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.
The Goal Of Financial Education
As a Financial Samurai, it is my purpose to share as much free financial education as possible so that everybody, not just the rich and powerful, can rise up to lead better lives. Free information on the internet is one of the main reasons why I’m hopeful for the future.
Imagine a world where everybody has their finances in order. For one, we’d all be less stressed. And when we’re less stressed, we’re happier. Happier people make better decisions. Happier people are also nicer, more confident, and tend to help others more instead of lashing out.
If everybody can gain access to good financial information for free, more people will eventually achieve financial independence as well. When you achieve financial independence, not only do you remove strain from the system, you also give back to the system. When you give back to the system, the system is subsequently able to help even more people in need.
Finally, with good free financial information, parents and students will no longer need to go into tremendous student debt to get a college education reserved only for the brilliant or the wealthy. Without massive student debt, no longer will millions of students need to put their lives on hold. Graduates can work in jobs they love. They will have an easier time saving for a home. There will also be less need to delay having children, which may increase fertility rates, decrease heartbreak, and decrease the need for expensive treatments such as IUI and IVF.
With so much opportunity to help others, if we have helpful information to share, we should do our best to share it for all to benefit.
Overcoming The Blindspot
One of the biggest reasons why so many people have a difficult time with their finances is because they are unable or unwilling to plan for the future. They cannot forecast their misery to lead a happier life.
For example, younger folks often can’t imagine one day hating their jobs. Therefore, they don’t save enough in the moment to give themselves options when that time inevitably comes. With insufficient funds, they’re forced to continue doing a job they hate for longer than desired.
One of the main ways I help people see what they cannot or are unwilling to see in the future is by sharing financial archetypes to ponder.
One such financial archetype is a family of four with two kids under 18 living in a high cost of living area. There’s nothing unusual about this financial archetype.
According to the National Oceanic and Atmospheric Administration, coastal counties of the U.S. are home to over 126 million people or 40 percent of the nation’s total population. Yet the coast accounts for less than 10 percent of the nation’s landmass (excluding Alaska).
Meanwhile, according to Statista, the average family has 1.9 aged under 18 children. In other words, a family of four living in a expensive city is quite common.
To understand and describe the pressures of raising two children in a high cost area of the country where 40% of the United States population lives, I published a guest post on CNBC entitled, It Now Costs $350,000 A Year To Live In A Big City With Family. The post was the most popular post on CNBC’s website for a couple days.
The post was so popular that MarketWatch decided to pick it up and put its own spin on it, entitled, This Budget Shows How A $350,000 Salary Barely Qualifies As Middle Class, thereby pushing the boundaries of what I had written.
As the buzz began to grow, MarketWatch decided to send out one last poke, “$350,000… and STILL struggling,” that caught NY Congresswoman Alexandria Ocasio-Cortez’s attention.
I loved AOC’s tweet because she approached my budget with good humor (why MarketWatch removed FS as the source at the end of the graphic, I don’t know). She also shared the budget with her 5.6 million followers. This is great because it got people talking about important things such as:
- Money and happiness
- The importance of staying on top of your finances and living within your means
- Whether it’s worth being a two-income household when you have kids and have to pay for daycare
- Wondering whether it’s a good idea to move to a lower-cost area of the country
- Preparing one’s finances for the high cost of childcare
- Highlight how tax is the largest ongoing expense
- The importance of contributing to a 401(k) and 529 plan
- Fighting for more vacation days
- Asking whether it’s necessary to have an umbrella policy or what is an umbrella policy
- The high cost of healthcare, even if it is subsidized by an employer
If a picture is worth a thousand words, dare I say this tweet is worth a million words. The article, the graph, and the tweet got America talking about our finances, which is the #1 thing I hope for as a personal finance educator.
And let the record show that I never said this family of four was “struggling.” Marketwatch said so. My original post on CNBC discussed how quickly $350,000 can go if you’re trying to raise kids, save for retirement, and save for their education.
As an unmarried, 30-year-old woman, what AOC might not realize is that she might very well turn into this family of four one day.
I fully expect AOC to be a rising star in the Democratic party for at least another decade, if not two. As a result, she should prepare for a financial life in the Washington, DC area. If not, the cost of living in the NYC area is equally as high, if not higher in some neighborhoods.
As a Congresswoman, AOC currently makes $174,000 a year. This salary puts her in the top 5% of all Americans. However, the salary has been capped since 2009 given objections by the American people who give Congress a low approval rating.
AOC has an estimated $20,000 in college loan debt. Meanwhile, I estimate AOC has a net worth of around zero due to her student loan debt and the fact she was working close to a minimum wage job in early 2018 as a bartender.
If AOC saves aggressively, invests wisely, and doesn’t have any kids, I believe she will grow her net worth to over $1 million by the time she’s 40.
But here are some of the challenges AOC and other members of Congress face if they want to get married and raise two kids in the Washington, DC area.
