Surviving Off A $400K Income Biden Deems Rich Enough For Higher Taxes

The average net worth for the above average person is large

President Biden has stated he will raise taxes on individuals making over $400K and married couples making over $450K to pay for his $1.8 trillion American Families Plan.

Once you make more than $400K/$450K a year, President Biden wants to raise the marginal income tax rate from 37% to 39.6%. This is the return to the top marginal income tax rate under George W. Bush. At 39.6%, the total marginal income tax rate if you include State, City, and FICA tax will be above 50%.

Under billionaire Donald Trump's tax plan, only after an individual makes over $518,401 does he or she pay the top marginal income tax rate of 37%. For married couples filing jointly, their income would have to breach $622,051 before facing a 37% marginal income tax rate.

$400K For Individuals, $450K For Couples

In the beginning, it wasn't clear whether Biden is making the $400K income threshold for the top marginal income tax rate for individuals or married couples.

If the $400K pertains to married couples only, then the income threshold for individuals facing the top marginal income tax rate will likely decline to somewhere around $300,000.

If the $400K pertains to individuals and married couples, then high-earning individuals best not get married! It would be much more tax-efficient to earn up to $400K per individual and just live happily ever after with another $400K-earning individual.

Finally, in September 2021, President Biden clarified he wants to raise the top marginal income tax rate to 39.6% for individuals making over $400,000 and married couples making over $450,000. Not doubling the income threshold for married couples to $800,000 mostly penalizes women, who also want to build successful careers.

In addition to raising the top federal marginal income tax rate, President Biden has also proposed raising the long-term capital gains tax rate for people earning more than $1 million from 20% to 39.4%. Therefore, more tax planning for high-income households is necessary.

Below is the 2023 income tax brackets for singles and married, filing jointly. Eventually, the top income tax rate of 37% will go to 39.6% if President Biden gets his way and is re-elected. Here are the 2024 income tax brackets, which have higher income threshold limits, but the same marginal income tax rates.

2023 LT ST Capital Gains Tax Rates Singles
2023 LT ST Capital Gains Tax Rates Married Couples Filing Jointly

Is $400K Really Considered Rich?

President Biden has called anybody who makes more than $400K “rich” and should, therefore, pay “their fair share” in taxes. Two of the big benefits of the American Families Act is providing subsidized childcare and 12 weeks of parental leave. After a long period of lockdowns, helping solve child poverty should be welcome from both sides.

Nobody will doubt that earning $400,000 a year is a lot of money. A $400,000 a year household income puts you in America's top 1.8% income-earners according to the IRS. Therefore, by most metrics, you are considered rich with this income.

Sadly, earning $400K a year would have put you in the top 1% of income earners just 10 years ago. Today, you need to earn over $500K a year nationally to be considered a top 1% income earner today.

However, determining whether $400,000 a year is rich or just well off depends on where you live, your family size, and the type of lifestyle you desire. Further, one can feel rich without technically being rich.

There is no guarantee you will be wealthy due to a high income. We all know plenty of people who earn a lot, but equally spend a lot. As a result, they have nothing to show for at the end of each month.

I believe a middle-class lifestyle is all any of us can reasonably expect. Therefore, here is what I consider to be middle class and rich lifestyles. Of course, our definitions may differ.

A middle-class lifestyle can be defined as:

  • Owning a 3 or 4-bedroom home
  • Being able to afford to raise up to two kids
  • Allowing one spouse to be a stay at home parent
  • Saving enough to pay for their state college tuition
  • Regularly saving for retirement in a 401k or IRA
  • Going on 2-4 weeks of domestic vacation a year
  • Driving a median-priced car (~$30,000)
  • Nosebleed seats at a concert or sporting event
  • A canoe for two to row on a lake
  • Retiring in one's 60s and living comfortably ever-after

A rich lifestyle can be defined as:

  • Owning a 5-bedroom or larger primary residence and at least one other vacation property
  • Being able to comfortably afford to raise three or more kids
  • Going on more than four weeks of vacation a year, including two weeks of international travel
  • Driving a luxury car or two ($60,000+ each vehicle)
  • A NetJets account for occasional private jet domestic travel at $10K/hour
  • Front row seats to NBA basketball games
  • A 100-ft yacht to sail the high seas with mysterious people
  • Having the option of retiring before 60 if desired
  • Having a lot more control of your time than the average person

Now that we've roughly defined the difference between middle-class and rich, let's go through the household budget of a family earning $400,000 a year in an expensive city.

Remember, $400,000 is the income threshold where taxes will go up. A $400,000 income should, therefore, be considered the lowest income level to be considered rich according to President Biden.

How A Family Of Four Survives Off $400K A Year

What's funny is that a CNBC reporter asked me to update my $300,000 household budget to $400,000 for his story. Then, in a 2-minute video clip, he only mentions a couple of soundbites. The internet then ran with it and made all sorts of interesting conjectures before I even got the chance to write this thorough post.

Instead of just talking in soundbites, let's analyze the nitty-gritty of how a family of four survives on $400,000 in an expensive city. At the end of each month, the family is left with $3 in cash flow.

You might scoff at being left with only $3/month in cash flow. However, the family can certainly make adjustments to boost cash flow if needed. Further, I bet a good portion of American households who suddenly find themselves earning $400,000 a year would likely end up with negative cash flow.

The $400K Budget

Take a look at the $400,000 budget below that so many people in America have already scoffed at. I've tried to make it as realistic as possible based on my family of four's own expenses in San Francisco (much less b/c we paid off our house) and after talking to at least 50 other $400,000+ households with two kids in a big city.

Your own expenses will obviously differ. Just don't forget to take into consideration your location, lifestyle, and household size.

$400K household budget

Income & Tax Analysis Of A $400K Household

Earning W2 income is the least tax-efficient way to make money. However, that's what most $400,000 professional couples are doing. As a result, they pay a combined ~31% effective tax rate on their taxable income.

The 31% includes state income taxes and FICA tax on income up to the first $137,700. Since both parents are working, they pay FICA tax on $275,400. 7.65% FICA tax X $275,400 = $21,068.

Therefore, consider the FICA tax if you're deciding whether one partner should stay at home to raise the kids. Hopefully, Biden would only implement a new FICA tax on income over $400K.

Despite the availability of itemizable deductions, I've used the $24,000 standard deduction for a married couple to keep things simpler. There may be several thousand more in tax savings as a result.

However, the AMT does a great job of whittling away tax benefits for high-income earners. Further, only $750K of the $1.6 million is eligible for mortgage interest tax deduction.

Housing Analysis

Although I use a $2 million home in the budget, it's fair given the median single-family home price in San Francisco is about $1,650,000. After all, the house has four bedrooms and two bathrooms for four people.

You might still believe that $2 million means this household is living in a mega-mansion. However, I assure you that $2 million is just a regular home in a larger metropolitan area.

People who can't recognize this truth fail to compare the price to the median home price of a particular location. Everything is relative. Don't forget this core personal finance concept.

Below is a picture of a three-bedroom, two-bathroom, 1,992 sqft, single-family home that recently sold for $455,000 over asking at $2,150,000. That's right, this home not only has one bedroom less, but is also $150,000 more than the $2 million home in my budget.

The house is on the west side of San Francisco, which is experiencing strong intracity migration. The west side is cheaper, has more space, is less dense, has fresher air, and is closer to the beach and Golden Gate Park. As a family, you want all these things, especially if you can work from home part of the time.

People who are smart first try to relocate within their city to save money before deciding to uproot their lives and move to a place like Austin, TX where nobody knows their name. The best geoarbitrage strategy is to first relocate within your city.

Thee type of house you can buy for $400K
Sold on 9/23/2020 for $455,000 over asking

Despite the $1,600,000 mortgage, within 30 years, the mortgage should be paid off. Therefore, the household will free up $80,952 a year in cash flow when the mortgage is gone.

This forced savings by owning a home is really one of the benefits of homeownership. The return on rent is always -100%.

The Cost Of Raising Kids Is High

A middle-class family should be able to comfortably afford up to two kids. As you can see from the budget, kids are expensive if both parents insist on working. Full-time childcare and preschool easily cost $2,000 – $3,000/month per child.

The positive is that if both kids go to public school once they reach kindergarten, this family will enjoy a nice income boost. However, many parents with a $400K+ household income want to send their kids to private grade school. Therefore, there's a good chance this household will continue to spend $5,500+/month for two kids on private school tuition for K-12.

Below is a private school tuition calendar for 2021. The cost of 17 years of private school tuition in today's dollars is $774,924 if tuition stays at 2021 rates. But tuition in 2024 is already 10% higher, and should continue to go higher every year.

I want six-figure, W2-earning parents to think about this question: What if my kids go to Harvard and end up a nobody? Will all that tuition spent be worth it? The internet has made everything free. Yet, schools like USC keep raising tuition, despite the pandemic. Therefore, the ROI continues to decline.

If you look at the statistics, private school and public school graduates generally end up earning the same amount and doing the same things. Please consider the public school or trade school route instead of your family cannot receive grants.

Tuition Keeps Going Up

Take a look at some private school tuition rates. Now add another 5-10% for 2023.

Private school costs for $400K income

If you want to have kids, it's probably best to seek advice from other parents. Surviving, thriving, and retiring with no kids is a walk in the park compared to if you have kids.

It's not just the cost of raising several kids that puts an extra strain on a household's finances, it's the time spent raising them, especially during a pandemic. It is absolutely exhausting taking care of younger children all day and trying to work.

But I would say for the vast majority of parents, they would never give up their kids for anything. Kids provide so much joy and meaning to a parent's life.

The angst and anxiety parents of high-income households have is real. They worry their kids will be downwardly mobile, not upwardly mobile in this ultra-competitive world. As a result, they seek generational wealth, but that's hard to come by for all but the very few.

Standard Luxuries

The family is driving a Toyota Highlander with 3rd-row seating ($38K). Sure, they could buy a new Range Rover Sport for $78,000, however, then they would violate my 1/10th rule for car buying since they don't make at least $780,000. They don't want to do what most Americans do and waste money on cars.

Instead of shopping at Gucci or Prada, the family buys clothes from Gap and Old Navy. They also wisely bought more unisex clothing so they can continuously pass their oldest child's clothes down to their youngest.

In terms of entertainment, the family stays mostly at home and watches Netflix and other shows on their electronic devices. However, they do like to pay for nice camping and photography gear for their weekend outings.

Finally, they are also ordering more food delivery to reduce their chances of getting COVID at the supermarket. It's an extra price they are willing to pay to keep their children safer.

Still Saving For Retirement On $400K

Although this household only cash flows $3 a month, the household's annual retirement savings is $39,000 due to both parents maxing out their 401ks.

Further, they are saving $9,000 a year in each of their kid's 529 plan. They could theoretically contribute up to $15,000 for each per kid ($30,000 total) and still stay within the annual gift tax exemption limit. However, they don't have enough cash flow. 

If they really found themselves in a pinch, they could also free up $3,000 a year by eliminating their charitable giving.

With a $260,000 annual household expense, this couple won't be retiring anytime soon unless they can get their expenses down or income up. Even if they were to send both their children to public school, they would still have roughly $200,000 in annual household expenses.

At a 4% rate of return or 4% withdrawal rate, the household would need $5,000,000 in retirement capital. $5,000,000 is equal to 12.5X their annual earnings versus my recommended 20X multiple. Given they are only saving $39,000 a year for their retirement, even with a 6.8% compound annual return, it would take 50 more years to get to $5,000,000.

Unfortunately, interest rates have plummeted during the pandemic, meaning that it takes more capital to generate the same amount of risk-adjusted income. Therefore, it's more prudent for households to boost their retirement savings or lower their withdrawal rate in retirement.

A more conservative safe withdrawal rate of 2% would therefore require a $10 million retirement nest egg. A 1% safe withdrawal rate would require $20 million in retirement capital.

Therefore, it's best for this household to plan on earning supplemental retirement income after their day job days are over.

Difficult Arguments To Reduce Expenses

One of the most common arguments people who don't make $400K+ have about my $400K budget is that one parent should simply stay at home to save money.

Here's an example from Janet:

I don't know what each of the parents make, but let's assume the man makes 81% of the salary of the woman (a little reality flip there….). So she's got the better job, at a little $220K a year. His salary is $178K.

Now, he quits and stays home with the kids. Zero daycare, zero pre-school (or public or church preschool rather than private), so right there: $63K gone.

He also learns to cook and feeds the kids PBJs and egg salad and tuna fish, just like much of America, and bam: food costs down to $42 per day (based on the USDA “liberal food cost” for a family of 4.

As a stay at home dad, I think it's wonderful Janet recommends more dads stay at home. I'd love more company as I'm mostly chatting with moms in the forums and at the playgrounds. Homeschooling is definitely a great way to avoid paying for private school tuition.

However, there's one big hole with Janet's argument. She's saving $63,000 in expenses at the cost of losing $178,000 in gross income! After a 30% effective tax rate, $178,000 turns into $124,600.

Many parents have chosen to pursue money and their careers over taking care of their children full-time. Who are we to judge? Equality in the workplace right?

How About Relocating?

The other common argument is to relocate to a lower-cost area of the country to save money. Although it may be easier now due to the pandemic, unfortunately, not all jobs are able to be performed remotely.

For example, if you are a doctor, it is highly unlikely you will be able to earn the same amount of money working remotely. Doctors earn about 50% less if they do telemedicine. Further, you can't operate on a patient online. At least not yet.

If you are a techie, you may be able to work remotely. But you may also receive a pay cut and be passed up for promotions once the coronavirus is better contained.

Finally, if you are a minority, you might not feel as comfortable moving to the Midwest or the South. It's only natural to want to live in a more diverse environment with more people who look like you.

Once you’ve built your community, it’s hard to leave your friends behind just to save a little more money.

With the pandemic hitting the lower-cost heartland the hardest, many people are having second thoughts about relocating away from the coastal states. In fact, I'm noticing greater interest in migrating to California and New York given the coronavirus positivity rates are much lower.

Besides, with a Biden victory and a divided country, the political differences may be too large to overcome, even for white people who can easily blend in. Many people feel more comfortable residing in states that have the same political ideology as the president.

Therefore, I believe there is going to be a revival in interest of Big City Living again. For example, the coronavirus positivity rate in San Francisco and NYC is less than 0.9% versus 25%+ in many of the heartland states.

Rents rebounding in big cities

$400K Is Comfortable, Not Rich In Some Cities

$400,000 is a big annual household income. You can certainly survive just fine off $400,000 a year. However, based on the above expenses, a $400,000 household income only provides for an upper-middle-class lifestyle for a family of four in a big city.

The good thing is that Biden has decided the top marginal tax rate of 39.6% will start at every $1 over $400,000 after all adjustments. Therefore, depending on what the lower marginal tax rates are, a household won't really start feeling Biden's new top marginal tax income rate burden until people start making well over $400,000.

