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Post by Deleted on Feb 16, 2011 16:26:50 GMT -5
After School Activities/Camp - 4000 Cleaning - 5000 Eating out (on top of takeout) - 2,400 Gifts, holidays, family celebrations - 3000 Entertainment (movies, sports events, etc.) - 2693 Entertaining at home - 1500 Out-of-pocket expenses (fun money, due to all other categories considered) - 3000______________________________ So spending $1800/month for entertainment or the privilege of not cleaning your own bathroom? $21,500/year spent on non-essentials (not counting the 4,000 for vacation). All this after maxing out 401(k)'s and putting away a good bit for college? I'd say these folks are far from barely getting by. They spend over $25k/year on luxuries. I don't care where you live. That's living high on the hog. I agree.
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Post by cytoglycerine on Feb 16, 2011 17:06:44 GMT -5
They are spending $476 per month on gasoline and an additional $223 on gas taxes, for a total price of $700 per month at the pump. I call total BS on this figure for their gas expense. Even if they're driving gas guzzlers, they'd have to drive an average of 115 miles each and every day of the year to amass a $700/month bill (Assuming the gas in Long Island costs an average of $3.40/gallon - which it does right now, I googled it - and assuming they get 17 mpg average - As per the Ford website, the 2011 Explorer gets 14 city/25 highway, so I guestimated 17 average). So unless their jobs entail driving around all day for a living, this number has got to be inflated. My hubby drives around all day visiting clients, and his gas bill is "only" about $350/month - and gas where we live is much more expensive than in Long Island (right now it's the equivalent of $4.40/ga). So if they cut their gas bill in half to $350, and get rid of the maid at $417, they'd save ~$9,200/year. Yeah, life is tough.
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Post by Deleted on Feb 16, 2011 17:18:40 GMT -5
I think the writer made the tax situation look rosier than it actually is. I would like to know what the average person making 250K pays in taxes. The writer gave the hypothetical couple every pretax write off he could. I wonder how accurate that is to how people live.
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Angel!
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Post by Angel! on Feb 16, 2011 18:07:20 GMT -5
$200/month for eating out isn't too bad, but then that doesn't include the $10 lunch each adult has out every day at work, which adds another $420 to the monthly food budgetIf one even goes to a halfway decent restaurant you are looking at a minimum of $100, with or without tip. Nearly any restaurant in Manhattan will charge you $12 and up for a single glass of house wine. The last good place I ate at in the beginning of January I dropped $105, and we did not order any appetizers, or desert and she has a bottle of fancy spring water. The couple highlighted has kids. Take them out twice per month to a family style joint would easily run $50+. Those may be reasonable numbers in Manhattan, but the article used the exact same food costs for every scenario, including Plano, TX, which would have much cheaper food than manhattan. How does a family of 4 in TX spend $1K/month on groceries when they eat out every lunch & have takout 1 night/wk. That would mean they are spending something like $20/ homecooked meal including breakfast. I am also slightly confused as to why the family has a yearly dental cost of $4K. It is kind of ridiculous because the article states: Yet, they don't adjust for these factors at all.
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Post by Deleted on Feb 16, 2011 21:25:45 GMT -5
The state income tax for MD in the table looks too low to me. I just did my state taxes and I want to move badly.
One thing to think of is that you have to know how the states do ALL Of their taxes, to make a good comparison. For instance, we pay 36$ a year for car registration... i never realized till a few years ago that some states base it on value and people pay much higher... Its just one of those things that can impact the total picture...
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formerexpat
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Post by formerexpat on Feb 16, 2011 21:39:30 GMT -5
It looks like they only included the state tax of 4.75% and excluded the locality tax that varies by locality [the one I'm in is 3%].
However, PA typically has higher property taxes than MD. Our rate is a little over 1% for property taxes.
[/size]
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lurkyloo
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Post by lurkyloo on Feb 16, 2011 21:53:00 GMT -5
Gosh, it's too bad being morally superior doesn't pay better. Agreed that the food costs and babysitting/day care, etc should have been adjusted for COL area. It looks like the authors certainly didn't go into as much detail as they could have to make sure the figures were realistic. (Note that I believe in some areas, after-school care isn't nearly as much cheaper than all-day care as you would think. Also, regarding 4K/year dental costs: I understand orthodontics can eat up money pretty fast, as can things like crowns and root canals.) Personally, I appreciate the point the authors were trying to make. 250K/year is a lot. It's still not as much as you think it is. 250K/year does not allow you to never worry about money--particularly in the HCOLA where you probably have to live in order to make that much. That's also the point I'm taking from all the derogatory commentary on this thread pointing out all the things this made-up family could cut. That's great, all of you who paid 25K for your houses 30 years ago. Guess what? That's not easy to do these days. If a 750K house meant an extra hour or two every day not spent in LA or DC or NY traffic over the 400K house --or just not living next to gang territory--that's a non-trivial consideration for people who may well be putting in 10-12 hour workdays already. (To me, a 750K house seems high, but I can well believe that the NY and DC areas would demand prices like that. I do think they should have adjusted the house price for Glendale, unless our model family bought in 2006.)
