Budgeting & Savings Archives - Financial Samurai

How AOC And Other Congressional Members Can Afford To Raise Kids In Washington, DC

How AOC And Other Congressional Members Can Afford To Raise Families In Washington, DC

There are two things people seem to want more than anything else: money and power.

For the sake of money and power, we study like crazy, work like dogs, delay starting families, then abandon our children once we have them, all for these two things that really don’t make us much happier. How strange we are.

Billionaires are in the top 0.1% of wealth. They make “everyday multi-millionaires” sometimes feel like uncomfortable failures.

But who are the billionaires of power?

They are our politicians who pass laws that affect the livelihoods of millions. Members of Congress, The President, and Supreme Court Justices are all part of the top 0.1% of power.

Read More…

How To Dress Well On The Cheap For A Black Tie Wedding

Posted by Financial Samurai 14 Comments

The following is a post by Sydney, aka Mrs. Samurai. She’s one of the most frugal people I know, which is one of the reasons why we get along so great. She’d rather go to Target than Prada. That’s the secret to financial independence right there. Whoo hoo!

Did you just receive a black tie wedding invitation and are in a bit of a panic over the dress code? I was in the same boat!

Here’s my own story about how I figured out how to dress to the 9s for a black tie wedding for cheap. After doing research, it look like we had to spend over $1,000 for the two of us to attend. But it’s totally possible to look the part without spending a fortune.

Read More…

Why Households Need To Earn $300,000 A Year To Live A Middle Class Lifestyle Today

Posted by Financial Samurai 321 Comments

Let me tell you a sad story.

In order to comfortably raise a family in an expensive coastal city like San Francisco or New York, you’ve got to make at least $300,000 a year. You can certainly raise a family earning less as many do, but it won’t be easy if your goal is to save for retirement, save for your child’s education, own your own home instead of rent, and actually retire by a reasonable age.

Although $300,000 is a lot compared to the median household income in the United States of ~$62,000, it’s not an outrageous sum of money once you look at the realistic income statement I’ve put together for this article.

All expenses in my example use current prices. I’ve also cross checked the expenses with my family’s monthly expenses now that we have a son to make sure they are within reason.

I use $300,000 in this post because I also believe it is close to the ideal income for up to a family of four to experience maximum happiness.

At $300,000, you aren’t paying an egregious amount in taxes, you probably aren’t killing yourself at work if both parents are working, but you’re still earning enough to live a comfortable lifestyle anywhere in the world.

Half the US population lives on the coasts, therefore, this post is directly targeted at folks who need to live on the coasts because of their jobs, schools, or families.

Finally, this post should also provide insights to non-coastal city residents on how good you’ve got it if you enjoy living where you are. $100,000 – $150,000 is a rough non-coastal city household income equivalent.

Read More…

How Much To Spend On A Hotel While Traveling Abroad – Calculate Your Adjusted NHER©

Posted by Financial Samurai 76 Comments

Gyeongbokgung Palace in Seoul

Before leaving for Asia I told myself I’d live it up by staying at only the finest 5-star hotels. Compared to America, Asia ex-Japan is relatively cheap. I had just finished paying down $100,000 in mortgage debt seven months earlier than expected and felt like I deserved to be rewarded. Billing 60 hours a week for three months in a row as a consultant in order to expedite my mortgage payoff was also the antithesis of being an “early retiree.”

All excited to start booking my hotels, I clicked the 5-star only search option online for Seoul and Kuala Lumpur. But instead of booking four nights at the Shilla Hotel in Seoul for $350 a night, I decided to book the Centermark Hotel in Insadong for only $120 a night after taxes and fees. The Centermark Hotel was rated four stars and had free wifi. It was walking distance to all the major palaces and the Buchchon village. A $1,320 savings could easily pay for all food, transportation, and attraction tickets while in South Korea!