Good thing President Biden himself only has a $400,000 salary. Otherwise, he'd have to pay more taxes as well.

I would say that once a household starts making over $500,000 in AGI, will the household start noticing the pinch of higher taxes under Biden. At about $700,000, the pinch will start to feel like a body blow if all income is W2 income.

Take a look at the income required to be in the top 1% in Connecticut, New York/New Jersey, California, and the U.S. according to data from the IRS.

Given so much about the definition of rich depends on where you live, I think the minimum household income to be considered rich is $500,000 a year. But even at $500,000 a year, some households seem to just be scraping by due to poor personal finance habits.

Therefore, for a household to be considered unequivocally rich, I say it must annually be earning $1 million or more. At $1 million or more, you should be feeling rich every day. The only caveats are how much work is required to earn $1 million. We must also calculate how long the $1 million annual income can last.

Things To Consider For Higher Income Households

Everybody knows that if a $400K-income earning household with two kids wants to reduce expenses, it can. Everything is a tradeoff that only each household can decide. Here are some things to think about:

  • Be proud and grateful of your $400K+ income. You are likely paying more than $100K in taxes each year, which is 99% more than all other Americans. Don't let people, including politicians, say you aren't paying your fair share because you clearly are. You're also probably killing yourself at work to make $400K+. Your taxes get redistributed for the greater good of the economy. Thank you for your service!
  • Consider working less for greater happiness. If you're the sole-income earner making over $400K, I highly recommend taking things down a notch if you are feeling overly stressed. This unhealthy desire for prestige and money is going to cause burnout and dissatisfaction at home. If you have kids you won't regret spending more time with them. Neither will they. Your perfect income level might be $400K if you can work less and not have to pay more taxes.
  • Make big money now to live like a King or Queen later. Alternatively, if you still enjoy your $400K+ a year job, take advantage until you can't take it anymore or get let go. Your saving rate needs to go up, preferably to at least 30% to build your passive income streams. In retrospect, I probably should have worked at least one more year to bolster my finances.
  • Change the composition of your income. W2 income is taxed at the highest rate and requires the most effort to produce. Therefore, you would be wise to generate more passive income streams that are taxed at a lower rate. If you do, you can earn between 20% – 25% less in income to cover your expenses. But in order to do so, you must get that savings rate up.
  • Get into a wealth-building mindset instead. The government goes after income harder. Therefore, you need to concentrate more on building a greater net worth. That said, beware of a potential reduction in the estate tax threshold under President Biden.
  • Everybody thinks they know better. Never tell anybody your actual income and expenses because you will receive endless criticism. For example, I've read plenty of feedback from childless people judging parents on how to parent and spend. It makes no sense. The upside to everybody being a financial critic is that perhaps nobody is really hurting financially. If people were struggling, they wouldn't be criticizing high-income earners. Live the life you want. Remember, you don't need to win a financial argument. You win by getting rich.

A Comfortable Life Is All We Want

I gave up a six-figure income in 2012 because I was burned out. I also realized that I was happy living on much less. My out-of-shape boss, who probably made close to $1 million a year, was not someone I aspired to be.

My household is happy with a middle-class lifestyle. This is why we are shooting to consistently earn $300,000 a year in passive income. $322,000 is about what the California Association Of Realtors deems as the required minimum household income to afford a median-priced house in SF. Therefore, I use their estimate as our retirement income barometer.

Given we paid off our primary residence, we don't need as high of a household income to live comfortably. However, it's still fun to have goals. Although $300,000 is way less than the income I feel is necessary to qualify as unequivocally rich ($1M), what we lack in income, we make up for in time. Further, passive income is taxed at a lower rate and doesn't require working ungodly hours.

I'd much rather be poorer and free than having to work at a job I don't love. If you are making $400K+ and are not happy, please make some changes. Paying higher taxes while being miserable at your job is no way to live.

Personally, I plan to re-retire within the next 12 months now that the pandemic is over. I'm proud to have paid lots of taxes helped support all the stimulus packages. Further, I've been paying full healthcare premiums of $2,250/month so far. However, I'm tired of the grind and want to finally take things down a notch.

Very soon, it will be time to enjoy life to the fullest as the economy reopens!

Earn More Passive Income Through Real Estate

Changing the composition of your income is important if you are facing higher taxes and working too much. Therefore, I highly recommend building a real estate portfolio. Real estate is a much more tax-efficient way to earn income.

Not only is real estate a more stable asset class than stocks, real estate also provides shelter, and is a terrific beneficiary of inflation.

Thanks to the ability to deduct rental property expenses and the non-cash amortization expense, your tax bill goes way down or often disappears as a rental property owner. Further, in a low interest rate environment, the value of income is more valuable because it takes more capital to generate the same amount income.

If you don't want to physical own rental properties to generate income, take a look at my two favorite real estate crowdfunding platforms. They are free to sign up and explore. Real estate crowdfunding is a way to own various types of property around the country and earn income 100% passively.

Favorite Real Estate Crowdfunding Platforms

Fundrise: A way for accredited and non-accredited investors to diversify into real estate through private eFunds. Fundrise has been around since 2012 and has consistently generated steady returns, no matter what the stock market is doing. For most people, investing in a eREIT from Fundrise is the best way to gain exposure in a diversified way. Fundrise is my favorite private real estate investing platform.

CrowdStreet: A way for accredited investors to invest in individual real estate opportunities mostly in 18-hour cities. 18-hour cities are secondary cities with lower valuations and higher rental yields. These cities potentially have higher growth due to job growth and demographic trends. For those of you with a lot more capital, you can build your own select real estate portfolio with CrowdStreet.

I've personally invested $954,000 in real estate crowdfunding across 18 projects. My goal is to take advantage of lower valuations in the heartland of America. My real estate investments account for about $150,000 in annual passive income.

Invest In Private Growth Companies

In addition, consider investing in private growth companies through a fund. Companies are staying private for longer, as a result, more gains are accruing to private company investors. Finding the next Google or Apple before going public can be a life-changing investment. 

One of the most interesting funds I'm allocating new capital toward is the Innovation Fund. The Innovation fund invests in:

  • Artificial Intelligence & Machine Learning
  • Modern Data Infrastructure
  • Development Operations (DevOps)
  • Financial Technology (FinTech)
  • Real Estate & Property Technology (PropTech)

Roughly 35% of the Innovation Fund is invested in artificial intelligence, which I'm extremely bullish about. In 20 years, I don't want my kids wondering why I didn't invest in AI or work in AI!

The investment minimum is also only $10. Most venture capital funds have a $250,000+ minimum. In addition, you can see what the Innovation Fund is holding before deciding to invest and how much. Traditional venture capital funds require capital commitment first and then hope the general partners will find great investments.

$400K Income And Higher Taxes Is An FS original post.

210 thoughts on “Surviving Off A $400K Income Biden Deems Rich Enough For Higher Taxes”

  1. Have you taken a look at which talks about how the GDP and jobs grow during Democrat Presidents but slower when it’s a Republican.

    This is a measurement of history and how Democrats are better for the economy and it shows with evidence. What is your evidence that Republicans are better for the economy?

  2. If you measured this family’s year-over-year change in net worth, it would not be $3. This family is saving more every year than the median household takes in *before* expenses.

    The row you have labelled “Cash flow” is called “Accounting error”. The family is saving a ton of money every year, and this table (that is clearly reverse-engineered to produce a tiny positive number of accounting error at the bottom) completely tries to hide that fact. Saving (in the form of 401(k), 529, or debt reduction) is not an expense, and an accurate accounting of this family’s expenses in terms of *expenditures* and *savings* would show a very large “cash flow” under its actual definition.

  3. Thank you for breaking this down. Most people just hear $400k and they get so frustrated and feel as though no one deserves that income. We should absolutely normalize this level of income in major cities. On top of that, I feel like this is just another way our parties are pitting everyday citizens against one another. We have known for a long time that tax evasion is legal in many ways in the USA if you are *truly* rich – yet instead of tackling that issue of corruption we come after families making a comfortable living in large cities? It’s a deflection and I’m tired of debating IF this tax hike is right or not instead of “why is this the focus when truly wealthy people are not being taxed at all.”

  4. This was very well thought out, the only thing missing is the political agenda hanging in the background. The last dozen years or so the seeds of our future currency debasement had been sown. Only during this pandemic and current administration has become super charged and likely to propel the middle class quickly into higher tax brackets as inflation drives the market. Twenty years from now as you sit at Starbucks with a friend having just a simple venti coffee that currently costs $2.95 you will enjoy the same cup but for $13.75 but wow you will have a million dollar mansion or shack depending on zipcode, and enjoy the privilege of paying taxes based on your higher income even though your income doesn’t go very far. Elections have consequences, I am not right wing, generally in the middle but maybe lean slightly right, mostly because l love people and want them to prosper, but when the political environment flips blue, well I make even more money since I know how to take advantage in the climate of chaos. Just like those hedge fund guys who invest in politics, which is genius, they get the writeoff and the benefit of their investment pays off big when their candidates win. Enjoyed the commentary, have fun at working home raising your kids that is the best time in the world and is fleeting. During the financial crisis I basically took 3 years off, and enjoyed my kids at the right time, now they are grown and I miss playing with them building legos and playing trains. Our world is ever evolving, ever changing, and despite the media, there is hope for humanity.

  5. It appears as though $400K to $700K earners are only looking at a tax increase of 1% or less with President Biden’s proposal, with the focus more on those that make a million a year or more This based on studies by the Tax Policy Center and the Center for American Progress.

  6. If a couple is earning $400K and only giving $3K for charity, I have to wonder why they’re working so hard.

    1. Probably to provide for their family and save for retirement.

      But your comment is partly my point. What taxes going up, working so hard and not being happy it’s probably not as worth it anymore.

      How much do you make and donate to charity? Thanks

  7. Taking more from the 400k+ will only generate so much, because incomes this high are uncommon. Why not take a little more from everyone and raise a lot of money? I paid almost zero in federal taxes on 80k one year and then got killed in taxes during a 400k+ year. A lot more tax revenue could be gained by making a federal income tax floor of like 5% no matter what credits/number of kids you can claim. Too many people paying nothing, almost nothing, or even a negative federal tax rate. Biden’s new plan not only punishes the top earners but it babies low six figure earners with the new child credits. The unpopular reality is, every person in this country needs to pay up a little or we will destroy the dollar’s purchasing power.

  8. Great post Sam! It really illuminates the spending of high income earners, even if they could trim their budgets significantly to free up cash flow. I covered this article extensively in a post of my own at Valuist and provided some back links. I mostly focused on the spending side and offer some adjustments to maximize savings; I hope you check it out some time!

  9. To me “rich” means that you have enough money not to work and pretty much do whatever you want. I make over the $400k threshold and I absolutely don’t feel “rich”. I would term my families situation as being financially secure. No one that knows us would think we are “rich”. We live in a modest house, take a couple of modest vacations per year, drive a chevy and a honda. We do save quite a bit and invest heavily but there is not a day that does by where I feel “rich”.

    1. Joseph Mutter

      It’s because you’re out of touch with reality. I can’t help you, maybe you need to “Pol Pot” in the fields for a few months to get it.

    2. William Campbell

      Your Covid-19 stats are way off and now in 2023 meaningless since infection rates in vaccinated people is now in fact equal to or higher than non vaccinated individuals. Aside from that and your own point of view, the article was very clear and well written, I always considered rich as being able to fly private when you want domestically and first class internationally. So 400K is well off but not rich. Thanks for the good advice.

  10. There is a huge flaw in your budget. You are not taxed 31% of your taxable income. Taxes are not calculated that way. It goes in brackets. For a married couple, your first $19,900 are taxed 10%, income from $19,900.01-$81,050 is taxed at 12% and so on.

    1. Joy, what is your effective tax rate with a $400,000+ income? Please add up Federal, State, City, and prorate for FICA tax of 6.2% up to the first $142,800 in income.

      What do you think the effective tax rate is for a $400,000 income?

      Add up all the taxes, and you will find a 31% total effective tax rate to be about right. Please don’t forget State taxes.


  11. You people are crazy. $400,000 per year is rich. If you’re not the 1% you’re the 2%. If you’re richer than 98% of the people you’re rich. Imagine looking at a 36-inch yardstick and thinking that the one-inch mark is “the middle.” If you’re putting $39,000 pre-tax into retirement every year, you’re rich.

    If you’re 51 and you’ve been putting 10% of your income into retirement for 30 years, you’re incredibly rich, especially because your retirement bundle has probably tripled or quadrupled in the last ten years. If you spend $7200 a year on vacations, you’re rich. And you know what? If you make 400k, your taxes are not going up.

    If you make $450K, Biden’s intended tax hike will probably only cost you 1-2k, but you will bitch and moan like it is the end of the world. Biden is not going to raise the taxes of people who can save $39,000 a year and spend $7200 on vacation. Bill Clinton raised taxes on the rich, and everybody said it would be the end of the world, and the economy boomed. Obama raised taxes slightly on the rich and the economy crawled out of the hole the Bush crash put us in.

    Bush and TRump lowered taxes on the rich and got no benefit from it. The worst thing is that none of you seem to care how many Americans are hungry, how many are without health care, how many cannot get mental health care, how many cannot get treatment for their addictions, how many have zero saved for retirement, how many cannot give, up their second jobs, how badly out infrastructure needs fixing, how many college students have to work jobs that interfere with their classwork.

    You people are not just crazy. You’re horrible people. I don’t care how hard you guys work to make your money. You guys deserve to pay more taxes and I get to be the beneficiary of your tax hikes.

    I’m not willing to work more than 40 hours a week to get ahead because I want to spend time with family.

    I don’t care if people making over $400,000 a year are already paying a disproportionately high percentage of all income taxes. You guys should pay more to help us enjoy life more! We deserve free healthcare, lower taxes, and a better life.

    Matthew 25:40.

      1. hahaha that’s so true! America is going through the cultural revolution that China went through, but didn’t Margaret Thatcher say, the problem with socialism is that eventually you run out of other people’s money to spend? Rich people won’t stay in this country and let lazy people get free rides. XD

  12. Complete Joke

    Why is it that in every discussion on this topic, Biden refers to those making over $400k as billionaires? (Stephanopolous interview a few days ago ie). Complete kick in the gd face.

    Bottom line is that $400k, (dare I say even $900k) is far from “Rich”. Most of us earning $400-$1m are taking it from both ends.

    I live in the Midwest, have kids, save for college, drive nice, but not $70k cars, and am a layoff away from serious “oh f&$!”. Why? Not because I don’t have savings, but because I’m late 40s and have another 10-15 years to put kids through school and retire comfortably. Not with a net jet subscription or on the glass seats at a game…the definition and reality is totally disjointed as the author notes.

    Ironically, was having a discussion with a friend in California that won’t pay a thing for the next 10 years (will get refunds) as a result of real estate loses and depreciation.

    Tonight I go to bed worried about what next year brings, but according to joe I’m a billionaire… so I got that going for me.