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lurkyloo
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Post by lurkyloo on Feb 16, 2011 22:11:26 GMT -5
SF: I was commenting on the income tax because we, with slightly higher gross income and similar deductions except for having kids/slightly smaller mortgage, are paying a LOT more in federal income tax.
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Post by Deleted on Feb 16, 2011 22:14:25 GMT -5
having kids is a big one...
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lurkyloo
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Post by lurkyloo on Feb 16, 2011 22:19:28 GMT -5
especially if you can use an FSA plan for part of their daycare!
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Post by Deleted on Feb 17, 2011 2:32:46 GMT -5
"Personally, I appreciate the point the authors were trying to make. 250K/year is a lot. It's still not as much as you think it is. 250K/year does not allow you to never worry about money--particularly in the HCOLA where you probably have to live in order to make that much."
Agreed. We've lived in San Diego, the Washington DC Area, SF Bay Area, and the Phoenix area. Only in the Phoenix area did we live in what would be an upscale area. Middle class housing e.g. 1000 sq.ft. house built in the late 50s within a 45 minute commute can easily cost you $500k.
We were lucky and both graduated with virtually no debt because the State University we both attended was pretty cheap. We also didn't have kids. Sure, I think the hypothetical couple could shave off 10% of their budget in order to save more.
The real problem is the title (which was likely not the author's decision). These folks aren't "poor" but basically middle class and will be taxed as if they were "rich".
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binl1908
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Post by binl1908 on Feb 17, 2011 8:59:57 GMT -5
"One item I do think is a bit over the top is their annual contribution of $8000 to their kids college fund."
Well, I live in NYS and never had over 175K family income, but contributed 10K per year to my kid.s college fund for over 10 years. This was the max allowed under the NY 529 plan which could then be excluded from NYS income tax. If you're gonna put a couple of kids through college (I'm finished with mine) then it is appropriate. How much do you think college costs these days for 2 kids ?
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Gardening Grandma
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Post by Gardening Grandma on Feb 17, 2011 10:04:09 GMT -5
"One item I do think is a bit over the top is their annual contribution of $8000 to their kids college fund." $8000 is 3% of their income. I'm putting $6000 into my grandkids' college fund, but our income (101K for 2010) is a fraction of the couple in the example. That's about 6% - or twice the percentage. Of course, I don't have a maid.
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lurkyloo
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Post by lurkyloo on Feb 17, 2011 11:42:20 GMT -5
GG: I'm guessing you also don't live in NY, LA or DC? Whenever we head back to the Midwest for Christmas, I'm struck by how much cheaper everything there is. Gas is cheaper, food is cheaper, and you'd better believe real estate is cheaper. Our 20% downpayment was more than my brother paid for both halves of his duplex. (They don't pay 9.25% in state income tax there either. ) Even California-grown produce is cheaper! What's up with that?
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Post by Deleted on Feb 17, 2011 11:46:10 GMT -5
It looks like they only included the state tax of 4.75% and excluded the locality tax that varies by locality [the one I'm in is 3%]. However, PA typically has higher property taxes than MD. Our rate is a little over 1% for property taxes. [/size][/quote] That is what I thought they did. Since my local tax makes up 40% of my total MD state income tax liability, I thought that was a pretty big oversight. The writer put them in a county, so it shouldn't have been too hard to figure out the amount. The article is just sloppy with the numbers, which always bugs me.
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thyme4change
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Post by thyme4change on Feb 17, 2011 11:48:21 GMT -5
They need daycare and camp?
They need a half million dollar house?
They need two car payments?
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Gardening Grandma
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Post by Gardening Grandma on Feb 17, 2011 12:17:54 GMT -5
GG: I'm guessing you also don't live in NY, LA or DC? LL, you're right, and of course that does make a difference. We don't have a state income tax; we do have a hefty sales tax (nearly 9%) and our gas prices are very high (again due to taxes). But, overall, our costs of living are lower than NY, LA, or DC. However, I also suspect that our standard of living is lower than that of the example couple. ETA, We paid 8.6 sales tax on the build of our new home (because it was a custom built home, the sales tax applied. Ouch!)
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8 Bit WWBG
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Post by 8 Bit WWBG on Feb 17, 2011 12:47:42 GMT -5
...:::"I think the problem with these kind of articles is that "rich" has so many connotations. For folks struggling paycheck to paycheck, being able to save for retirement and kids' college sure looks like rich. For upper middle class folks like this hypothetical $250k income couple, they see the word "rich" and think "We're not even close to independently wealthy!" Then we get all these "look - I don't own a jet or anything!" articles about how $250k isn't rich.":::...