Then it was Kuala Lumpur’s turn to book a hotel. Originally I was going to stay at Villa Samadhi, a 5-star resort in the heart of Ampang where I used to live as a kid. The hotel looks like an oasis, perfect for a honeymoon retreat. At $250 a night for a suite with a private pool, breakfast, and wifi, it’s pretty good value compared to the prices you’d find for a similar suite in San Francisco.

But here’s the thing. My personal finance brain took over. The GDP per capita in Malaysia is only about $24,500 vs. $35,400 for South Korea and $78,000 for San Francisco! What business do I have spending $250 a night for a 5-star hotel in Malaysia as that would be equivalent to spending around $850 a night in San Francisco, something I’d never do! Instead of booking Villa Samadhi for $250 a night, I decided to book the four-star Impiana Hotel in KLCC for $120 a night. It just felt right.

_{Disclosure: Financial Samurai has partnered with CardRatings for our coverage of credit card products. Financial Samurai and CardRatings may receive a commission from card issuers. Opinions, reviews, analyses & recommendations are the author’s alone, and have not been reviewed, endorsed or approved by any of these entities.}

Read More…

Housing Expense Guideline For Financial Independence

Posted by Financial Samurai 205 Comments

Although I’ve said that overpaying for a car is the #1 wealth killer for the middle class, paying ever rising rent over the long run could actually be way worse. Inflation is an unstoppable juggernaut that will smash your retirement dreams to smithereens if you aren’t on the right side.

There’s a general guideline that says renters shouldn’t spend more than 30% of their net income on rent. The 30% recommendation comes from the Brooke Amendment passed in 1969 which determined the point where a family living in public housing was considered financially burdened by housing costs.

As for homeowners, few banks will lend beyond a 43% debt-to-gross income ratio (10% too high IMO). For example, if you pay $2,000 a month for your mortgage and another $300 a month for an auto loan and $300 a month for student loans, your monthly debt payments are $2600. If your gross monthly income is $8,000, then your debt-to-income ratio is 33 percent.

In this article, I’d like to layout a housing expense framework to help folks reach financial independence sooner. I’ll go through my own housing expense history to reveal some nuggets of wisdom.

Read More…

The Average Savings Rates By Income (Wealth Class)

Posted by Financial Samurai 125 Comments

We all know that Americans as a whole don’t save a lot of money. The latest savings statistics for July 2019 shows that the average American only saves ~7.7% of their income a year. In other words, it takes the average American 13 years to save just one year’s worth of living expenses. That is a disaster!

U.S. Personal Savings Rate

When you’re 60-something years old and only have several years worth of living expenses to buttress your declining Social Security checks, life isn’t going to be very leisurely. You’ll probably be mad at the government for lying to you and mad at yourself for not saving more when you still had a chance.

The problem with averages is that averages distort reality. For example, the average household has a net worth of approximately $710,000. You and I know that this is impossible based on common sense. But simple math doesn’t lie. Take the total household wealth in the US of $81.8 trillion (according to the Fed) and divide by 115,226,802 US households (according to the Census Bureau) and you get $710,000.

I’m absolutely positive more than 90% of Financial Samurai readers save more than 4%. We are personal finance enthusiasts after all. Therefore, what’s the reality behind this ~4% national savings figure? The truth is that savings rates vary by income.

Read More…

Average Consumer Expenditure Per Year Proves Americans Are Living The Dream

Posted by Financial Samurai 60 Comments

We know the average spending for American households over the age of 65 is a surprisingly high $45,756 a year or $3,800 a month according to the Bureau of Labor Statistics.

Given the average Social Security benefit is only $17,532 a year, or $1,461 a month, the average retiree likely has a significant amount of retirement savings in order to account for the missing $2,339 a month.

With no debt, life in retirement is quite comfortable for current Americans in traditional retirement age.

But how much is the average expenditure across all ages? Surely, the average American can’t be spending too much while working in order to have so much in retirement. Let’s take a look at the latest available data from the BLS.