  13. I’m absolutely befuddled by this definition of middle class. This is an antiquated definition that does not at all reflect what middle class America looks like today. Please allow me to go step by step:

    A middle-class lifestyle can be defined as:
    Owning a 3 or 4-bedroom home (Agree)
    Being able to afford to raise up to two kids (Agree)
    Allowing one spouse to be a stay at home parent (Ridiculous–No one I know who is considered middle class can afford a single-income household. That is a privilege in this day and age).
    Saving enough to pay for their state college tuition (Ridiculous. My parents are upper middle class and could not afford the entirety of my or my brother’s tuition. We both went to state schools. They were able to help).
    Regularly saving for retirement in a 401k or IRA (Agreed)
    Going on 2-4 weeks of domestic vacation a year (Who has an entire month off? I don’t know anyone who is middle classed and can afford this).
    Driving a median-priced car (~$30,000) (30k seems high for middle class)
    Nosebleed seats at a concert or sporting event (Sure)
    A canoe for two to row on a lake (Sure? But weird)
    Retiring in one’s 60s and living comfortably ever-after (To be decided. My husband and I are middle class millennials. I believe we will both be working at least into our seventies)

    1. Sounds like you agree with 80% of the definition of middle-class. Count up the agreements and divide the total yourself.

      $30K for a car does seem high, I agree. The average new car price is now $39,000 in 2021. That is absurd.

      I’m surprised you don’t know any stay at home parents. Some would say it is a privilege to make enough to afford to pay someone else to take care of their kids. Do you have children?

      1. I had about the same assessment as the reader. I also don’t know any stay at home parents. The closest I know are cases where one partner makes massively more (doctor) and the other is self employed (musician, artist/artisan, yoga teacher, misc wellness stuff), who still gigs and teaches on the side or can set their own schedule.

        The one thing I’d disagree with is daycare. I know very, very few working middle class who can afford that type of all day daycare. It’s usually either just a few hours when the other spouse can’t cover, or someone in the family has to help (grandma, or neighbor at a reduced rate/exchange of babysitting at other times). Mostly again it’s the spouses working out their schedules for one or the other to cover.

        That 529 plan amount is probably the most wild to me. I don’t know anyone saving anything near that for their kids’ tuition.

      2. stuckinnova

        I’m also going to have to agree with the others about the SAHP. That’s seems like a luxury to me in this age of working mothers. Some of that is probably by choice (back in the 50s there was much less opportunities for women even if they wanted to work), however I suspect because incomes haven’t been rising over time, more family find themselves requiring both parents to work to be able to afford some of the other items on the list.

    2. My parents are lower-middle class and my mother hasn’t worked in decades. They never made more than $55k in a year and are retiring in their middle 60s comfortably with no mortgage on their 3 BR/3BA 2400 sq ft home. (They did inherit about $30k about 15 years ago as the only outside $ source they’ve ever received)

      On the flip side, my parents didn’t provide a dime for college for me, and with the exception of a $500 loan that I paid back in 2 months in my early 20s, never provided any financial support to me once I turned 18 (I didn’t ask either, I strived to be independent).

      I do agree $30k for a typical middle class car is high – but the average vehicle is now $40k. I make way, way over the median in the US and just a month ago spent that much on a new vehicle (for the wife). A lot of people just can’t help themselves when it comes to vehicles I suppose.

      There is no reason a middle class person can’t retire in their early to mid 60s just doing the 401k @ match levels, much less paying off your mortgage, doing the IRA thing, and putting other savings away. One thing a lot of people don’t realize is how much lower your taxes are in retirement – no FICA taxes, Roth income is free, and your other income is lower than when working so the standard deduction and next tax brackets make up a much larger % of your income.

      Add to that not having to buy clothes for work and drive to/from work 5 days a week, not having to save for retirement, combined with no mortgage, your cost of living could easily be 40-50% lower in retirement than when you were working. Throw in SS and could be 50-70% lower of other income needed in retirement.

  14. “Many people feel more comfortable residing in states that have the same political ideology as the president.”

    I’m not sure if you meant the current president (Trump) or the president-elect (Biden). But either way, this sentence is probably very true — just for a different set of people.

  15. So basically we work our whole lives 20 plus years make over 400k because we work 12 hours 6 days a week and now we have to pay more taxes because people can’t get it together and want free money for college and not working. I started with nothing when I was young not making much and I worked my way up thanks joe for threatening to tax me because I’ve worked so hard. Why don’t the lazy millenniums just go to work and pay there share as we did? If he goes through with this we should all not pay our taxes then see what happens to this once amazing country.

    1. Robert Ruschak

      Billions of humans have worked 60+ hours a week, since the beginning of time……..

      When Dwight D. Eisenhower was president, the marginal tax rate was 90 plus percent………

      Joe Biden will raise the taxes and the national debt/budget deficits will continue to surge.

      ****Panama Papers****

  16. My wife and I relocated from NYC to Texas and that went a long way in increasing the amount we save and actually being able to afford a house.

    1. Modviz,

      Good morning

      I sure pray to God that you were the rare New York Republican who just moved south!

      Or at least!

      That you will convert due to your own acknowledged realization of the difference between the two parties!

      God have mercy on America if you are a Democrat!

      Turning Texas Blue means communism is guaranteed for America’s Future!

      We should all gather together in prayer that the Californians and New Yorkers who are running to the Red states from their communist controlled Blue states are also changing their own politics to Americanism when they move and not bringing the communist principles of the blue party with them and their votes!

      Congratulations on your move to the conservative life we all hope to have!

      I hope to retire in Texas myself someday so if you are a Democrat no worries we can just cancel each other out and be cordial acquaintances anyway.


  17. Brian Edwards

    Cool. So by that reasoning, the vast majority of the country lives in abject poverty. Good to know.

  18. This article is great and I actually plan on doing a ton of lobbying on this if we lose the senate which means this will actually pass. The only thing I really really wish you would have changed is the $2m house line. I’ve been making your same exact argument to everyone in the world and use almost identical numbers except the home purchase price. I live on Long Island so our numbers are very close on many levels but a middle class or upper middle class house on Long Island is in the $500 – $800k range. So I think you lose a lot of audience with the $2m gaudy price point.

      1. Ok maybe “gaudy” not the right word. But if one is trying to appeal to legislature on this issue and one is already fighting an uphill battle since the average person thinks 400k is a lot, one can achieve a similar argument with using an $800k house. I just think once you say “$2m” for a house then even people in high cost of living areas discount the article. I’m on your side and $2 probably still falls within upper middle class so again, I’m with you. But you can make almost as compelling argument using $800k and $22k in or property taxes. FYI a $2m house on Long Island would yield about $30-$35k in property taxes so that line would increase but of course the mortgage would decrease. I realize this wasn’t written solely for long islanders just making a point that $2m would joy be the number I would have used here.

        1. Susan Ohsfeldt

          The analysis leaves out SS and Medicare tax on a
          all earnings that goes to 3.8% at $250,000. I pay $19,000 on $1.2 million dollar house and the insurance is $3600/year with a $7,500 deductible. The plan to slap 12.4% on top of 39.6% and 3.8%, it is unfair to those making ordinary income. Biden wants to tax my earnings to pay off student loans without any limitations. $400,000 is not rich and the tax plan is unfair.

          1. I agree completely. You will pay much more in SS tax but the benefits you will receive will at best be based upon only the first approximately 120k of income. I suspect Biden may go further and means test SS such that those with higher incomes will never receive anything. After seeing his cabinet choices it is obvious that the US will return to regime change wars.

  19. This is always good–if controversial–analysis. “Large” incomes are only meaningful if put in the context of the cost of living. Cash flow–like in business success–is the real metric to use for comparisons. Bad cash flow projections equate to risk.

    When we lived in DC, people that had children were considered “clearly well-off.” Most people we knew waited to have kids or moved to the far suburbs and sucked up the commute time as a cost of having children.

    1. Yes, sadly, just being able to have children and afford children in a big city now seems like a luxury. So many things have to go write before and after.

      I’m not sure why some people can’t see that have a couple kids has historically been considered a middle-class lifestyle.

      If we are talking about 4+ kids, now that is a rich lifestyle.

  20. People are going to be butt hurt likely because it can be construed as being tone deaf with most people making far less. However it is the bitter truth, kids are unaffordable for most in VHCOL areas.

    There’s nothing on there that screams upper class. Sure you can make cuts to the budget accordingly and survive on less but at the end of the day these expenses are things that would typically be considered middle class. Eh, who needs to retire anyways?

    Personally, I am not affected by this tax increase but the focus on increasing taxes for the “rich” in the name of social morality is frustrating. The government has shown time and time again to be vastly inefficient with politicians pocketing a portion of proceeds. It’s easy to support it when you aren’t affected but that doesn’t make it right, it just makes you a hypocrite. You’re voting to forcibly take even more of someone else’s money to support spending on expenses that they might not even morally/politically agree with. Then you pat yourself on the back for making the world “better”. All a bunch of crabs in a bucket.

    1. It’s just human nature to vote for a politician who will raise taxes on one group without being willing to pay more taxes themselves. The 3 months of stimulus negotiation stalemate as we enter a new coronavirus surge is a good reminder of government inefficiency.

      Th government won’t save you. You need to save yourself folks!

      1. I’ve been a subscriber for a year or two now. This comment just made me unsubscribe. Making over 13x the median income isn’t usually the product of hard work and determination, but the results of privilege and unequal opportunity. I live in a VHCOL city and am living a moderate lifestyle for under 150k. 400k is unfathomable to me and while I know it wouldn’t make me the 1%, it would afford so many luxuries and conveniences I know are unattainable to the lower/lower-middle/middle class.

        Saying that a 400k income is a struggle because of tax increases is so tone deaf because a minimum wage job is actually a struggle. You don’t need a 2M house or private school for the kids. Those are all luxuries if you ask me.

        When the number of billionaires increased by 30% during the pandemic ( I can only imagine that even the 400k income earners also increased their net worth disproportionately to the rest of America.

        I originally subscribed to you because you were also Asian-American and seemed to have a different mindset from the other white bloggers. But you seem to be so far out of reality now that you don’t understand the racial inequality and systems that continue to oppress in the US today.

          1. I still fail to understand why you hope we all pay more taxes. It is almost as if you support the military industrial complex, corporate welfare, alien smugglers, etc, etc.
            I worked for the federal government for 26 years and I regularly saw the significant waste and mismanagement. Just one very simple example – I remember our motor pool supervisor requesting five new tires for one of the fleet vehicles. When I mentioned that the vehicle only had four tires, he stated that they always replaced the spare tires as well. I simply told him to choose the best of the four tires on the vehicle and consider that the new spare, assuming the current spare was not in better condition. Now imagine this kind of waste across the entire federal government. As long as the waste continues, I can never support increasing taxes and pretending that it is going to help someone. If you truly want to help someone, then please use your own funds and do not support raising taxes.

  21. I agree with most of this. However I think modern middle class families require both parents to work. Being rich is the only way you can have one parent stay at home. Ie you either need to make 500k+ individual (ideally closer to $1M) to afford a partner to stay home, and that is upper class lifestyle at Bay Area prices (500k may be borderline upper middle class.) Middle class = two working parents + childcare without going broke.

    Thanks for calling out the marriage penalty. I am voting Biden but I am annoyed he isn’t clear on if it’s 400k household income. So is this tax on individuals earning 200k or more? Now that would at least be fair—but I think there would be a massive amount of angry people making 200k with taxes going up when he said 400k. Or is it 400 married and individual?

  22. Regardless of the financial implications of Biden’s tax plan, would you seriously consider voting in the alternative given the way our country has been ran for the past 4 years? I will gladly pay a higher tax rate to save our democracy and prevent our country from turning into a banana republic. In fact, I think it is our patriotic duty to do so. Policy can always be reverted down the road, but 4 more years of this train wreck will permanently destroy the country that we know and love.

    1. It always amazes me how much the MSM has convinced a large percentage of the population how bad Trump is. Trump is the first president since Carter that has not started a new war and that by itself is worthy of merit. Much of what is portrayed is either misleading or taken out of context. This has permitted the democrats to select a candidate that under normal circumstances would have zero support. Not only will he not restore democracy, but he will ensure that we have an even more hard core Trump like candidate in 2024. I definitely have no desire to pay more taxes for the train wreck that is coming

      1. No need for the MSM to do any convincing. All you need to do is listen to the words coming directly out of Trump’s mouth to gauge his competence for office, character, and allegiance to our Constitution.

        1. The MSM glosses over most of Trump’s actions and focuses on his rhetoric which is often taken out of context or simply for effect. Just today Trump announced Sudan will establish diplomatic ties with Israel, making this the third country this year. Obaba/Biden 0 countries. Trump has yet to start a new war yet the MSM makes him out to be a war monger. Contrast this to Biden. In each of Trump’s four years in office he has deported more undocumented persons than Obama did during each of his first 4 years. Trump has created Opportunity Zones which will predominantly benefit people of color. He’s far from perfect but compared to Biden’s record he looks like a saint. However, personally I will not vote for either.

      2. Oh yeah, didn’t start a war, but had a ton of allies killed in Syria when he pulled out.

        When the best you can say about a president is that he didn’t start a war, when thats largely about the international situation, you know he’s a terrible president.

        Not to mention being a laughing stock among his peers, and a ton of direct reports publishing books about how incredibly dumb Trump is.

        1. Given that Trump is the first president in recent history to bot start a new war that is extremely positive especially when you consider the war on terror has killed more worldwide than covid. Of course it is over the course nearly 20 years but all of those deaths were preventable.
          As for your Syrian allies, they were linked to Al Qaeda who if my memory recalls correctly were to blame for 9/11. I’m not sure why you would call them allies.
          Trump may not be the greatest president, by far, but certainly better for the world than the last two.

  23. Jacob Meyers

    After reading the breakdown, I see that you are making several choices that can easily go a different way. It looks to me that you are effectively doubling the costs of child care because you’re pay for childcare all day yet I also see school. I would have to ask for clarification on that and why there is a 529 plan for school? I understand education is important but the choice of private school over public seems very expensive in this case (We have our kids in private school but not anywhere near this price and we do live in Washington). Food at 65$ a day? That seems very high, we have two kids who are competitive athletes and they don’t eat that much. Over 25 % of your income is going to housing in one way or another, maybe a commute is a better idea. Please don’t misunderstand me, I love real estate as we own five rental properties and we have been able to achieve a very nice standard of living with significant cash flow after expenses on a enlisted military salary and teacher pay. While it is not a big item, why an umbrella policy if you already have life insurance for both?

    If this were me, I wouldn’t have that mortgage (Kudos on the low rate). I would commute and put that extra 50K into other endeavors. I would cut my food budget the umbrella policy and change my phone plan and less charity (3 dollars a month makes you the charity case)

    1. Actually its well over 25% IMO – A full 43.8% of after tax income is going to housing/utilities in this example which is insane IMO. I’d make the hour commute in a heartbeat and cut that down in half easily – I live in a 4k+ home with a pool/hot tub and half acre in one of the top 10 fastest growing cities in the country and with 20% down that same metric for me is about 12% of my after tax income – with a very similar income as this example.