Exactly. We have friends who make probably 1/3 what we do, and they think DF and I are spendthrifts who should never be allowed to complain about money. But they also can't fathom the idea that our mortgage payment, which is almost double what they earn in a month, buys a "low end" house.
At the same time, we also have friends who make double what we make, who complain about money from time to time. Then WE are the ones who want to tell them they are nuts.
...:::"That's about 6% - or twice the percentage. Of course, I don't have a maid. ":::...
This game is fun too. The lower earning friends accuse us of shopping in "rich" grocery stores, and think we must live off filet mignon and caviar because they spend $200/mo on groceries and we spend $400/mo. But they also spend an additional $200/mo on beer and cigarettes, which we do not. Oh but thats "different".
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Post by Deleted on Feb 17, 2011 13:15:53 GMT -5
it doesn't matter how much money you make - it's how much you keep in the end. Give the average American family $500k a year and they'll find a way to struggle.
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swamp
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Post by swamp on Feb 17, 2011 13:36:48 GMT -5
it doesn't matter how much money you make - it's how much you keep in the end. Give the average American family $500k a year and they'll find a way to struggle. I'm willing to be the test case.
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dividend
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Post by dividend on Feb 17, 2011 15:09:53 GMT -5
I think the article touches on a good point. As I've made more money, I've found things that need to be funded/saved for that are not luxuries, and that don't improve my immediate quality of life. Stuff I couldn't worry about when I was making less. Retirement savings is a good example. If I want to max my Roth, that's $5k/year that represents probably $6k of pre-tax income (which used to be my rent payment, so from one perspective, at least, that's a lot of money). That's more money that I have to earn, that can't have immediate cash flow benefits because it's earmarked. Same thing with the money I'm setting aside so I can pay cash for my next car. I know that those are choices, but I sometimes lget frustrated to feel like I had more discretionary money when I made 1/3 as much a I do now. So I get how it might be possible to feel pinched on $250k/year if you're in a HCOL area and wanting to max different savings categories. (Of course, if I kept my percentages as they are now, that means I'd have $2k/month for fun and vacations, so I probably wouldn't complain.) But it's also disingenuous to talk about how "tight" the budget is when they can, in all cases, choose to un-tighten it by living farther below their means. Like, pretending they only made $100k/year.
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thyme4change
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Post by thyme4change on Feb 17, 2011 15:24:01 GMT -5
If someone at $250k is required to pay more taxes - it will come from one of two places - investing/saving or spending.
I don't care if the spending is necessary or luxury or fancy or frivolous. When anyone spends that money it goes directly into the economy. It gives someone a job, or at least a part of a job. Taking that money out of the economy means that job or that part of a job disappears.
If they take it out of saving and investing, then capital dries out. Without capital, businesses do not expand and do not create jobs.
Unless the government will take all those dollars and create jobs this is a net loss for everyone.
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Post by Deleted on Feb 17, 2011 16:07:09 GMT -5
They need a half million dollar house? In some areas, yes. I found the mortgage costs very simplistic- for the 2 LCOL areas I backed into a mortgage of about $240K, with about $350K in the expensive areas. Here in our KC suburb, you don't need a $250K mortgage to get a decent house in a good school district. If you weren't picky about having kids share a BR (yes, I know that's considered child abuse) you could get a house in a good area for about $200K. In northern NJ or CT, $350K would get you a garage in the slums. You also questioned the need for child care- with both parents working outside of the house, you need something. The worst part for me was shifting as my son got older- from all-day family daycare when he was little, to half-day kindergarten (but not in the summers!) to a traditional school day with a patchwork of things during the summer. Yeah, that even made some camp necessary. But I agree on the car payments, the house cleaners, and the $4K vacations. At $250K you should be getting enough rewards form either credit card spending or business travel (or both) to make a nice dent in travel costs.
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Post by DVM gone riding on Feb 17, 2011 16:18:06 GMT -5
do familys of four really spend almost 10k a year on supplemental health and dental a year!! I could see some years but every year, this alone would make a big difference-they had this on top of what they were paying for insurance.
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Post by Deleted on Feb 17, 2011 16:50:16 GMT -5
Do families of four really spend almost 10k a year on supplemental health and dental a year!! I could see some years but every year, this alone would make a big difference-they had this on top of what they were paying for insurance. Yeah, I didn't catch that. Unless the kids need braces or someone has severe health issues, that's pretty steep. DH is 72 and has chronic problems managed mostly by prescriptions and doc visits, and occasionally spends a night in the hospital because with with any symptoms that could be something serious they want to keep an eye on him. My medical costs, thank God, are about zero except for prevention and the occasional expensive dental repair. I can think of only one year where we blew through a $3,500 FSA balance and we never hit a $10K year, even the year I had 2 dental implants. And if both parents are employed, at least one should have a FSA or MSA that will reduce costs by 30% (the saved Federal taxes) in their tax bracket.
