Where a $250,000 income goes

Discussion in 'Business & Economics' started by Fraggle Rocker, Dec 14, 2010.

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  1. Fraggle Rocker

    Fraggle Rocker Staff Member

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    Following is an abstract from a December 12 Washington Post article. It shows how an annual income of US$250,000 is disbursed for a family of four. The article shows a breakdown for eight urban areas. Two (Plano, TX and Naperville, IL) are somewhat cheaper places to live than the others, and one (Huntington, NY) is somewhat more expensive. The figures below are a rough average of the other five areas (Pinecrest, FL, Glendale, CA, Alexandria, VA, Bethesda, MD and Washington DC). The last three are contiguous parts of the monstrous Washington metropolitan region because, after all, this is a Washington newspaper. My averaging was done by eyeball rather than with a calculator, but the figures don't vary much from city to city. All are rounded, and totals may be slightly inaccurate due to rounding errors.
    • HOUSING total $47,000
    • Mortgage interest and principle $36,000
    • Maintenance $5,000
    • Cleaning $5,000
    • Property insurance $1,000
    • -----
    • TWO CARS total $21,000
    • Car loan payments $7,000
    • Fuel $6,000
    • Parking fees $3,000
    • Insurance $3,000
    • Maintenance $1,000
    • -----
    • TAXES total $65,000
    • Federal income $30,000
    • Social Security & Medicare $15,000
    • State $9,000
    • Property (real estate) $7,000
    • Sales $1,600
    • Motor fuel $1,600
    • Communication $350
    • -----
    • FOOD AND STAPLES total $22,000
    • Food and household supplies $14,000
    • Lunches at work $5,000
    • Dog food, supplies and care $1,600
    • Takeout meals $1,200
    • -----
    • CHILD CARE total $19,000
    • Day care and babysitting $15,000
    • After-school activities and camp $4,000
    • -----
    • LEISURE total $15,000
    • One family vacation $4,000
    • Gifts, holidays, family celebrations $ 3,000
    • Movies, sports, etc. $2,700
    • Restaurants $2,400
    • Entertaining at home $1,500
    • -----
    • HEALTH CARE total $13,000
    • Out of pocket $5,000
    • Medical insurance (not included with insurance above) $4,000
    • Dental $4,000
    • -----
    • UTILITIES total $8,000
    • Gas and electricity $5,000
    • Phone, cable, internet $2,400
    • Water $600
    • -----
    • STUDENT LOAN PAYOFF $6,000
    • -----
    • CLOTHES total $4,000
    • Clothing $3,000
    • Dry cleaning $1,200
    • -----
    • OTHER EXPENSES $ 3,000
    • -----
    • SAVINGS total $41,000
    • Retirement funds $33,000
    • College fund $8,000
    Is this what you'd expect for this average upper-income family? Is this how you'd spend--and save--the money if you had it? How do their priorities compare with yours?
     
    Last edited: Dec 14, 2010
    Fraggle Rocker, Dec 14, 2010
    #1

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  3. superstring01

    superstring01 Moderator

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    Hey! At least they are saving for retirement! That's--what?--totally un-American.

    ~String
     
    superstring01, Dec 14, 2010
    #2

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  5. Asguard

    Asguard Kiss my dark side Valued Senior Member

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    So including every tax they pay around 20% yet the ritch are so hard done by with regard to tax. What does someone on $1,000,000 Salery pay, 5,000,000 ect
     
    Asguard, Dec 14, 2010
    #3

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  7. adoucette

    adoucette Caca Occurs Valued Senior Member

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    Well first of all, it's clearly the costs associated with two people working full time and with two kids in daycare.

    The next thing that sticks out is the housing, one can get a $400,000 mortgage for $2,000 P&I and yet they are paying $3,000 per month, so I think they are paying too much for housing (particularly since they are paying over $2,000 per month for the other costs associated with this house), i.e. $60,000 per year is too much to be paying for a house when your take home pay is about $190,000.

    $41,000 is also too much to expect people to save, (not that it's a bad idea) but the kids are in daycare, so at $8,000 per year they will have put away over $200,000 (including interest) before the first kid hits college, yet they themselves are paying $6,000 for loans, put less away, make the kid earn some of the money.

    At this age, 10% of your income or $24,000 per year is more than enought for retirement planning (every employer at these salery levels is going to do at least 50% matching), so that's at least $36k per year, that will earn interest and won't get touched for nearly 40 years.

    Clothes is too low.
    Restaurants is too low (two working parents will eat out more)
    Leisure is too low, people have hobbies.
     
    adoucette, Dec 14, 2010
    #4
  8. joepistole

    joepistole Deacon Blues Valued Senior Member

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    All of the cities referenced were high cost cities. I suggest for a better representation cities like Lincoln, NE and Jefferson City, MO. be included to give a more balanced picture.