      I also was a bit confused on the child care and private school cost at those levels for a typical 1-2 kid family. That might be right with 3+ kids, though. I did the math on private school when I was in college and it just never made sense. College adds about $1M in lifetime income for the typical person. If you put that private school money into stocks each year till they are 18 then give them the entire nut at 35, you’ll be giving them about $2-$2.5 million, far more than the value of college, say nothing of the difference between private vs public school for tuition. The only reason private schools make sense IMO is for religious reasons or you are very wealthy.

    2. Jake Palmer

      I’m thankful that Sam actually did say 65 / day. Both parents are working 9-6 (some days longer). Likely getting home and settled at 7. If they cook, they’re not eating until 7:45, 8? All cleaned up by 8:30? Now time to get the kids ready for bed, get ready for bed, etc. Now have to get up at 6 in order to go to the gym, so need to be to bed by 10, 10:30. I’m not sure doing that EVERY day is feasible. Having prepared / restaurant food at our fingertips is a luxury, but very expensive. 4 entrees alone in a HCOL area is at least $20 (guess what, the crappy diner down the street in NYC charges $22 for an omelette), plus tax, tip, etc. The occasional food delivery makes it so you can attend to one thing for your kids, or that one personal thing you need to get done, etc. This doesn’t even include a somewhat regular date night.

  24. So, say I start life just out of college making about 18k per year (about 48k in 2020 dollars). Perhaps I also had a couple of spells where I was even flat broke and out of work.

    Now, with several decades of experience in IT, I might make a bit over six figures (and same story for my wife). Let’s say we make about that much again each year from growth of our retirement funds and life savings (most of which are not taxed due to half being in retirement plans (401k, Roth IRAs, Regular IRAs, etc.) and the other half being invested primarily in “buy and hold” mutual funds, FAANG stocks, certain blue chips, etc.

    That’s 400k coming in each year. Are we rich?

    Given that going out to dinner was a major indulgence for most of my life, that I’ve spent a lot of years working in jobs I was not enthused about, and training and retraining myself on my own time and dime, lived in modest homes even smaller than what real estate agents wanted to sell me, currently pay over 12k per year just in property taxes on a small townhouse, and still drive ten year old cars, I have certainly never felt rich. Had I been less frugal I certainly would not be where I am now.

    And this is very temporary. I am very close to retiring now and the goal is to not be a burden on anyone, and to maintain or even slightly increase current after-tax, pre-savings, income . . . but never mind that. Some politicians have decided that, for the moment, I AM rich and are ready to put the kabosh on that.

    They really need to apply an age modifier to this whole wealth business. In some ways I was wealthier the day I started my first full-time job. Seriously, if my wife and I could sign over all of our savings, investments, and passive income, etc. in order to have our bodies rejuvenated back to 23 again, even starting back at what we were making then, it would be a bargain. So who is the wealthier?

    Offtopic: If Congress ever figures this out they will surely figure out a way to tax youth (probably would involve some euphemism for “indentured servant”).

    There is also location to be considered. Let us say that, after my first wife’s death, and before I remarried, and moved to where I am now, I lived alone with my children in a house twice the size of this minimal lot line townhouse, but costing half as much, on a large wooded lot in an immaculately maintained gated community that had its own beach and was on a golf course, where the property taxes were a quarter of what they are here and there was no state income tax. And everything else was also cheaper, starting with electricity and gas.

    If all a politician can do is throw up an arbitrary figure, without considered either location or age, then they have not a clue what is rich and what is not rich.

    This is part of the problem with people that go into politics in their youth and have to be carried out of office in their old age, assuming they don’t just die of old age in office. They lose touch, even if they weren’t born to great wealth and never had touch.

    1. Thank you. We are in the same boat. We’d like to retire comfortably and maybe enjoy what we’ve earned. But somehow that’s not acceptable to a lot of people. There is no way we can continue to even live in the home we are in now due to property taxes.

      1. Doesn’t make sense in a lot (most) of circumstances but have you looked at a reverse mortgage? If you are set on living in the same spot they can make sense in some circumstances.

  25. 2 children = roughly 50% chance of same sex.
    Therefore, roughly 50% of middle class families NEED a 2 bedroom townhouse.

      1. Im curious of why you would see this as gender dependent and not age dependent. I’d expect at a certain age the kids would like their own room regardless of same gender or not. Before that they could share a room.

  26. You make the same mistake every time you do these budgets. You take out way too much for taxes. You can deduct 3% times $1.1 million ($33k) for your mortgage. Then you can also deduct $10k for property taxes and state income taxes. That’s $43k. Add $3k more for charitable contributions (low in my opinion but it’s your hypothetical) and you now have $46k. Only a certified moron would take the standard deduction. That’s $22k less in tax deductions. Itemizing gives you about $6k more per year. So according to your figures, a family making $300k per year can take three vacations, max out their retirement savings, save for their children’s college, employ a nanny and day care (not sure why you’d need both), go out to eat regularly, and still have thousands of dollars left over. Sounds rich to me. Anyone who thinks that this is a middle class lifestyle is an idiot. What isn’t is super rich. You aren’t living in a mansion and owning your own airplane but this lifestyle is plenty rich.

    1. I already mentioned in the post a couple times that there may be several thousand dollars more in cash flow because I use the standard deduction instead of the itemized deduction. However, due to the alternative minimum tax, and the fact that you can only deduct $750,000 of mortgage interest indebtedness, 31% total effective is pretty close.

      I don’t think The mortgage internist has returned to $1.1 million. If it has, please send me a link.

      To double check, I have asked multiple people who make for $1000 or thereabouts with her effective tax rate and they all say about 30% or so. Do you make $40,000 in W-2 income and pay a much lower effective tax rate? If so, I’d love to know how you do it. Thanks

  27. While I agree that 400k is only upper middle class in coastal areas, I would not use the word “surviving” in the title of this post. There are no struggles at that income level regardless of where you live. We live in a social media, influencer obsessed culture of rampant consumerism where everybody assumes they should be able to afford a beautiful new construction home, new furniture, new cars, and luxury vacations. While income inequality is at an all time high and the cost of living in cities is insane, there is nothing “struggling” about living in a large-ish fixer upper house in a suburb, driving normal cars, and taking simple vacations.

    1. Everybody has struggles. Even the top 0.1% who make well over $1 million a year.

      I know it’s easy to judge others without sharing anything about yourself (social media curation, as you mention). However, let’s not discount other people’s struggles.

      We can say everybody born and living in the U.S. is rich in comparison to most of the world’s population. But we don’t.

    1. Yes, you could live like you are poor, but what’s the point of working so hard then? If you don’t sock some away, your taxes will be even higher, so it’s not like you actually even can spend all of what you earn. Are you saying that 400k isn’t rich?

      1. You wouldn’t be living like you were poor, but rather just not affluent (better word for this lifestyle IMO) – it would be closer to the regular middle class in the US but saving $75-100k/year more than them. And if it means that much to you, you could live an hour away and cut the $114k total home ownership cost in this example by half (actually more, since your 20% down payment is smaller and you can invest the savings creating other income) and your child expenses by ~30-50% as well and get a larger house and live affluently.

  28. Everything is relative. That’s why affluent people don’t share around non-affluent folks. Living/growing up in high-cost, ultra-cosmopolitan areas like SF or Manhattan, and talking about your lifestyle or expenses will bring sanctimonious judgment, outrage, etc.

    People I know in high-cost areas worry about downward social mobility (probably same for struggling Americans in the heartland). These folks are raised in middle/upper-middle class households in the expensive coastal areas and worry that they, or their children, will get priced out or not have the same opportunities. They keenly feel they have to hustle more than their parents did (previous generations had lower housing costs, education costs, property taxes, health care, etc). Middle-class used to connote some form of security.

    When you consider that middle-class over a century ago in places like London, etc. involved owning a townhouse or single family, and having a live-in maid, on a single earner, it’s amazing how people want to judge and brag about how they can live on less now. Just because it’s possible doesn’t mean it’s desirable.

    People don’t always want 1-hour driving commutes, high-powered 100+hour week jobs, or have to move away from their extended family members and or live in ever-smaller spaces to make things work. A good chunk of my high school class in SF in the 80s have dispersed across cheaper areas in the Bay Area, US and internationally.

    One friend in Pac Heights is now buying a multi-family in anticipation that, should her now teenage children want to come back and work and live in SF (not everyone chooses the most lucrative careers like finance or tech) they will have a place near them. She KNOWS how easily it is to get priced out in the long haul in such competitive places as NY/SF, and she is not alone in the thinking/actions.

    1. Good points. Several friends are buying multiple properties within their neighborhood to generate rental property income because the value of cash flow has gone way up, and also to provide insurance for their children as a place to live and something to do once they graduate from high school or college.

      Right now it’s really A wonderful time to kill my property that might not have been available in the past. And when the rebound comes, it’s going to be fast and ferocious. I feel so thankful to be able to have this opportunity.

      A noticeable reduction and traffic was filed in 2001 and 2002. But that didn’t last long. I hope you can last longer this time.


  29. Ridiculous and out of touch :). Besides not having any idea of what things cost or what the actual middle class, way to not even know how taxes and financials work.

  30. 400k per year is not middle class, not even close. It’s funny how the fake people, in the fake example, can barely survive on 400k.

  31. That budget is absolute nonsense because of how much WASTE it has. If you were *truly* struggling to survive, you could *EASILY* save over $15,000 a year.

    Three weeks of vacation a year? Try ZERO. REAL middle class people SAVE to go on a vacation, not go on 3 weeks of vacation every year. Savings: $7,200.

    Car payment? REAL middle class people buy USED CARS. Savings: $4,200.

    Entertainment? REAL middle class people SHARE their entertainment accounts like Disney+, NetFlix and so on. Plus, since your example lives in California, museums are FREE on the first Saturday of each month in California: Savings: $3,600.

    Want to save even more money? MOVE. Fairfield is 50 miles away from San Fran and houses average $700K. What? Driving 100 miles roundtrip every day is too tough for you? Two of my co-workers each drive 100 miles EACH WAY EVERY DAY.

    If you’re clearing $400K a year, you are only “struggling” because you CHOOSE to be.

    1. 100% agree. COL does not justify the ridiculousness of this budget – living in an urban, high cost-of-living area does not make those activities and expenditures suddenly ‘normal’ and ‘middle-class’. If you are spending money like this, YOU ARE NOT MIDDLE CLASS.

    2. I agree that the budget presented above is extravagant. The food estimate is too high, and there’s no reason for that car payment. Either you have the cash to afford the car, or you buy a cheaper one. Using leverage to purchase a depreciating good is idiotic.

      I disagree with your driving bit though, there is no argument that can be made which justifies driving 100 miles each way every day. If you’re doing that, you should move. The money that you think you are saving in rent / mortgage, you’re paying for with your time (with family, to pursue your own interests, rest).

    3. Some real people make huge sacrifices to get to the salary goals. They pick their job based on growth and income. Why wouldn’t they expect a nice vacation or a nice home? What’s the point then? These are working people, just in professional careers. They are not multi millionaires who jet set around the world. Should there be an elimination of upper middle class? Should we just pretty celebrities and the struggling peons? Or are you upset that they want to enjoy life a little bit because they earned it?

      I seriously doubt they will be able to live in the same house and travel after 75. We call that downsizing and disabilities. Let people live like they want as long as they pay their own bills.

  32. Lets try this for a year or three… EVERYONE pay their fair share of taxes; No havens, no write-offs, no shelters.

    Live simply so others may simply live – an old adage but true.

    And if you are struggling on 400K you aren’t prioritizing adequately!!

    1. That’s the thing. What is the definition of fair share?

      I would say a $400K income earner household paying $120,000 in taxes seems pretty fair.

      Nobody said this household is struggling.

      1. Chad Micheals

        Across america the average “working stiff” more than likely doesn’t make 50k a year. Literally look at the average teacher salary in america. With all due respect it’s hard to read this article and not feel like some people need to gain some perspective outside of their particular bubble

        1. No problem, as a high school tennis teacher who earns a little over $1000 a month during the season, I can empathize. I’m always intellectually curious, which is why I’m willing to do the analysis of a $40,000 household and not get upset or anything. $400,000 is the income threshold for higher taxes Biden set out.

          But I understand why some things are the way they are. I don’t begrudge anybody for trying to earn more money and find ways to take care of their family.

          1. Honestly, your definition of “middle class” is entirely arbitrary and pretty unhinged from the reality of most middle class families.

            My parents fed about 8 people living at my grandparent’s home; monthly they spent about 1,200. Your food line has about double that cost for half the people (and we ate well).

            I realize you have *conveniently* plotted this out for an expensive major metro area, but even considering that the data you picked are pretty wildly out of sync with the point you are trying to make. Deciding on a home about 20 percent more expensive than the median home in an area as a baseline is, frankly, absurd and intellectually dishonest. That’s 20 percent more for the single most expensive item on the list, and that on it’s own frees up over a thousand dollars monthly, or over 12,000 a year. I don’t have time to go through the rest, but that single error on its own throws your entire conclusion off by several orders of magnitude.

            1. Can you share other bullet points in my middle class definition section you disagree is not middle class?

              “ My parents fed about 8 people living at my grandparent’s home” – It is possible that this type of living might bot be considered middle class by some. I know a lot of middle-class people who consider living their own homes to be middle class. At the same time, raising a children would be considered rich.

    2. This budget is absolutely insane. you try to make it seem as if by earning 300k-400k you can barely survive. I find it amusing and insulting at the same time

      Love, Jon

  33. I just dont understand San Francisco, and for that matter, expensive metro prices. Our HHI is over 500K annually and I would never ever spend this much on a house. Just insane.

    1. Have you lived in SF or NYC? You wouldn’t spend $2 million wherever you live probably because homes are cheaper there. Pretty logical.

      Unless you are a doctor, I’m assuming the person with your job probably makes $1.5 million or more.

      Let’s all travel more and keep an open mind. Thanks!

  34. The ignorance in this column is ridiculous. First and foremost no one “Middle Class” is buying a $2 Million home. That’s not a middle class existence. That’s Rich or at least upper class. Know how you can avoid that? Make the 30 minute commute in from the burbs. It’s about making choices. You make the choice to go on $3k with of weekend getaways that no one who is truly middle class does. You make the choice to spend $7k on vacations that middle class isn’t doing yearly. You are choosing to pay for kids college or send to private school. And that’s nice of the parents but it is still a damn choice. This is not a need based budget. There is a ton of luxury items in here. Maybe actually love a real middle class existence and you’d know. I’ve done it and luckily don’t have to now but this is the height of ignorance. Oooh I can’t afford a jet so I’m middle class…. no. No you aren’t.