Median Home Price In Washington, DC
The median-priced detached home is around $820,000 as of October 2019. As any real estate buyer knows, you oddly don’t get very much if you pay the median price for a home. If you want to buy a move-in ready detached home in Washington, DC or the nearby suburbs, expect to pay closer to $1,000,000. The overall median price for property types in Washington, DC is roughly $620,000.
If the median-priced detached home grows by just 3% a year, by 2029, the median-priced detached home will be $1,102,000. If you have kids, your preference is to own a detached home with a backyard instead of a condo.
Private School Tuition In Washington, DC
Although it’s possible AOC and other members of Congress would send their children to public school in the DC area, it is rare. Those in the top 0.1% of power usually desire and require safety and more privacy for their children.
Let’s say AOC has two boys and is OK with public grade school up until high school. She then decides she wants to send her kids to Supreme Court Justice, Brett Kavanaugh’s high school alma mater, Georgetown Prep. Here’s the latest tuition.
Georgetown Prep 2020 Tuition
- Day Student Tuition: $38,330
- Day Student Tuition Deposit: $2,000 reservation deposit for enrollment, credited towards tuition
- Tuition Refund Insurance Plan .09%
- Parents’ Club Dues: $105
- Estimated Book Cost: $800-1000
Let’s say AOC doesn’t want her two boys to ever go to public school. Instead, she wants to start them off in pre-K through 12th grade at Sidwell Friends, the private school where the Obamas’ daughters went. Below is the latest tuition.
Sidwell Friends Tuition 2020
|Lower School||$44,280 (includes hot lunch and textbooks)|
|Middle and Upper Schools||$44,280 (includes hot lunch)|
ADDITIONAL ANNUAL FEES
|Middle School textbooks and laptop fee (grades 5–8)||$560|
|Upper School textbooks||$500–$700|
|Daily shuttle bus transportation between|
DC and Bethesda campuses (optional)
|$1,050 one way,|
$1,700 round trip
|Lower School Early Risers (optional)||$235–$1,045|
|Lower School After Care (optional) 1–5 days per week||$1,600–$5,995|
|Middle School After Care (optional)||$2,900|
Let’s say AOC keeps her kids in New York City and she commutes to Washington, DC three days a week. The annual tuition at Horace Mann is $53,200 a year once they hit pre-kindergarten. The total cost per year would, therefore, be $106,400, excluding any donations to the school. At a 25% effective tax rate, AOC would have to earn $142,000 in gross salary to pay for this tuition.
Tuition Schedule, 2019-2020 Academic Year
|Threes Program, Mornings or Afternoons||$38,200|
|Threes Program Full Days||$53,200|
|Kindergarten to Fifth Grade||$53,200|
|Sixth to Eighth Grades||$53,200|
|Ninth to Twelfth Grades||$53,200|
Finally, let’s say that AOC’s children decide to attend her alma mater, Boston University, instead of going to an amazing public school like The College of William & Mary for one third the price. Here’s how much Boston University costs.
How on earth are AOC and other members of Congress going to afford such expenses off their $174,000 a year salary? Let’s do the math!
How AOC Can Afford To Raise A Family In Washington, DC
It is virtually impossible for AOC alone to afford to send two kids to private school starting in kindergarten. The tuition at Sidwell Friends would amount to roughly $90,000 a year for two kids, after tax. Based on a 25% effective tax rate, AOC would have to spend $120,000 of her $174,000 salary on tuition.
With $52,000 remaining of her salary, AOC only has $4,333 a month gross left to spend on housing, food, entertainment, transportation, personal health products, vacation, outside kid activities, and charity. After paying a 25% effective tax rate, AOC actually only has $3,250 a month to spend on life.
Unfortunately, the average rent in Washington, DC is $2,232 a month according to RentCafe. While the average apartment size for the average rent is only 743 sq. ft.! Therefore, it would be reasonable to assume AOC would have to pay closer to $3,500 a month for a modest apartment or townhouse for her family of three as a single mother.
If she does, AOC would be left with no money left over for retirement savings, her children’s college education, vacations, food, entertainment, and charity.
The Solution Comes Full Circle
The obvious solution to AOC’s situation is to have a working spouse. Although no woman needs a man or a partner to provide for her, it certainly helps to have a working spouse when you have two children.
For the sake of equality, let us say AOC marries a man who makes a similar $174,000 salary. Maybe that man is her current boyfriend, who knows. Suddenly, their household income comes mighty close to my original $350,000 a year household family of four.
Let’s crunch some numbers to see how AOC and her husband can afford to raise two kids in expensive Washington, DC.
AOC Budget Analysis
The main killer in AOC’s budget is the $90,000 a year in tuition to Sidwell Friends plus the $20,000 a year in 529 plan contributions so they can help pay for private university tuition.
Even if AOC did send her kids to public grade school through 12th grade, she would still have to come up with $72,000/year X 2 if they want both kids to attend her alma mater, Boston University. $144,000 X 4 years = $576,000 in after-tax dollars.
Assuming the cost to attend Boston University doesn’t change for the next 18 years, and AOC miraculously has two children today, her household would need to still save $32,000 a year to pay for all college costs.
