half hour every day to move car seats around.

So. We were able to buy the bucket seat and extra base for $230. Two car seats ran us close to $300. That's one month "baby" supplies right there.

To reduce SIDS, you aren't supposed to use used mattresses.  I highly doubt the two and four year old are sharing a toddler bed, and will for their entire childhood. There's extra expenses, for getting double new mattresses..and probably new sets as the kids grow. I know the YM thing to do is buy a twin bed for your newborn...so only one bed/mattresses is needed in 18 years, but how may of us really do that? So should we really get upset that someone with means doesn't do that?

Then there's monitors. On a mommy board, one woman mentioned that she was on her third video monitor for her 6 year old. Those are $150 or so a pop. Mom thought the monitor was a need, because she often worked in the basement while her kiddo was on the 2nd floor...so she couldn't hear when her kiddo was in trouble.

Multiply the monitor by costs by two, and there's another couple months of kids' costs, out the window.

I consider the category a "kids need shit" category. I just have a hard time thinking that YM expect that kids don't cost a dime after say age 18 months, especially when that is generally NOT how people behave. Most YMers are spending money on their kids out of need, dare I even say out of want, and no one bats an eyelash.

I also don't understand the uproar about someone who self-identifies as living paycheck to paycheck when they really aren't. I'm guilty of using that language sometimes, and I'm not the only one here who does. Yet, when I say "we are broke/poor" no one here challenges me of that? Is it because you all "know" me? Or because I make less than 350K?

[Deleted]

Sept 22, 2019 8:07:24 GMT -5 Rukh O'Rorke said:

It does look like this is a Frankenstein budget - not submitted by a real family but cobbled together from multiple sources and filling in the blank via interpolations. 

The list of "relevant cities" on the bottom kind of hints to that too.  Some of those numbers just don't add up/make sense.