    1. Why is your middle class more real than my middle class who wants to pay for college and go on more comfortable vacations? When did you and other middle-class people lower your standard of living so as to be slaves to the office?

      One person’s luxury is another person’s middle class. It is arrogant for you to think that everybody should conform to your lifestyle. Keep an open mind instead.

      I personally spent three times more on personal products and our family Forest spends closer to $10,000 a year on family vacations. We value education as well and are willing to spend up for it.

      Maybe that’s what’s wrong with America. Too many parents not willing to spend more money and time on their children’s education. If more parents did, there would be a much stronger middle class.

    2. I live in Coronado, Ca; the preponderance of individuals buying there are middle class with the average home being $2 million. Some of these middle class folks cannot afford a house, so they purchase million dollar condos at $1000 /sq ft; living without a yard and without a two car garage. I live in a condo, am not rich, am not upperclass and I can assure you most folks in Coronado would not define themselves as upperclass.

  35. What is the budget after retirement? After 20 years expenses for kids go to near 0, thereafter the budget is reduced by 80k. If that’s invested until the mortgage is paid off that would be about a million right there. The budget minus kids expenses and mortgage is only 100k which would need between 2.5 and 5 million. 30 years of 39k per year plus the million after the children are adults probably gets you very close.

    1. What can you earn in interest on 1 million dollars these days unless you invest in the market? Probably 1k a month! That’s it!

  36. The rich should pay more cause they make more. Love that line.

    They already do. A flat tax would yield the same. You make more you pay more. Like magic.

    Why is this so complicated. First $25k free. Everything beyond that flat tax. No deductions. Fair and square. Irs can be abolished.

  37. Nice chart. I will use it as a template for a simplified budget. Thanks.

    I live in Chicago, a 1M home gives you an upper middle home in the City, but not rich by any means.

    AGI for this example is probably on the 20%ish, not 30%. They are so close to the $326 K threshold, something can be done. FSA, HSA, transportation (?).

    Then, look at the advantages. For instance at 31% credit, it means $10Kish tax credit on maxing out the 401K. Many low earners don’t even contribute that amount to their own 401(k). Look at the average 401(K) contributions in the States, it’s sad.

    Sure, $400K as noted is comfortable, with no financial worries and some luxury, but all is relative. According to the ACS, the U.S. median household income in 2018 was $61,937. Try to convince a family of 4 earning $60K that $400K doesn’t look like “very rich”? I wouldn’t try it.

    Thanks, great post.

  38. Sam,
    I know you live in a very high priced city, but your readers might benefit by comparing that standard of living to a much more reasonable city with side by side numbers. 2 years ago we moved from Palo Alto, CA, to Allen, TX (Dallas burb). We make about 325k as a couple, and man, we feel pretty rich here. Our 3700sf 4 bd/4ba house was $440k. We drive cheap cars paid for with cash so no car payments. Daycare and pre-schools are about half the price of the Bay. We are frugal but not hardcore, and save more than 50% of our gross income without even trying. We did not anticipate how good our lives would be after leaving an expensive, high tax market.

  39. The Social Capitalist

    FS, the post is titled to garner attention. Your family example is doing far more than surviving; or is it how I define survival – food, clothing, shelter?

    But the larger point is this idea that rich people shouldn’t foot more of the tax bill. Why not? Flat tax is hogwash – it simply doesn’t cover budgets, and as last tax cuts demonstrate, drives large deficits (stealth tax). With great power, comes great responsibility – and in the good ole USA money is power. Earn more, pay more, earn lots more, well….

    Now, should it all come from W-2 earnings? No. For the life of me I do not understand why no one sees the current problem with stocks/cap gains. They simply store wealth (money). This causes the money supply to grind to a halt. Which is devastating to the poor as they fight for fewer and fewer remaining dollars.

    So, raising taxes on total income (rents, royalties, cap gains, divs , etc) should take place. Push this money back into economy not with Fed TBill purchases but real sustained federal projects that don’t involve invading other countries. NASA, infrastructure, build actual housing in line with local desires (and not vouchers which artificially drive rents up.) The economy would boom. Stocks/gold/ real estate may not –
    since they wouldn’t be tax havens. Don’t just store your grain, judiciously plant some of you want a larger crop come harvest time.

    So many will argue that the private sector can do a better job than the Feds. Again, BS. I work for a large corporation – and the waste is mind boggling. Departments spend money ton order to keep same budget next year. Besides, private sector won’t pay for roads, clean energy, safer vehicles, etc. since the “other guy” doesn’t.

    Yes, my post is too long. And I also know govt. haters will trash me (doubtful they will read thru post). But WE are the government. Hate taxes? Become more involved locally. Find out where your money goes- don’t listen to some BS anecdotes about wasteful spending. We are, after all in this together, until we aren’t. And taxes are one way in which we are bound.

    1. I worked for the Department of State for 26 years and I can assure you there is massive waste in the government. In fact staffs could have been cut by 75% and it would have made little difference. And do not even get me started on government contractors who fleece the system.
      When I was posted to the US Embassy in Malawi as the Financial Management Officer I returned 18% of the annual budget because we had no way to spend it given the savings I instigated during the year. Rather than being rewarded I was chastised and my new boss told me she was not worried about a few dollars here and there if the govt could spend a billion dollars on a B1 bomber.
      And do not even get me started on military spending and needless wars.
      Control spending long before considering raising taxes.
      I should add that I no longer reside in the US yet I am forced to pay taxes on my worldwide income and receive almost nothing in return.

  40. Great article as usual Sam – thank you! I am a huge fan of all of your articles and greatly appreciate all of your analysis. Long time reader of over 4.5 years and this is my first time commenting. Always well thought out posts with keen insights. Please keep it up!

  41. Jacob Begis

    I want to point out that when the hypothetical family retires, they will no longer have child expenses (assuming they had 2 kids under 40), and I will probably no longer have a mortgage (assuming they buy house by age 30).

    So to retire they don’t need 5-10 million. In addition, if they move to a different city (even something like denver or portland), or simply downsize their home.once the kids go to college they could gain a lot of money that way too.

    While 400k/year doesn’t make them rich, it is the type of income that should lead to being rich by the time they are in their 50s (assuming they are making that much by their early 30s)

    1. This article is full of smug “facts”. The definition of middle class is a slap in the face to millions of middle class Americans who have few, IF ANY, of his requirements. When he says that the lifestyle you prefer has to be calculated into how one defines “rich”…. Wow, how privileged can you get? Whether you are rich or well off determines what lifestyles are available to you, not the other way around. In order to provide my family with a near middle class life on an average, at best salary, my Dad drove an hour into Philly and an hour back, every day. You can’t list CONVENIENCES and luxuries as reasons why you don’t “feel” rich. What a joke.

      1. “Whether you are rich or well off determines what lifestyles are available to you, not the other way around.”

        This is an attitude where you and I completely differ.

        I don’t believe in simply accepting a situation and accepting what is available. I will find a way to get better and seek a better way if that is what I want.

        Maybe these posts will help with a change in mindset:

        1. This is not what ultrajones was saying, Sam.

          He was saying, having more money means you have a choice. You can choose to spend luxuriously or live life cheaply, this choice in itself that is available to high earners is a luxury and rich lifestyle.

          Without high income, there is not much of a choice to speak of. One has to live cheaply.

          1. And what I’m saying is that the potential to earn income is there. But I know saying this can be considered rude or unpopular in this environment. Therefore, I think it’s OK to just accept things the way they are.

            1. I don’t think anyone has ever believed saying that there is potential to earn a very high income is “rude” or “unpopular”. But I do believe that confusing the exception with the rule and dismissing people’s inability to earn these sky-high incomes as personal failures and deficiencies (implicitly as it often is) rubs many people the wrong way.

              ARB—Angry Retail Banker

              1. Agree, which is why I don’t. The number say only a small percentage or this type of income. I do believe we can all spend a little bit more time in ways to earn more income though.

    2. Great point on not having a mortgage within 30 years as well. I was so focused on the assumption of no more preschool/daycare and/or private gradeschool / college that I forgot about wiping out the mortgage as well.

      That forced savings is really one of the beauties of real estate. Let me go update the post. I sure appreciate the community’s observations.

      Thank you.

      1. If you have no mortgage after you retire, but really want to keep the $2M house (location, friends, made it your own…), then you have a $2M asset on which you earn NO return, not even the 4%, you cannot get any of the cash out unless you sell. You are equity rich and cash poor. You might need $4M to $5M retirement nest egg on top of the $2M equity. Possibly better to refi at low interest and low payments the year before you retire and invest that $1.5M in something that pays 5% dividends while increasing in value. I have known people who loved their homes, but were forced to sell to cover expenses after being retired a few years, wished they still had that mortgage as cash…

  42. My question is, why does a family making 400k a year have to live or deserve to live in San Francisco or Manhattan (only cities where median housing costs are so high)? That’s where the problem with your budget comes in. If median housing costs are that high ($2M) these places are clearly too expensive for a family making 400K. Your mortgage should ideally be substantially lower than 4x your pretax income, unless you enjoy living on the financial edge!

    Like the vast majority of people in that income range, this hypothetical family, can easily find a quality suburb within roughly a max 1 hr commute of SF/Manhattan. They would be able to slash their housing and probably daycare costs by 40% easily if they were to do that.

    In a national political context why should we be worrying about or paying undue attention to the small number of families that specifically make 300-500K and choose to live in the two most expensive central cities in the country and who could easily move to a near in suburb and massively slash their expenses again like the vast majority of families in their income/life position range that live in those two metro areas? (sorry for the run on sentence)

    1. Hi Sam, Just suggestion. Move to Tucson Az..Probably could cut expenses in a third to half. Can buy beautiful home in foothills for half the price. Great weather with sunshine every day. Summers are June July August and September and yes it’s hot. Still can play golf in summer but start at 6:30. Tucson is in a culderra and is surrounded by mountains on all sides. My Lemmon 45 minute drive up mountain at 9000 feet and 75 degrees in summer. Great golf courses and tennis clubs. University of Arizona in town. Wildcat sports. 7 hour drive to San Diego beaches and 4.5 hours to flagstaff and both cool in summer. Max state income tax 4.5%. Send kids to state colleges that costs are fair..U of A , ASU or NAU.. Great restaurants . Friendly people. Live in Tucson and spend summers in your place in Lake Tahoe. I know you like living in San Francisco..

    2. On the other hand, people and businesses in states like NJ and CA contribute on a net basis much, much more to the federal government than people and businesses in states like MS, KY, WV, and SC. Why should I (and others in my state) have to contribute more to the federal government than people in those states. To paraphrase your language, why should we be worrying about or paying undue attention to families that choose to live in states where they are not capable of supporting themselves when they could move somewhere else and increase their income and become net contributors to the nation rather than net beneficiaries of other people’s choices and efforts.

      1. Because of historical reasons, technology and financial services industries have been located in those states. Your net basis argument is ok for Twitter, but take away the interstate portion of these economies and that tax basis will disappear.

    3. Everything is rational in the end. Cost of living is high b/c salaries are high. But in some situations, like Vancouver and more egregiously, Monaco… there are more artificial acts at play.

  43. Thanks for the post!

    This article however, doesn’t mention one very important point. Even if the plan is to increase the highest bracket from 37% to 39.6% pertains to couples making over $400k it really doesn’t have the huge impact on that couple that you are trying to explain, especially because you already describe in your example that this family of 4 is “comfortable”. For example, the couple making $400k…no extra taxes. If they gross $450k…extra $1300 (~$100 per month in taxes but earning an additional $2500 net per month in earnings). I have no problems with your example budget for a HCOL area. I share a similar experience but to say that I couldn’t afford an extra $100 a month in taxes for every $2500 in extra take home pay is downright greedy.

    1. Check out what I wrote in the post:

      “ The good thing is that Biden has decided the top marginal tax rate of 39.6% will start at every $1 over $400,000 after all adjustments. Therefore, depending on what the lower marginal tax rates are, a household won’t really start feeling Biden’s new top marginal tax income rate burden until people start making well over $400,000.

      I would say that once a household starts making over $500,000 in AGI, will the household start noticing the pinch of higher taxes under Biden. At about $700,000, the pinch will start to feel like a body blow if all income is W2 income.”

      A lot of this income depends on how hard it is to make the income. If you are already burning out, and you are making more than $4000 a year, I highly recommend taking things down a notch. It’s just not worth it.

      1. Thanks! I don’t know how I missed that part!

        I still disagree with the “body blow” comment. It’s all relative and based on what you think of the current system. Personally, I think income inequality in this country is a bigger problem. It’s a much bigger “body blow” to low income earners just trying to make ends meet than the 700k earners having to pay an extra $100 per $2500 take home earnings.

        1. Sounds good. What do you think is the solution? That high income earners earn less or to figure out ways for lower income earners to earn more? Or to tax until there is more equality?

          My wife and I decided to help the cause by making less starting years ago, and we are happier because of it.

          How about you? What is your marginal tax rate?

          1. I think the major issue is that the people at the low end of the income brackets are so divided politically, and I think this has been done deliberately by the ultra wealthy (creating single issue voters (abortion, gun rights, etc) to reduce their influence on labor/wage issues. Too many times I see people voting against their own financial (or health) interests in the name of something else which they’ve been convinced is higher priority.

            One of the roots of the problem is that profits/salaries at the top are too high. I’ve thought about this a bit and was wondering if it made sense to have a max salary for executives that is a multiple of the lowest or median salary at the company. This would limit the upper salaries while giving more incentive to give lower level workers higher salaries.

            As for marginal rate, I think we’re right around 21%. It definitely feels like a rat race living in the Bay Area, making a great salary but still feeling like all the money is gone at the end of the month.

  44. What’s important to note is that at least 1/3 of the listed expenses are directly related to kids under 6 years old. A good portion is also tied to 401k. The daycare/aftercare expenses will drop if they attend a P.S., and suddenly thousands of dollars will reappear in the form of disposable income.

    Kids are expensive. Raising them in a hyper competitive environment and providing them access to opportunities come at a huge $ cost. It’s easy to survive off $400k no matter where you live IF you find alternative ways to raise your kids without spending tons of money on them, e.g., family help, supplementing their learning DIY style, finding in-home daycare/schools that are much cheaper than private daycare/schools. However, if you are a high W2 earner, chances are, you won’t have time to do those stuff.

    Anyway, when someone’s budget is posted publicly, 100% of the time there will be people that scoff and say “you’re doing what? you should do x, y, and z because I can make it work with 1/3 of your income”. To those people — cool. Just remember, there will always be people that will scoff at your budget because everyone’s preference for how they spend their $ will be different.

  45. If you live in area where bunch of CEOs coexist… Then earning 400k cannot afford you a home. Remember , earning 150k in these areas are considered “low income” by their state /local tax.
    There are lots and lots of engineer under 30, making more than 500k himself. Who would purchase 2M home, expect to live in a mansion in San Francisco with income of 400k?? Idiots!! And yes, 4br home is a mansion for folks living in this area.