Unfortunately, the cost to attend Boston University has gone up by at least 5% a year. Therefore, in 18 years, the cost to attend Boston University may be a whopping $173,000 a year using a 5% compound annual growth rate. In other words, AOC and her husband would need to save $1,730,000 to pay for four years of college expenses for two children in 18 years.
To do so, AOC and her husband would need to save $96,111 a year for the next 18 years, which thoroughly replaces the $90,000 a year they have to spend sending their two kids to Sidwell Friends from K-12 or the $106,400 a year if they go the Horace Mann route in NYC. Their $20,000 a year contribution to their 529 plan is clearly not enough.
There’s really not much more in AOC’s budget we can cut. She’s already not building any home equity by renting. Sure, the media had a fit that she spends $300 to cut and dye her hair, but that’s her prerogative. As someone who cuts his own hair and doesn’t dye his hair, I can’t judge her because I don’t need to be presentable to anybody.
Sure, she could reduce her $8,000 a year vacation budget for a family of three. But when you have so much free time as a member of Congress, it would be a waste not to go to fantastic places with your family, especially during long summer vacation months. Congress is only in session 138 days a year or less, if there are mid-term elections. In August 2018, House members got the entire month off!
Finally, at least she and her husband are saving $38,000 a year in their retirement funds. Yes, I know politicians have pensions instead of 401(k)s. But I’m just using $38,000 as a combined annual retirement savings budget.
Here are some solutions for AOC’s $350,000 household to consider.
Solution #1: Be OK With Public Grade School And University
Forget private grade school and private university. Although AOC’s children might get scholarships as underrepresented minorities, if the system is working properly, they probably won’t given their parent’s combined incomes and their mom’s position of power.
If AOC and her husband can’t bear the thought of sending their children to public school like most of the U.S. population, including myself, then the only other way to afford such a luxury is by making outside income.
Solution #2: Do Some Side Hustling
Members of Congress are allowed to retain an amount of permissible “outside earned income” limited to no more than 15% of the annual rate of basic pay for level II of the Executive Schedule for federal employees, or $28,400.00 a year. However, there is currently no limit on the amount of non-salary income members can retain from their investments, corporate dividends or profits.
Therefore, AOC could theoretically boost her pay from $174,000 up to $202,400, which would give her household more breathing room to save for retirement or their children’s education. Here’s my step-by-step guide on how to create your own website to help you attract my clients and/or generate your own online revenue.
Solution #3: Lose Or Quit
Given AOC’s tremendous popularity, there is an unlikely chance she will lose when she’s up for re-election on November 3, 2020. But if she does, or decides to quit, I’m sure she could get a multi-million dollar book deal like every popular politician before her.
For example, I calculate Elizabeth Warren has an estimated net worth of at least $4 million, partly because she got a $525,000 advance for her book, “A Fighting Chance.” She also earned ~$60,400 in royalties for previously published books on bankruptcy and credit.
In another example, Joe Biden’s net worth was quite paltry in 2017, despite he and his wife earning over $300,000 a year for at least eight years. Then their fortunes turned when the Bidens signed a reported $8 million book deal with Flatiron Books once Joe left office. In June 2017, shortly after they inked the book deal, the Bidens purchased their vacation home in Rehoboth Beach, Del., for $2.7 million. The Bidens have reported they’ve earned more than $15 million on their tax returns since leaving office.
If AOC wants to go the book deal route, she should probably try and serve at least two terms to really make some big money. Although I’m sure she could get a $2 million book deal after only one term.
Solution #4: Find A Wealthier Spouse
Although I’m all for equality, there’s no reason why AOC couldn’t easily find a spouse who earns more than $174,000 a year. There are numerous positions across many industries that pay people with over 10 years of experience after college much more.
Given AOC is in the top 0.1% of power, she will naturally run in circles with other people of power and great wealth. Nobody would be surprised if she met someone who made millions a year.
The marriage combination of powerful politician plus wealthy business person is one of the most coveted status combinations in history.
Solution #5: Have Fewer Children
Having children is a blessing. But not everybody wants or should have children.
After doing the math, if the strains of having two children is too much for AOC and other Congressional members, then only have one. If raising one child is too much, then have none.
It should be a reasonable ask to not have children before first being able to take care of yourself. Our children deserve to be cared for in the best way possible.
Raising Children In A Big City Is Expensive
I understand that it’s easy to laugh at a family who is just getting by on $350,000 a year, especially if you don’t have kids or don’t live in an expensive city or both.
But 40% of Americans do live in an expensive coastal city and millions of these Americans plan to have children one day.
Before you decide to have kids, do the math. Please sit down with your partner and talk about the consequences of having kids before getting busy during the three most fertile days of the month.
If we can properly plan our careers and our finances well before having kids, I strongly believe we will raise better-adjusted kids who will grow up to be wonderful adults.
I’m sure AOC and other members of Congress will find a way to make things work if they want or have children. As the saying goes, “have children and the money will come.”
Readers, do you think AOC and other Congressional members will be able to raise two kids in expensive Washington, DC on their salaries? What are some other ways in which a member of Congress can afford to raise a family?