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formerexpat
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Post by formerexpat on Feb 17, 2011 21:20:54 GMT -5
I thought the article just said $10k to the FSA without reference to medical costs? You can use that for dependent care as well; that could be the likely usage for it because I'd have to agree that $10k in health care costs per year is a bit high unless they have some major health issues.
Sounds like this family decided to move to one of the more expensive areas and have some luxuries to keep up with the joneses like the $400 / mth maid.
They're saving $32k a year in 401k's, $8k in 529's and the principal paydown on their home. Over $40k a year savings isn't bad but the difference between $40k and say $60k of savings isn't all due to living in a higher cost of living city either. [/size]
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lurkyloo
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Post by lurkyloo on Feb 17, 2011 21:37:41 GMT -5
Paying sales tax on a house sucks!
CA has high sales tax (9-ish%; 8.75 locally, but higher in most areas) to go with its 9.25% income tax, and generally high other fees (including car registration fees and gas tax). Property taxes are low percentage-wise (around 1.1%), but house prices are still very high here so that I'd say the actual numbers are close to what one would pay in an area with 2% taxes.
And it's STILL not enough, as per our esteemed legislature.
Looks like NY has slightly lower income and sales taxes, but I've heard their property taxes are very high--and I know NYC applies an additional city income tax.
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DVM gone riding
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Post by DVM gone riding on Feb 17, 2011 21:44:49 GMT -5
what did Phil call this.... I think his wife calls it "lifestyle creep" We could all find things to cut, but I totally see the author's point, as I make more I assume more "set" costs to maintain my lifestyle, and frankly when you make a lot and every one around has "a lot" more then you do you feel like you need to spend money. I don't have a "maid" but have been told on several occasions I should, but if I did then I would either have to save less or put less twds debt pay off, but once I got use to having one that wouldn't be something I would want to give up if I made 250k a year and knew people that made half that and still had their maids-it would seem "unfair"
I think the single biggest creep is the house and I know in high areas some of these average house are no nicer then mine. but cost double or triple.
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Post by Deleted on Feb 17, 2011 22:16:38 GMT -5
what did Phil call this.... I think his wife calls it "lifestyle creep" We could all find things to cut, but I totally see the author's point, as I make more I assume more "set" costs to maintain my lifestyle, and frankly when you make a lot and every one around has "a lot" more then you do you feel like you need to spend money. I don't have a "maid" but have been told on several occasions I should, but if I did then I would either have to save less or put less twds debt pay off, but once I got use to having one that wouldn't be something I would want to give up if I made 250k a year and knew people that made half that and still had their maids-it would seem "unfair" I think the single biggest creep is the house and I know in high areas some of these average house are no nicer then mine. but cost double or triple. We are going thru that right now. We live in NY and currently pay for $1,670 for a 2 bedroom with washer/dryer. We are trying to cut back and move to an apartment that cost less ($400-500 less) and we are having issues finding one that fits because: - we got use to having a washer/dryer - got used to having up to date appliances - parking and the list goes on. We know we need to cut back so we can pay down debt faster and saving more... but it is not easy.
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Post by dcmetrocrab on Feb 17, 2011 23:44:29 GMT -5
"Personally, I appreciate the point the authors were trying to make. 250K/year is a lot. It's still not as much as you think it is. 250K/year does not allow you to never worry about money--particularly in the HCOLA where you probably have to live in order to make that much." Agreed. We've lived in San Diego, the Washington DC Area, SF Bay Area, and the Phoenix area. Only in the Phoenix area did we live in what would be an upscale area. Middle class housing e.g. 1000 sq.ft. house built in the late 50s within a 45 minute commute can easily cost you $500k. <snip> The real problem is the title (which was likely not the author's decision). These folks aren't "poor" but basically middle class and will be taxed as if they were "rich". Agree with bonnap and lurkyloo (exalt!) Location makes a huge difference. Where there is a high concentration of high paying jobs, cost of living normalizes around that fact. I don't entirely trust the numbers in this article (taxes definitely look off, incidental spending like food, housekeeper don't reflect locale, etc), but the point is sound. The article did mention that home prices were assumed to be in the "best school districts" for that area. SO and I have been looking in the DC area, and 800 sqft 3 BDR 1950s ranch homes, no garage, on a tiny plot of land in the "best" school districts are going for $680k+. They are most of the time not updated and squarely middle-class quality, no granite countertops, blue/pink bathtubs. Not saying everyone has to do it, but people in that salary range usually are gunners to put their kids in particular schools. Homes wouldn't be on the market for so much unless people weren't willing to pay. I've seen 3 properties like this get snatched up after less than 30 days on the market in the past month!
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