    So I think you should go educate yourself before writing this kind of opinions which sound so clueless…

    1. Sorry, I don’t quit understand your logic. I know I’m pretty clueless in general, which is why I’m always trying to learn new perspectives. Please share yours.

      Based on your e-mail, what type of travel business are you in and how is that going now? thx

  46. I really enjoyed reading these articles to see what is defined as “rich.”

    My wife and I own a 3 bedroom house, no children, we have two decent cars (barely worth 10k combined), we contribute enough to an IRA to lower our effective tax rate to 2.5%, the rest goes into a regular brokerage. We vacation state side once a year for 2-3 weeks, and we also vacation internationally for 4 straight weeks every other year (in cheap countries in Central America. The month in Central America costs about 25-50% LESS than the two weeks in the US)

    Only I work, my wife is unemployed. It’s our goal to keep our living expenses below the standard deduction, which we have done for the last 3 years. Our lifestyle costs us about $1900 a month.

    As a result, we’re saving around 55% of our income each year and we should have the option to retire early if we so choose, myself at age 40 and my wife at age 36.

    Over the next 8 years we plan to purchase investment in real estate to replace our working income, so it could very likely become an option before then. We are buying our next house in April of 2021 (already have a contract with the seller), and the rent from our current home will be enough to offset 30% of our expenses (after accounting for recurring and planned expenses). I have no intention of quiting my job or reducing my hours though, so by age 40 we should have 4-5 paid off properties each generating roughly $1000 a month.

    And we’re pulling all of this off on 45-50k a year.

  47. So, I love when this type of post comes up and people around the country freak out. We live in a high cost of living area. We are a single income family. We had been averaging about 300k a year, but have finally jumped to 400k regularly for a couple of years, so this was a personally interesting post.
    We don’t have nearly the level of mortgage…about 600k…our kids go to public school and I drive a Honda Pilot.

    I still have to budget, be super careful about investments, we buy late model
    Used cars and keep them for 8 years. And according to my calculations, we are still going to have to be very careful to hit our retirement goals and cash flow our kids through state universities. We live an upper middle class existence, but we are no where near rich.

    And to top it off…it’s just dawning on me, that our plan of selling our suburban home and buying a lake house for family gatherings and holidays and a post kid condo in the city are likely not going to happen.

    At the end of the day 400k just doesn’t go as far as I would imagine it would in high COL areas.

  48. No examination of wealth can be meaningful without including age group distribution. Essentially, the years of working life a person has left, must be considered as having a proportionate value to accumulated wealth.

    The same person, at age 65, might have twenty times the monetary wealth (adjusted for inflation) that they had at 35, and several times the wages.

    But at 35 they had thirty more years (years in which can work and play) than they have at 65. Who is is the wealthier?

    The 65 year old would probably give up the money and income in a heartbeat to swap places. The 35 year old would have be crazy to accept such a swap. Who is is the wealthier?

    Does Biden also intend to implement a “youth” tax based on how many more working years we may still have ahead of us?

    1. The youth are already paying a tax on Medicare and SSI that will unlikely be there when its “their turn” to use it.

  49. Canadian Reader

    I agree with the hypothetical budget in a HCOL area. There could be swaps in some categories depending on lifestyle, but overall its actually pretty easy to piss through that level of income. For example, most people making that income probably spend much more than Sam suggested on clothing, cars, personal care (salons, minor plastic surgery, cosmetic dental surgery, high end beauty products), high end vacations, booze/drugs/gambling/poker, high end catered house parties/ entertaining, higher utility/tax costs (big house, pool/swim spa, glass sunrooms), pets, furniture, electronics, personal trainers, exclusive gyms/sports, you name it! And I haven’t even touched on how that spending increases with kids. My point is that Sam’s budget is actually conservative in that it hasn’t costed any of the discretionary spending categories above- and let’s not pretend those types of spending don’t happen!

    But that lifestyle really should be reserved for the truly rich (like own their own jet)- because its truly exhausting to work a day job to compete and pay for all that stuff. 400k a year might seem like a lot, but I really don’t think anyone making this level of income is that rich- especially if they are high spend or end up in debt. More tax will just mean less money entering the economy in the consumer categories.

    To answer your question about fair share? Well it was pretty uninspiring to keep working when our combined fed/prov tax rates were close to 50% starting in 2015.

    1. There was a lot of criticism on social media, as usual, about the budget. So to flip things around, given there was so much criticism, this must also mean that plenty of people are saving EVEN MORE and investing even more. Nobody doing poorly would criticize someone who is doing better, unless they are delusional.

      Therefore, perhaps this whole narrative that the average American/Canadian is not in good financial shape may very well be false. As a result, maybe there should be lower taxes, less safety nets, and smaller government.

      40-50% is a lot in taxes. I start taking things down once the effective tax rate hits 30%. I’d rather spend time on life, but everyone is different.

  50. Hi Sam,

    Long time reader and a big fan. I live in the Bay Area as well (Fremont) and also am Chinese with a 1 year old daughter so I feel great kinship with you. I am 30 and our family income is just about $400k (healthcare and tech jobs).

    All your costs here are very reasonable except the child care (3k / month) and preschool ($2.1k / month) costs. I’ve lived in the Bay for a long time and daycares and preschools that cost $1.5k a month or less are a dime a dozen. They also have sibling discounts. I think you must be talking about a private nanny or some very prestigious school which don’t seem necessary to us.

    Everything else in our budget is basically spot on with what you’ve described here. I wouldn’t consider sending my children to private school unless our income goes above $600k or so.

    1. Sounds good Jon. Fremont is cheaper than SF.

      I was just speaking to a mom who was paying $3,100/month for her daycare at Bright Horizons. Drop off as early as 6:30pm, pick up at 6pm. Our preschool costs $2,000/month if we sent him back.

      1. We are in DC area, where salary is lower than SF, and full time daycare is 2000-2500/month. It’s insane, but if you want dual income, it’s the cheapest way to go…

  51. I read this post as an affirmation of our decision not to live in SF or NYC! However, I get that it is easier to to make $400,000 in a city like SF.

    That said, there are some very beautiful cities in our country with clean air, less traffic, and high quality public schools (for example, if you only compare families within our school district who have a ~$400,000 income and both parents have at least a college degree, you see that AP and SAT scores in our public high school are actually higher than the best private school in our state) where $2m buys you a 5000 SF “mansion” with views. With the money you save just on private school tuition, you can afford to save a little more in a 529 plan for college and take better family vacations, and even pay a couple hundred dollars a month for a tutor to fill in any gaps you think your public school is missing.

    1. For sure. How much do you make where you live now? And where do you live again?

      The income here is incredible And I think it’s a good idea to make a fortune in a big city, so aggressively, and then relocate to a lower cost area.

      Were you able to earn outsized income for a while before your move?

  52. New Englander

    This breakdown actually has a very high level of savings – when you add 401K, 529 and Mortgage, it is more than 1/3 of pre-tax earnings and around 1/2 of after tax earnings. I consider mortgages a form of savings as once children have moved out and one is ready to retire, it is more practical to sell and move into a 2 bedroom apartment.

    So if you are having such a high savings rate, it is natural that you would breakeven on the cashflow.

    If you lowered the savings rate, for example, by renting, you would have a higher cashflow.

    Furthermore, the private school costs are really a luxury. One can hire a day housekeeper to help take care of both kids at a lower cost and they can attend public schools when they are older. I went to public schools all my life and still went to Harvard for university on scholarship.

    Ultimately, it is all about choices and living within one’s means. I grew up thrifty in a middle class family and even though I now earn more than $1M a year, I send my children to public schools (still hoping they will go to my Alma Mater), shop at Walmart, buy late model used cars and spend much less than what this budget shows living in a similarly high cost of living city as SF.
    Saying that just because one earns 400K, one must spend like someone that earns 400K and send kids to private school etc. to have a “middle class” is simply not true. The lifestyle described here is a fairly rich lifestyle.

    Earning $400K a year is something only a small fraction of Americans are able to do and saying that it is barely sufficient to get by is rather Marie Antoinette like.

    Your definition of the rich lifestyle is not just rich but filthy rich tycoon level. None of my richest friends who are worth tens or even hundreds of millions utilize a private jet with Netjets.

    Think you need to level set appropriately.

    1. I like that you earn over $1 million a year and send your kids to public school. When you were talking to your partner, how did you reconcile this decision given you have so much disposable income. I did write a post about the importance of feeling consistently uncomfortable and not providing every opportunity for our kids so they can grow.

      How did you convince your partner not to spend the most on education? I’m trying, but it is hard. She’ll basically ask me what was the point of making saving so much if it’s not to improve the quality of our lives and our children’s lives?

      Regarding the NetJets credits, unfortunately, I think your richest friends simply have not invited you on their trips yet. Private jet sharing is booming now.

      1. Because private schools do not equate good and quality education, and the dinky houses on tiny lots in mega cities are not worth multi-million dollars in the utility they provide.

        And people who make multiple six-figure W-2 income in big cities, it minimally reflects the actual capabilities of the high earning individual, it is more reflections of the ultra inflated local cost of living and the employer’s pocket depths.

        The music is going to stop at some point.

      2. spaceassassin

        The private vs. public school question wasn’t even a discussion in our house, and we both spent our whole lives in private school. Private schools can do just as much harm as good as a public school–not sure how Private schools received such a great rap.

        Private schools are filled by parents who are trying to buy something. An academic advantage. More discipline. Or this month, just an open campus.

        Me, my siblings, my cousins, my wife, my sister in law (actually most of us in this generation in our extended family) went to both private grade and high schools, and none of our children are in private school now. Around here in Southern California, private school is much more about status than anything else.

        My kids can sit at the table with everyone else, regardless of how many private tables and chairs we can buy them.

      3. New Englander

        My wife and I don’t think that public schools mean poor schools, it depends on the specific school and we choose good public schools. It is not that we are unwilling to spend on education. As Asians, we will spend everything on education if we need to but we don’t see the need to follow the Joneses and send to private school just because everyone else is doing so.

        This is especially so for the pre-school and earlier levels which are really more play than school. Paying fees for this that are equivalent to tuition at some good state universities is ludicrous in my view.

        It is important to choose the right public school so we do our research carefully. I agree with many people who comment that there is as much an element of snob appeal in sending children to private school as in actual utility. Of course this assumes there are good public schools where one lives.

        On Netjets, I fully appreciate their business is booming but I am also sure that my friends have not left me out. It all depends on values. There are the “Miilionaire next door” types which are the folks I hang around with and there are the “Trump” types who feel a need to show off and constantly live in “luxury”.

        1. Sounds good to me. I would think the pressure to send your kids to private school would be even greater living in New England given Exeter Andover, Phillips Academy, Deerfield etc are there.

          I think it’s great you guys are good with the public school route.

  53. I find taxes, especially the political discussion of future tax benchmarks brings out the worst of fearmongering. An personally fearmongering in the year of Covid has really lost its appeal. Readers, you are smart. Put your adult pants on and see the opportunity. Taxes are disproportionately levied on the W-2 worker, regardless of earnings, regardless of which political party has the majority, regardless of the region you live in! So why make it your goal to be just a W-2 worker? Sam’s 4th bullet is the most important take away: Change the composition of your income. Understand the tax code, understand the possible future tax changes that may come with each election and use that as a roadmap for growth rather than something to fear.

  54. Excellent as always. The only thing I would have added is $12k for backdoor Roths. Those are essential in my book and would come before the 529s.

  55. spaceassassin

    I think the “idea” of “richness” has way more to do with spending than earning. One can feel rich earning $250k and not at $500k due more to overspending and lifestyle choices than earnings, which you touched on, but really is the crux of the conversation. Lifestyle and the constant pursuit to increase that lifestyle is the issue.

    I appreciate high cost of living areas, but a $2M house is optional, commutes (or lack thereof) are optional, private school is optional, $2,000 monthly food budget is optional, etc. I would imagine without a significant decrease in overall quality of life one could cut that budget by 30-40%.

    We live in HCOL area in Southern CA, but haven’t made that choice to increase our lifestyle. We choose to live in the same attached home now as we did when we were earning half the income 5 years ago when we bought it. We chose to replace her older highlander with a new highlander. We eat at the same restaurants, kids go to the same public schools and we travel to the same places we did then.

    I’m confident you can work in any major US city and live close enough to maintain a good quality of life on $250k/yr.

    So, sure $400k seems like a fair number to define “rich.” Now whether or not it is “fair” to tax the rich more is an entirely different conversation–I am pretty sure we pay our “fair” share already.

    And just curious why tax revenue changes if I do the work for three and get compensated accordingly versus getting rid of me and hiring three people and paying them all accordingly?

  56. Like you said in your post, where you live matters in terms of you ultimate COL. Of course there is a heavier concentration of higher paying jobs in a city like SF, but the question you have to ask yourself is if the comp provides a high enough premium to justify living in one of the highest COL cities in the country.

    This theoretical family at $400K, regardless of where they live, needs to be more pro-active on the tax minimization side of the coin. You already mentioned working on building passive income streams that are taxed at more favorable rates, but in the short term that takes time and doesn’t really help the tax situation on the $400K of W-2 income.

    Besides contributing to all the tax-favored accounts there is one little known strategy available to the high W-2 income earner and that is through land conservation, where you essentially pay for a deduction.

    For example, last year I had a $150,000 tax liability on top of what o had already paid in taxes through withholdings. Instead of paying the additional $150K in taxes I donated $60,000 into a land conservation deal, resulting in a $90,000 net savings.

    My point is, that regardless of who’s in office, there is 50,000 pages of tax code that the government has written to show us all the ways we can minimize our taxes.

    This is just the tip of the iceberg!

    1. Your land conservation tactic just took advantage of the fact the IRS is stretched too thin to scrutinize a meaningful percentage of returns. It’s well documented scenarios that result in more tax savings than the cost of the land would not pass muster on “fair” value of land developed. Said differently, it’s unlikely someone sold you at arms length a plot of land that is worth 5x what you paid for it without having put more capital into it. It’s almost certain your assessment of the value of land donated was dramatically overstated to achieve such a tax shield. You might not want to advertise your hidden gem tax break too broadly….. This is the same scheme as donating “appreciated” fine art based on a self-provided appraisal. These are scheduled IRS transactions for a reason.

      1. Hey Joe,

        I totally understand where you are coming form as this can get out of hand.

        The fraud generally comes in with the appraisal

        The appraisal is the key! The easements I’ve seen and the one I have personally participated in have been highly vetted by multiple tax attorneys prior to the offerings. Additionally, extra care was given to the valuation of the land.

        Properties with natural resources (minerals, ores, timber, etc.) that can be profitably extracted are more likely to be appropriately appraised if the “syndication entity” does the due diligence in obtaining multiple appraisals. Properties with “potential for residential/commercial development” are at high risk for valuation abuse.