    Just scanning through the numbers, some of the seemed a bit high. And I am not sure why you have fuel costs in there twice once under auto expense and once under tax. Eyeballing the expenses, some seem a bit high to me - others seem ok. Parking Fees, I rarely ever pay a parking fee and I don't think it is a signficant expense for most folks. Home maintenance of 5k seems a bit much, especially if it is a new home.

    But any way you slice it, people earning 250k per year are not in any soup line.
     
    joepistole, Dec 14, 2010
    #5
  9. superstring01

    superstring01 Moderator

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    The cap in the US is, I think, something like 35%. Given all the deductions that a well paid accountant can find, the percentage is probably a good bit lower.

    I'm in favor of a progressive tax system, and one that caps out at 50-ish-% (maybe higher, I don't know) for the top .01%. Perhaps 75% for the top .001%

    I see no reason why estates that are larger than $20 million shouldn't be taxed at 75%. The US has a vested interest in preventing an aristocracy from forming.

    ~String
     
    superstring01, Dec 14, 2010
    #6
  10. joepistole

    joepistole Deacon Blues Valued Senior Member

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    The assumption here is that all income as earned income as well. Investment income is preferenced...meaning taxed at a lower rate (if at all).
     
    joepistole, Dec 14, 2010
    #7
  11. superstring01

    superstring01 Moderator

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    12,110
    I don't think the money that I invest should be taxed until I take it out of the market. I have a huge chunk of change (well, huge for a guy like me, but maybe not huge for someone else) invested in various funds. The day will come when I cash them in, and that's the time I should pay taxes.

    ~String
     
    superstring01, Dec 14, 2010
    #8
  12. Asguard

    Asguard Kiss my dark side Valued Senior Member

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    That would make the tax system ridiculously complex and expensive for both you, the companies you deal with and the government. For instance what is investing? Is it money in the bank? A passbook acount? , a term deposit? If its a bank acount you have to pay tax each and evertime you use your card and keep records of each and everytime. Further more this sort of system shifts the tax burden from the majority ob the ritch to the poor because they don't have the spare cash to invest so all there money gets taxed where as you might put 1/3 away. Sure if you ever retrieve that money you will have to cough up the tax but you never will, you will just profit on the returns

    Lastly because the CEOs and other Mega ritch now would be paying tax on only 1% or so of there income they would be intitled to low income earner benifits AND the government would have to increase tax rates for everyone else because the ritch are now paying less tax than the poor living on the streets
     
    Asguard, Dec 14, 2010
    #9
  13. joepistole

    joepistole Deacon Blues Valued Senior Member

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    That is the way it works for most investments (mutual funds exempted). If you invest in master limited partnerships, you pay no tax on income because the earning is considered a "return of capital" for tax purposes until your capital return exceeds your investment. The accounting is a bit complicated. But the tax treatement is sweet.

    http://www.investinganswers.com/term/return-capital-914
     
    joepistole, Dec 14, 2010
    #10
  14. Search & Destroy

    Search & Destroy Take one bite at a time Moderator

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    I would imagine living expenses would total no more than 50,000, the remaining 200k going to leisure and prototype business ideas.
     
    Search & Destroy, Dec 14, 2010
    #11
  15. joepistole

    joepistole Deacon Blues Valued Senior Member

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    And running the numbers, the homes in the example used would have been purchased at about 550k dollars (assuming no down payment).
     
    joepistole, Dec 14, 2010
    #12
  16. adoucette

    adoucette Caca Occurs Valued Senior Member

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    But that's too much to pay for a house on a two earner take home pay of ~190k.

    Which is why I suggested that a more reasonale choice would be a mortgage of no more than $400K giving a monthly P&I of no more than $2,000 (and of course the taxes and upkeep would go down)

    You really have to plan for the fact that one of the earners could be out of a job for a while and still be able to pay your bills.