Read More…

The Proper Geoarbitrage Strategy: First Your City, Then Your Country, Then The World

Posted by Financial Samurai 59 Comments

One of the most common pushbacks I got from my post, “Why You Need To Earn $300,000 A Year To Live A Middle Class Lifestyle,” is: why the hell don’t I just leave expensive San Francisco if I’ve truly got enough passive income?

Believe me, I’ve been thinking about relocating out of San Francisco for years now because of the high cost of living, the increased population density, the growing homogeneity, the obsessive money culture, and the growing boredom of living in one place for almost 20 years.

My number one geoarbitrage destination is Honolulu, Hawaii, a place where stress simply melts away. My stress level averages about a 5 out of 10 in San Francisco, but immediately goes down to a steady state 3 when I’m in Hawaii.

Although Honolulu isn’t cheap, it’s about 20% – 30% cheaper than San Francisco in terms of housing. If you can save money and have nicer climate, that’s a win in my book.

But relocating takes time when you’ve grown accustomed to living in one place for so long. There are friends to say goodbye to and assets to unwind. Then there’s the small, but highly significant issue of raising a first child.

We figure we’d provide our son with a stable home environment up until he is 2.5-3 years old, and then consider relocating for preschool.

Read More…

How To Make Six Figures A Year And Still Not Feel Rich – $200,000 Income Edition

Posted by Financial Samurai 274 Comments

One of the great things about America is freedom. Tired of feeling like death living in Chicago, New York City, or Boston during the winter? Why hello San Diego, Miami, or Honolulu! Not feeling there are enough job opportunities for advancement in Detroit? Then come on down to San Francisco! Tired of eating healthy food in San Francisco that costs an arm and a leg? No city can beat the wonderful soul food of New Orleans.

Geo-arbitrage is a term where one can earn and save money in one place and move to a cheaper location to maximize their money. If you happen to own an internet business, then your ability to geo-arbitrage is greatest. I’ve often thought about just relocating to Thailand for several months at a time given friends say they live extremely well off $2,000 a month for two. Given one of my goals is to take 100 hours of intensive Mandarin lessons, I may very well be writing to you from some lower cost country in the future.

75% of the audience comes to Financial Samurai through a search engine like Google. They have a financial problem they are trying to solve. This is huge because it takes initiative to come to grips with one’s finances. But what I’ve noticed over time is that besides the middle class getting pissed off about the widening wealth gap, upper-income earners are also feeling some angst as well.

Over 50% of singles readers and 74% of household readers make over $100,000 a year based on my Financial Samurai income poll (14,000+ so far down below). As a result, I’d like to delve into analyzing how a “typical” $200,000 a year household spends their income. A six figure salary can range from $100,000 to $999,999, so I figure I’d start on the low end for two people. $200,000 is a comfortable household income, but I don’t think it can qualify as rich.

Read More…

Vacation Money Is Crazy Money: Staying Financially Disciplined While Traveling

Posted by Financial Samurai 84 Comments

One of the weirdest money phenomenons I’ve noticed is people spending way outside their normal limits while on vacation. It’s as if we enter a casino where money has no value because everything is clay chips.

During the first week of our two week European business trip, we stayed at reasonably priced 4-star hotels. We figured, let’s focus on hotels in the best locations since we’d only be visiting each country for 2-3 days.

For dinner, we budgeted 50 € ($60) or less for two. This amount was reasonable as boiled beef and potatoes didn’t cost too much, nor did pizza, pastas, and salads. A buffet breakfast was always included in our hotel stay so we never spent very much on lunch if anything at all.

Like with everything, we spent well within our means because we’re frugal that way. After all, it’s very hard to achieve FIRE without aggressively controlling your spending. When we arrived at our hotel in Paris from Budapest it was about 7:15pm. We were given a tour of all the facilities. This is where our money discipline began to unravel.

Read More…