        Just like any financial situation, you have to do your due diligence. Conservation Easements have been around for decades and it wasn’t until 2017 that they became a listed transaction due to abuse and political posturing. This is a completely legal deduction if done properly. You just have to be aware that it will have more eyes on it than other deductions because the tax ramifications are greater.

        I work with a reputable third party that facilitates conservation easements between the landowner and investor. They do their due diligence to have the correct documentation to substantiate the deduction and their audit record shows the amount of care and scrutiny they put into making sure these conservation easements are legitimate and hold up in an audit. The contribution to deduction ratio is about 4:1 to 5:1 (the abuses I’ve read about are using shady valuations that result in ratios as high as 10:1).

        I want to point out, I do not work for this third party but I do introduce them to my clients who want to conserve land and have charitable intent. I also have personally invested in syndicated land conservation easements.

        I personally think this is a great way to do good for the environment and save some money on taxes at the same time.

        1. I have no doubt you have 3rd party work done for this, but you are working with parties who put an aggressive mark on the “value” of the land. The logic this implies is a rational seller made an arms length deal for 1/5th the value of what a rational buyer would pay for an asset. That’s the challenge with doing a deal like this as part of a step transaction. Assuming you are both arms length, your purchase is the best market comp for true valuation. You can argue for profit margin on development or mining as best and highest use of land, but the best operators/developers around don’t run margins anywhere near that kind of markup… especially if you discount back time value and input costs to improve the land.

          We all know real estate is not an efficient asset class (Sam writes enough articles on that already!), but the assumption that a seller mispriced an asset by an order of magnitude in an era of the internet is suspect. This is particularly concerning on a larger plot of land that would attract a more institutional bid that would be on the more efficient end of the spectrum. I’ve seen these deals typically go around 1.5x purchase price as conservation easements. If you ultimately do get challenged, keep in mind all your advisors likely bear zero liability if they gave you bad analysis.

          Fantastic charity, but only partial tax offset. I’ve also seen some people try to push through wetlands or other difficult types of land claiming they could be “developed”, but the recipient of the land actually refused the land!

          If you found a way to buy land for that much of a discount, you should stop whatever you do and do that full time as you could 5x your net worth with each transaction you find without using any leverage…. assuming the value is legit.

          With that said, I’m also a huge fan of these easements just not as a tax avoidance mechanism. My metro area has a massive land bank that is a frequent recipient of these and as a result we have incredible green spaces all over town. I’ve just never seen a legit version of this done without having held the land for decades that actually paid for itself and then some. Even if it’s legit, it really goes against the spirit of the tax code to profit from charity. You’re in essence saying you took a $400,000+ loss on your $60,000 investment by donating it because in the 1 day you owned the land it exponentially increased in value.

          There have been attempts to structure deals with investor classes that can peel away depreciation or this kind of value, but my big law friends tell me that’s another case of taunting the IRS. Ultimately your call if you feel comfortable with the risks and analysis your advisors put out.

          If Trump can pay $750 per year, I guess that’s a ringing endorsement to utilize highly aggressive tactics I suppose! Best of luck. Maybe the accountants and lawyers I work with just need to step up their game! I’m still over here sadly writing the IRS 6 figure checks every year.

          1. Even with this I’m still paying multiple six figures in taxes as well. I don’t think I have the risk tolerance to be as aggressive as Trump to get my taxes down to $750/year.

  57. Whoa… I’m not going to argue too much about your conclusions, because:

    1) they were well thought-out, and
    2) you had numbers to go with.

    But my first thought was:

    *Well, I’m not moving to San Francisco anytime soon.

    Then I realized that, like many Americans, I don’t even have a toehold on the figures you’re working with. Your yearly $$ for private school is far less than our income has been for the past 15 or so years. Yet somehow we’ve managed to get our daughters through school, live productively — and even retire a few years early. So apparently it CAN be done without saving up $10 million, or even a million. And no, we’re not living on cat food out in the alley. But it did take regular saving, and a lot of planning, to retire this way. Maybe that’s the strongest point — that your hypothetical family set aside money for saving, and did it regularly.

    But I enjoyed the show, anyways.

    1. The author’s retirement section did not account for the fact that kids are not an expense for the next 50 years. Also, the mortgage will not take 50 years to pay off. And lastly, many couples with grown children eventually downsize from their two-story 4 bedroom homes for smaller homes as they get older. These lower expenses provide ample opportunity for additional retirement savings.

    2. Oops… sorry. I meant far MORE.

      Our income, for at least 15 of the last 20 years, was approx. $20,000-25,000. The last few years, it went up closer to $35,000.

      With pension (Husband worked for the state) and Social Security combined with my occasional income as an appraiser/writer, we’re actually making more in retirement than he did most of his working career.

  58. Hi Ema,
    I also want to add that a big majority of people live in cities, so it definitely is relevant to consider this, as well. Our median incomes are also slightly higher here, too.

    “It is estimated that 83% of the U.S. population lives in urban areas, up from 64% in 1950. By 2050, 89% of the U.S. population and 68% of the world population is projected to live in urban areas.” Source:

  59. This isn’t middle class. This is a moderately rich family trying to live like a very rich family. Their kid’s preschool costs as much as tuition at a good-but-not-top-tier university. They somehow found a daycare that costs even more than that. They’re living in a 2 million dollar house when 1.2 million would be more reasonable for their income (maybe they ought to accept a longer commute or a less prestigious neighborhood). Their cash flow problems are entirely of their own making.

    1. $1.2 million would be 25% lower than the city median home price with two kids. If you are making $400K with two kids, Would you want to live in a much lower quality house? It’s all about percentages here.

      What is your definition of a middle-class lifestyle? Because I think the middle-class lifestyle assumptions Sam has made are all reasonable.

      1. My definition of middle class certainly doesn’t include childcare/preschool that costs almost as much as the median US household income, nor does it include putting that same amount into retirement and college savings. No, this is a family of two-percenters with expenses more appropriate for one-percenters.

      2. Our host seems to have defined “middle class” as “where I am, because I don’t feel rich”, and “rich” as “all the things I want but can’t afford”. Thing is, almost no one ever feels rich. Consistently across all income levels, from poverty to billionaire, the question “what would it take for you to consider yourself rich” is answered with “twice my current assets and income.”

        I grew up solidly middle-class – 4-bedroom house in a nice suburb, just over 2.5 kids, the works. Our household income was in the 50-60K range in the 1990s.

        Kids went to public school; private school was for the rich and/or very ambitious. “Highly competitive preschool” was a punchline, the very idea was inherently absurd. My parents’ contribution to my college fund was “if you cover the tuition, we’ll pay for your room and board.”

        Adjusting for inflation, my mother fed a family of five, including two teenage boys, on about one-third of this family’s food budget. When you’re middle class, you do your own grocery shopping and make most of your own meals. Sometimes, we might order pizza or go out for Chinese. Anything more expensive than that was limited to a few times a year.

        Family vacations usually involved camping (tent, not RV) or staying with relatives. Hotels were never fancier than Holiday Inn; airfare was always coach. A fancy vacation, the type we didn’t do every year, would be the time my mother and her sisters pooled their money to rent a beach house for a few weeks, or saving up for a trip to Disneyland, or the time we used a couple of years worth vacation all at once for a month-long road trip around the country.

        My parents semi-retired in their early 50s, sold the house, bought an RV, and spent a decade and a half traveling, working occasionally to cover expenses while they let their investments grow. Now at 70, they’re fully retired. Between Social Security, assorted retirement accounts, and a few good investments, they’re financially comfortable, but on the rare occasions they talk about finances, the numbers are in the hundreds of thousands, not millions. I do not expect a significant inheritance.

        That’s what I consider middle class. The family in this example, who is living in a house that cost 5X their annual income, AND maxing out their 401Ks, AND building college accounts that’ll let the kids attend anywhere short of Harvard debt-free, AND paying tens of thousands per kid for preschool and daycare, AND taking nice vacations, AND spending large amounts on food, clothing, personal care, and entertainment… they’re rich.

          1. I think I just spent several paragraphs showing what I classify as middle class, but if you need a prescription:

            At least one person works to support the household, and no one in the household needs to work more than one job. You can expect to comfortably retire after the kids move out, and before age 70. You do not need to worry about the exact timing of your paychecks.

            You can afford to raise more than one child, and your ability to provide for the children’s needs is never in question. If you are childfree, it is by choice, not out of economic necessity. The budget could be adjusted to provide for an unplanned child.

            You own one house, or if you rent, it is by choice, not out of economic necessity. Your ability to pay ordinary housing-related expenses is never in question. Each child has their own bedroom.

            You own one or more cars depending on your needs. Cars are selected for function, not as status symbols. Replacing a car is a major expense that must be planned for, and cannot be done on a whim.

            You can go on vacation for a few weeks each year. Travel beyond weekend excursions is a significant expense that should be planned and budgeted for. International travel is within your means, but only as a rare treat.

            The kids can go to college, but you probably can’t pay the whole cost without scholarships, loans, or supplemental income.

            1. Sounds like very similar criteria to mine. Only one point of yours is more luxurious compared to my profiles couple: the ability for only one parent to work.

              This is actually a big one.

              My couple can’t afford to give up $200K salary and still comfortably provide for two kids.

  60. It is all relative. The budget makes sense. The comment from ‘Janet’ was funny. However, it is like anything else if Janet was working at a company where all her colleagues and all her neighbors have their kids in private school she is likely to have her kids there as well. It is a societal pressure. I know not everybody succumbs to keeping up with the Joneses but a lot of people do. This is similar to other things in the budget e.g. house.

    Of course, they could reduce expenses but almost everyone can. However, unless they are willing to make major changes against the grain, e.g. a smaller house, then it will not make a major difference such as the groceries.

    The one point I would comment on and during the pandemic it is not as relevant but the transportation costs. I see you have gas down by about 50% but I would expect the transportation costs to be higher. For example, how are they both getting to work with one car? During the pandemic they may both be working from home but at some point I would expect those costs to increase again. This is where they will have to trade back off with the grocery delivery.

    I have to say the word ‘fair’ and taxes don’t go together! Instead if you are making $400k be happy with that! :)

    1. Hi Financial Fred. The reason for spending less gas is that the parents are working from home, and don’t have to drive their children to as many activities during COVID.

  61. If you seriously think your $400,000/year budget is reasonable and is just essentials, you’re out of your mind. Most people live off of far less, even in bigger cities. You need a reality check if you think that budget is modest in any way, shape, or form. Spending $50,000 year on child care and then another $18,000/year on a college fund is not essential, it’s a luxury. My family and I do fine with WAY less than this in a big city. We spend within our means. I would love several weeks of modest vacation each year. My last vacation was my honeymoon 6 years ago. You’re disgusting for even trying to argue $400,000 isn’t enough money.

    1. Another hater who cannot get her mind around big numbers. As many readers know, Sam’s analysis is, once again, spot on.

      There are literally millions of people around the world in comparable cities living exactly like this and 100’s of thousands living this way in the US alone.

      “Bridget”, you can choose to live any way you want. Obviously one doesn’t need to spend $400K after tax to live a satisfactory lifestyle.

      It isn’t a value judgment on Sam’s part or anyone’s part. He isn’t arguing it’s “right” or “wrong”. It is simply an astute set of observations from a very good analyst and financial lifestyle commentator. He is certainly not trying to insult anyone.

      Thanks Sam.

    2. What do you recommend you do with the kids when you are both at work? Have you looked into full time daycare costs in large city’s for two children?

      RE College Fund: It is essential unless you want to burden your children with a mountain of debt at 18 years of age.

      1. I expect the government and the wealthy to pay their fair share of taxes so that families don’t require both parents to work.

        1. Many families that are making more than 400k in big cities are doing it with both parents working. So you are taxing these families so they need to work hard to make it in the city. Govt help will not be going to these families since they make too much. Single income families is a thing of the past. If you want to move past your economic place in life, both parents need solid income jobs. Of course if one parent can only make minimum wage than they may as well stay with the kids, but for many families above 400k, this is not how it is.

      2. “What do you recommend you do with the kids when you are both at work? Have you looked into full time daycare costs in large city’s for two children?”

        Depending on which source you believe, the median household income in San Francisco is somewhere between $90K and 120K. I can guarantee you that a family with income in that range will not be spending over $60K on preschool and daycare for two children. It follows that less costly options must be available.

    3. If writing that I live on much less than $400K, encouraging families to send their kids to public school and vocation school, saving more money, earn more tax-efficient income, encourage people to take things down and earn less if they are miserable, and do an intellectual analysis on taxes, is considered disgusting, then I’m afraid about what other things you find disgusting.

      That would be really tough for me to live life in peace and happiness with so many things disgusted me.

    4. Wow, do you spend every waking moment of your life angry and filled with anxiety?

      Being disgusted by a well thought out post with fantastic numbers is nuts. Seek to treat the problem occurring in your personal life.

      I think paying $100K in taxes is more than this households fair share.

    5. Yikes. Sounds like you are a burned out and unhappy person.

      No vacation for six years means you are probably no fun to be around.

      Get a new job and stop chasing money, money, money. That’s what’s truly disgusting.

      That is one of the points of this post.

  62. Hi Sam,

    As always, a great post. Your house analysis highlighted why my husband and I are leaving Crazy-fornia.* Cost of living here is beyond ridiculous, and I was born and raised in San Diego. But, there’s life out there in other states—and shocker—it’s really nice.

    My husband’s job took us to Michigan for five years, and what a difference! During that time, we kept our 1400 sq ft 3BD/2BA CA house. Now we’re beginning a total reno to sell it next spring. No walls moved, but bathrooms gutted, kitchen gutted, new floor, paint, windows, doors (interior and exterior, incl. French door), and paint + stucco and facia repair exterior work done. Why am I sharing this? Getting multiple quotes was eye opening, for one. We’ve been planning this for a year. At the high end, one contractor quoted $180K-$200K for 2 bathrooms and kitchen ONLY, and it would take 10-14 weeks. Another quoted 2 bathrooms, kitchen, and doors and windows but not floor or painting for $80K. He said the work would take about 6-8 weeks.

    We also tried the piece-meal approach: be our own GCs and got quotes from subcontractors. One came in with a saccharin smile and quoted $78K for doors and windows, but if we sign today, she’d lower it to $55K…all said while pointing to a “finance your doors and windows with us for 6.99%” on her ipad. I couldn’t get her out the door fast enough. For perspective, other door/window quotes came in at $18K – $25K.

    I share this because friends in Michigan are having work done on their house (actually one is finished, the other just beginning), and they’re shocked at what we’ve been quoted. And bear in mind, one friend has a beautiful house on a lake, the other a 3000+ sq ft house in a very nice subdivision.

    We Californians are pricing ourselves into the stratosphere. One day the emperor’s clothes are going to come off, and people will realize, “It’s not worth it.”