    Arthur
     
    adoucette, Dec 14, 2010
    #13
  17. Fraggle Rocker

    Fraggle Rocker Staff Member

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    24,690
    There are people with million-dollar salaries, but most people in that bracket get a large portion of their income from investments, and the tax laws are more complicated for them. $250K is a reasonable breakpoint at which virtually all of your income is indeed salary.
    You're not looking at the geography. A $400,000 house in Bethesda, Washington or Alexandria is just a cottage. You'd be lucky to get a fairly nice townhouse or condominium for that kind of money.
    You're a little out of touch with the market, especially in high-cost-of-living areas like these. People in that income bracket often spend half their income on housing.
    This isn't some finance guru's advice, these are actual statistics from these regions. This is how people in that income bracket actually live.
    Every single resident of Bethesda intends to send his kids to Harvard or an equivalent.
    These kids are too busy taking AP classes, three sports and two musical instruments. They don't have time to work and even if they did, no one's going to pay them enough to make an impact on these figures.
    By the time these people reach retirement age they will already have borrowed from their IRAs or cashed them out and paid the penalty. Times are tough.
    I have no idea what it's like to live on even half of $250K but there have been times when we had one-third of that so I tried dividing the numbers by 3. $1,000 seems okay to me, but then we never had any children and they go through clothes like toilet paper.
    I was surprised too, but remember, these are real numbers, not guidelines.
    People in that bracket often don't have time for hobbies. And once again, remember that these are real statistics, not recommendations,
    A family making $250K in one of those places would be in a significantly higher stratum than in Alexandria. It wouldn't be a fair comparison. You get paid less for the same work there precisely because the cost of living is lower.
    They separated out all the taxes, even on food and clothing, just to be consistent.
    It's a huge budget item for people who work in Washington and live in the city or its suburbs. You can pay $20 a day to park. We have a subway system but it's underfunded and was outgrown long ago. Most people still drive to work.
    But not all homes are new, and this is an annual average. Pay $30K for a new roof and amortize it over its service life!
    When you're not making $250K it's easy to imagine yourself spending the money differently if you suddenly got a job that paid that much.
    As I noted earlier, if you're living in Glendale, CA, Bethesda, MD, or Alexandria, VA, with your spouse and two children, and you have a family income of $250K, you're going to have a million-dollar house. It will be very difficult for you to even find a home that will hold you for less than that. You'll be squeezed into a townhouse, and you really don't want to raise your children like that, with a yard the size of a postage stamp. Or worse yet, a condo, where they might not even be allowed to have a dog.
    Indeed. That's surely one of the reasons their savings rate looks unrealistically high to some of the other members who have commented. They will be very lucky if all of that money is still in the IRA when they reach retirement age.
     
    Fraggle Rocker, Dec 14, 2010
    #14
  18. adoucette

    adoucette Caca Occurs Valued Senior Member

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    Never saw the article but I somewhat question how they got the statistics. In my experience not many people keep track to that degree.

    Besides how do you average things like parking, not everyone even pays it?

    What I said about housing is a mortgage of $400k, which means you might have to save $200 k or so before you buy the house, and you don't have to live in Bethesda, you can live outside the beltway and pay quite a bit less for your house.

    http://www.homes.com/listing/127785089/727_Ridgemont_Ave_ROCKVILLE_MD_20850
     
    adoucette, Dec 14, 2010
    #15
  19. joepistole

    joepistole Deacon Blues Valued Senior Member

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    The areas you cited are high priced real estate neighborhoods which is not representative of the nation at large. And my point was, that some areas like Washington may have unusual expenses, they are not representative of the nation. And individuals in these high expense regions often earn more for their services because they work in these regions.

    Therefore I think it unfair to represent these limited circumstances and somehow representative of the nation at large. Because clearly that is not the case.
     
    joepistole, Dec 14, 2010
    #16
  20. superstring01

    superstring01 Moderator

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    It already works this way, genius. At least here in the states. If you invest for your retirement or keep your investment tied up without ever cashing it in, you don't really pay taxes on it. It allows a significantly larger portion to be invested tax free (like in my case) to be paid only when it's "cashed in" and taken as income (like when I retire).

    ~String
     
    superstring01, Dec 15, 2010
    #17
  21. pjdude1219

    pjdude1219 The biscuit has risen Valued Senior Member

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    true I live in a city with a quite high median income( last time I checked it was somewhere around 175k 180k) the people just don't live like that. the characterization of how they live that fraggle gave is quite frankly bs. a lot of them live in homes less than a million dollars, their kids go to lower tier state collages, the kids aren't in day care. it seems this article took some of the places with the higher standard of living to create a sob story to make people feel sorry for the well off and rich
     
    pjdude1219, Dec 15, 2010
    #18
  22. Fraggle Rocker

    Fraggle Rocker Staff Member

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    24,690
    You don't become wealthy if you don't manage your money well. The first step in managing it is to simply keep track of it. I guarantee that 99% of the families with quarter million-dollar incomes are meticulous bookkeepers (or keep one on staff).
    Uh, isn't that what the word "average" means? You get figures from 25 families (or whatever their sample size was) and average them!
    Of course. I live up near Gaithersburg and my mortgage is considerably less expensive. Of course I don't make $250,000 either. But you guys keep losing the focus of the article. It was about people who make $250K and live in those cities.
    As I said, they picked three cities in the Washington region because it's the Washington newspaper. This was recently identified as the metropolitan area with the wealthiest residents in the country (also the best-educated). Loudoun County, VA (just west of Fairfax County, which abuts Washington), is the only county in America where the average household income is greater than $100K. You just don't find a spacious home for a family of four in these places for less than a million bucks. As I said before, for half that you can get a townhouse or a condo--and not a big one.
     
    Fraggle Rocker, Dec 15, 2010
    #19
  23. adoucette

    adoucette Caca Occurs Valued Senior Member

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    Maybe because you never posted a link to the actual article, and without seeing it I'm having a hard time believing these statistics.

    How many couples did they find that lived in these areas that made $250,000 and knew exactly what they spent their money on over a years period of time to come up with these supposed "statistics" would be an interesting thing to know.

    Arthur
     
    adoucette, Dec 15, 2010
    #20
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