    Lastly, the private school budget: We’re middle class empty nesters who sent our oldest son to a state uni in MI while our other son (who’s very independent-minded) opted for PT college while serving in the military, all to support himself 100% in the process. The older one is in law school now on his dime and a substantial scholarship. Both boys attended elementary public schools in CA, then an expensive private middle school before we moved to MI. The older one told me he thought the public HS in Michigan was harder academically than the ritzy private CA HS he attended for 2 years. While I don’t regret the private middle school my sons attended, I sometimes wonder about the private HS. I’m sharing this because of the private school tuition column in your post. Why pay for private school when you’re already paying exorbitant taxes for the local public school? That not a sound investment decision. Would you pay one person $11,993** to paint your house? Then turn around and pay another person $36,936 to paint it again? And do that year after year?

    It’s as if we compartmentalize the money that flies out of our pockets.

    My husband tells people we were like the proverbial frog in the pot: CA slowly cranked up the heat, and we kept taking it. Not anymore.

    Thanks again for a great post-

    *I know, happiness with where one lives is subjective. But, one day it’ll get downright silly, paying mega bucks to shoehorn a family into a cubicle’s worth of space.

    **2018-2019 per pupil spending in CA.

  63. I hope he means 400k for individuals, but even if he means couples, I’d still vote for him. I’d pay to vote out the other guy.

    1. So Biden can pack the court‍♂️‍♂️‍♂️‍♂️‍♂️‍♂️‍♂️‍♂️‍♂️‍♂️‍♂️‍♂️‍♂️

  64. I’m worry more on long term capital gain tax, if it’ll be taxed as ordinary income for >400k earners.

    You’ve accumulated long term investments, banking on smaller tax on capital gain, but will get slapped with ordinary tax!

  65. One point to make is doctors actually tend to make more in rural areas due to a lack of doctor supply in those places compared to cities and doctor pay tends to be fairly even around the country outside of that general principle. A doctor/techie couple in a LCOL & no state income tax area can be very lucrative.

  66. Sam,

    I have seen a few of these budgets from you and always have the same thought–hopefully it is a new critique that you haven’t gotten before :)

    Kids are expensive, but they do grow up. So, all of the child-related expenses are temporary for 4-22 years, but aren’t needed after your kids are grown. But, a lot of the math you do assumes these are permanent expenses.

    In the example above, the spending in retirement probably wouldn’t be $260,000, but actually only $176,000 (I let them keep their full food budget so they can have some expensive dinners as a couple). If you also take out the mortgage expenses (which is hopefully paid off) it comes down to $95,000.

    If they save a few years before the kids are born and after the kids finish college, they can afford to save a little less for a couple decades while they are spending all their money on childcare and education.

    Overall I think if you look at the budget for the most expensive year(s) in a person’s life, even a high income like $400,000 can go pretty quickly. But hopefully averaged out over a lifetime you could live it up a bit more (or work a bit less) if you make that amount of money.

    1. Yes, I do mention in the post that I’d both go to public school, they will see a significant boost in income.

      It is easy to tell people to spend less. But most people end up spending more the more they make. It’s the same thing with fitness. Most people get out of shape over time.

      Everything is easier said than done. Takes discipline.

    2. Oh jeez… Unless you live in a few very select cities 400 grand a year is more than enough for 99.9% of the population.

      If you’re a mortgage is 7 grand a month that’s your own damn fault. Move somewhere else.

      I hate seeing these types of breakdowns for cities like San Francisco. You chose to live in San Francisco. Don’t bitch when 400 grand isn’t enough. Move out of the city.

  67. Here in Australia, the top tax rate (including Medicare levy, no state income taxes) of 47%, comes in at AUD 180k per year (individuals always taxed separately), which is about USD 130k per year. Liberal party (right wing in government currently) has legislated to increase the threshold to AUD 200k by 2024. Labor says that is outrageous as it will reduce tax on the “rich”…

      1. Better put would be that Australians are almost as rich as Americans.

        There are lots of tricks to try to avoid the high tax rates if you have assets and no Alternative Minimum Tax thankfully.

      1. This summer alone we lost two paddle boards along with two pair of sport sun glasses with prescriptions (in a sea adventure) and almost destroyed a canoe… In addition to all the travel and lodging and trainer cost… Yeah water sports are expensive hobbies.

  68. Tom Just Tom

    Oh, the “fair share” argument again. Allow me, please…

    Let’s say you make $400,000 a year, Mr. Sam, and I make $100,000. We decide to go to an NBA game and find two tickets, $100 each face value, total price is $200.

    So you pay $160 for your ticket and I only pay $40 because you make four times as much as me.

    Did I pay my fair share? Did you? Of course not!

    Fair share means we all pay the same price for something if we want it. The phrase “fair share” has no place in our discussion of taxation.

    Oh, and this “fair share” nonsense is coming from somebody who funnels almost all of his income into a S-corp, then take distributions – which are considered tax-free reductions in basis – from the S-Corp to avoid income tax (do a search for “Biden S Corp” and look at the first couple of results; my favorite was the WSJ article entitled, “Joe Biden Used Tax-Code Loophole Obama Tried to Plug”.

    Don’t talk to me about “fair share”, Joe.

  69. Oh boy. I think you’ve created a bit of a straw man here. For starters, it’s not about coming up with a useless definition of “rich” versus “not rich.” It’s about ensuring we have enough tax revenue to pay for important things–for which there obviously is not a universal consensus–and asking those with the greatest ability to pay more in taxes to do so.

    So, who cares if you don’t “feel rich” or think that label applies to you? The question should be whether or not you can reasonably afford to pay more in taxes. And in the case you laid out above, the answer is undeniably yes.

    For one thing, I think it’s unreasonable to lay out that spreadsheet, point to the bottom line number showing monthly savings of $3 and claiming you can’t afford to pay more. The monthly savings of $3 is not in the least bit evidence of “just getting by”; you are living an INCREDIBLE lifestyle.

    And you’re not only saving $34 a year; you’re saving $57,000 a year, but you’re just skipping past that. You’re also paying $63,600 per year for school and daycare for PRESCHOOL kids? You cited the cost of private education, but spending $258,552 on private school tuition before your child even hits middle school is absurd.

    More power to you if you can afford all of this, but it’s just disingenuous to say that because you spend that kind of money you can’t pay less than $0.03 out of every dollar over $400k of TAXABLE income. To spend between $774k and $1.7M in private school tuition for your kids is a luxury, not a necessity. It’s an admirable thing to want the best for your kids, and if you can afford it, you should. But let’s not act like it’s the choice between sending your kid to private school from preschool to college and fully paying for it yourself OR having an uneducated kid with bleak future prospects.

    Moreover, even using the example in that table, that family (living an insanely great lifestyle) wouldn’t be affected by Biden’s tax plan. To be affected they’d need to increase their taxable income, and they’d be paying a few pennies out of every dollar over $400k if they did.

    Compared to current rates, a married couple filing jointly with TAXABLE income $250,000 MORE than the family in example you use above would pay just a bit more than $10k per year more in taxes under Biden’s plan. Can you really say with sincerity that a married couple with $650,000 of taxable income couldn’t live the lifestyle you described in that table, then juice that lifestyle by another $230k+ of spending or savings, and be negatively impacted by a tax bill of an extra $10k-$15k?

    I’m married. I live in a $2 million home that I bought this year, and my wife and I collectively earn (gross) less than $400k. We still save $100k per year. Now, we do not have kids (a sacrifice we made precisely because we did not want to incur the cost of raising kids if it meant staying in careers we would much rather quit). However, there is no universe where if we had two kids we could not comfortably raise them and continue to save for our future for less than that $100k that we current save. And of course, at our current income we would not be impacted by Biden’s tax plan. I would LOVE to be impacted by his plan….

    I think you’re going to need to make a MUCH stronger case that those poor victims of a tax hike on taxable income over $400k need to be protected. If the argument is that we shouldn’t raise taxes because even if people can afford to pay more you just don’t want to provide universal healthcare, universal pre-k, shore up Social Security and Medicare, and eliminate student loan debt, then that’s a different argument (I’ll still disagree with you, but that’s just a different argument). But if the idea is that Biden’s tax cut is unaffordable for those at the bottom of the income range that will be affected by it (much less those comfortably above it), I think that’s just pure poppycock.

    1. “ I would LOVE to be impacted by his plan….”

      I, too, would love to be impacted by his plan. Alas, I’m a stay at home dad trying to build more passive income to continue staying at home. Not everybody has the same opportunity, which is something I hope you and others will recognize.

    2. I agree with most of your points. Very well said, too. We will argue endlessly about what magic number is the line between rich and not rich. I look at what I make now compared to five years ago, and I don’t understand how I still feel like I’m living paycheck to paycheck. (Answer: my aspirations increased with my income!) But the result is that few people other than maybe Bezos & company are going to feel like they are “rich.”

      I also question if using the cost of living of an “outlier city” like San Fran is appropriate. Or at least, if it should be balanced with analysis against most of the rest of the country that has a much lower cost of housing/living.

    3. Leo, my one kid costs more than I spend on myself and I’m not young. I skipped the knee mri so he could drive a safe car. College is not subsidized and we need to max out retirement. If I work a second job, it’s 35% fed, 7% payroll, 7.4% state, and extra medicare – as it stands now. We also needed to pay thousands for medical bills EVERY year. So since I already contribute 50% for everything over 300k, I think that’s enough.

      BTW, universal healthcare will be worthless if we can’t get the provider fees reasonable. It’s still going to cost 1500 for that MRI no matter who pays. If the gov’t can negotiate down, then maybe we should be able to.

  70. > “It’s not clear whether Biden is making the $400,000 income threshold for the top marginal income tax rate for individuals or married couples.”

    Based on every experience with every political promise from either party, I’d definitely lean toward the $400,000 threshold applying to married couple income. This is an easy backdoor to get more taxes than “promised” in the campaign.

  71. Still seems to me like your calculations are for the rich urban areas. To be fair take a middle cost city in the middle of the US and show us that 400K is not enough to say that we are leading a better than middle-class life style. Also don’t forget — the middle class has started to become a very narrow group once consisting of those in the middle 60% of the income distribution and now is considerably narrower.

    1. Yes, the budget is for a family living an expensive metropolitan area. It is in the title of the chart and at the end of the chart.

      One of the points is to highlight our cost of living areas can be very different around the country.

      1. Owning a $3million home making 400000 a year is not living within means if house was half the price would have saved 10s of thousands on mortgage, insurance, and property taxes! This chart is flawed because normal people making 400000 a year aren’t going to be stupid and buy $3million home that they cannot afford!

      2. But this isn’t about living in an expensive metro area, this is specifically about living in the most expensive part of an expensive metro area. You can fine plenty of nice suburbs with good schools in the bay area within a 1 hr commute of downtown SF and with median housing prices 25-50% lower than in SF itself. Someone making 400K really shouldn’t be paying a 1.6M mortgage and then complaining about not having enough money left over after expenses. Like most people in that life position/income range they should just move to the upper middle class burbs.

        Childcare expenses would also come down greatly, for instance I pay only 20% more for two kids in daycare in an upper middle income town in Westchester County than my coworker does for 1 kid in Manhattan. Both of us agree my kids daycare is nicer with an actual outdoor space for the kids to play in among other amenities.

  72. Using the standard deduction doesn’t make sense here because SALT limits would be repealed under the tax plan. You would only hit AMT if you were above a 28% effective rate, not the 37 or 39% marginal tax rate. Many people in the $400k-$600k range lawyers, doctors, who live in places with high property taxes and moderate state taxes got hit hard by the TCJA and would probably benefit under the plan.

  73. $2.2m for 2k sqft w/1 car garage, woo! Greater Fool Theory alive and well.

    W2 wages required to keep up with mortgage and expenses equals 10-15 years shaved off life span, worth it?!

    $400k won’t be the “rich” line under Biden, try $100k, not even mentioning a new wealth tax. As a 5th generation Californian, I can tell you that any pessimistic assumptions you have about California’s taxation, debt burden, and general fiscal mismanagement are not pessimistic enough.

    1. Christine Minasian

      You can lump Illinois into that as well. If I hear one more time “tax the rich”….I’m going to scream!!!! Whatever happened to governments living within their means- we do!!!

      1. I agree!! And now Pritzker is pushing his “fair tax”. How about you lay off a lot on non essential government employees!!!!!!

  74. this cost of living at 400k might feel “middle class” to people who are out of touch with reality. but the fact stands that the majority of people aren’t paying into their kids educational funds on 529’s.

    also, if you’re able to put 10% of your income into your 401k and spend 65$ a DAY on your groceries, you aren’t middle class, and you aren’t barely getting by.

    That isn’t a product of “where you live.” I’ve lived in big cities. everyone’s got a walmart where you can go and get groceries and feed 4 people for 500-600$ a month.

    Please, come back down to reality where the rest of us live and don’t whine about making almost half a milly a year like it’s a curse or you don’t have a choice.

    1. Are you saying the middle class is overweight, financially illiterate, with poor personal finance habits? If so, why on Earth would you want to be that type of middle class?!

      You’re probably the out of touch one who wants to raise taxes on the most productive members of society without contributing anymore yourself.

    2. Thank you.

      “I just can’t survive without my meal delivery service!”

      Both my parents worked full time and we did. This was written by someone horribly out of touch with reality.
      We were pretty squarely middle class. My parents never spent more than 8k on a car until my brother and I were out of the house and they really needed a pickup truck. We didn’t have college savings funds, although my brother and I both managed to pay for it through scholarships and modest loans, luckily. We definitely weren’t “poor” (at least through high school, but there were times when we pretty definitely were, and other times when people looking on would say we were rich; I feel a bit lucky in that I’ve lived through both poverty and wealth growing up, but I will say I’ve never experienced the kind of abject and hopeless poverty that is a reality for many)

      Anywho, the point is, this guy’s definition of middle class is entirely arbitrary and has nothing to do with the reality on the ground.

      1. We really aren’t talking about middle class, we are discussing why 400k isn’t insanely rich and deserves to pay more. We never went on vacation or out to dinner as kids either… that’s why I decided to pay my own way! Thanks

  75. Financial Freedom Countdown

    I couldn’t believe the outrage from folks on Twitter. People living outside the San Francisco Bay Area always assume that $1M house involves living the rich life. In fact, you can’t even get a fixer-upper here.

    Or maybe folks on the internet just disagree because they find it entertaining. I now agree with your stealth wealth approach Sam.

  76. I couldn’t help but laugh when I read your commentary on Janet’s comment in the post on saving $63,000 in expenses at the cost of losing $178,000 in gross income.

    It’s so true that where you live, your number of dependents, and lifestyle choices make such an impact. People who have never lived in a big coastal city while raising kids really struggle to grasp this.

    Thank you for bringing up the relocating discussion point and thoroughly explaining so many others – it’s very true that many well paying jobs that are able to be done remotely aren’t paid at the same rate in lower cost of living areas. Corporates are smart after all – they’re not going to pay coastal city salaries to an employee who relocates to somewhere significantly cheaper like North Dakota or where have you.

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