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

Luxury home on the water

Making six figures a year is a lot of money. However, depending on where you live, making six figures may still not make you feel rich! Due to higher cost of living and elevated inflation, making six figures is no longer a guarantee for high living.

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?

Migrate To Where The Jobs Are

Then come on down to San Francisco! Further, all the job opportunities are in California. Tired of eating healthy food in San Francisco that costs an arm and a leg despite having a six figure salary? No city can beat the wonderful soul food of New Orleans.

Geoarbitrage 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.

In Search For More Riches Online

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 making six figures or more 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 six figure 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. With inflation running at 40-year highs, households need to earn more to run in place.

Making $200,000 A Year And Still Feeling Average

Below is a chart that shows how making six figures a year is pretty average in a city with a child. Expenses really add up. And these include investment expenses as well.

How To Make Six Figures A Year And Still Not Feel Rich - budget

This lovely family of three living in San Francisco, with two working parents making $100,000 each (hooray for income equality!) are left with roughly $5,700 a year in disposable income after expenses and 401k contribution. Given their total cost is $121,700 after tax a year, that's roughly $10,000 a month they're spending.

Here in San Francisco, if you make $117,000 for a family of three, you can apply for low-income housing. When looking at six figure incomes, it's important to always compare living costs.

I can hear the detractors now. So let me preempt your complaints by addressing them up front. Just know there are families making $500,00 a year and scraping by!

Mortgage: $36,000

This six figure income family took out a $640,000 mortgage at 3.75% after putting down $160,000 for a two bedroom, two bathroom single family home in the outer regions of San Francisco. Their payment is $3,000 a month, or $36,000 a year. 70% of their $36,000 mortgage is interest. Take 70% X $36,000 = $25,200 a year in interest they are paying which is deductible from their $200,000 gross salary.

The family now has $18,000 (401k) + $25,200 (interest) in deductions. To make math easier, let's just take the $25,200 in interest and multiply it by their federal marginal tax rate of 30% (they straddle the 28% and 33% federal income tax bracket) to get $7,560. In other words, when they file their taxes they should get roughly $7,560 back on top of the $5,700 left over they are saving.

This family now has roughly $13,260 in disposable income after maxing out their 401k after they file their taxes. For every year they work, they can save a little over one month in living expenses before they feel great strain. Their effective tax rate is probably closer to 27% than the stated 30% in the chart.

How to make six figures and still not feel rich

Check out Credible to get a personalized, no-cost, no-obligation rate. Competing lenders compete for your business so you can get the best rate possible. I was able to get a new purchase 7/1 ARM mortgage for only 2.125% with no fees! Rates are finally coming back down.

Childcare: $24,000

Yikes! Childcare is expensive. The average cost of center-based daycare in the United States is $11,666 per year ($972 a month), but prices range from $3,582 to $18,773 a year ($300 to $1,564 monthly), according to the National Association of Child Care Resource & Referral Agencies (NACCRRA).

OK, so my $24,000 childcare estimate is high. But it is high because I also asked five friends in San Francisco who have kids in childcare and that's what they say they pay. Remember, averages don't properly estimate the true costs in many departments. Besides, I haven't even included the cost of private school tuition as an option!

If you get a night doula for a newborn, expect to pay $5,000 – $10,000 a month! It's costly, but the mother will love it. Alternatively, you may go the less expensive route and get an au pair.

With an au pair, you provide the person housing and food versus a nanny who just comes to your house during the day.

Two Vacations A Year: $8,000

Damn, Gina! What kind of vacations cost $4,000 each for a family of three? How about a good old fashion staycation, or camping in the woods for $200 bucks instead?

I'm a big proponent of staycations and road trips, especially now that gas is so cheap, but this is a hard working couple who only have four weeks of vacation a year. Their time is so valuable that they want to live it up and yolo when they can.

Let's see, three roundtrip tickets to Maui from San Francisco costs around $750 each during peak season (goes up to $1,200 actually). That's $2,250 on airplane tickets right there. Lodging costs $300 a night after tax for something very average. That's $2,100 for a week's hotel stay for a total of $4,350.

Meanwhile, the family hasn't even eaten or paid for any type of fun activities yet! The total cost of a two week vacation to Hawaii can easily go over $6,000.

A More Frugal Vacation

Let's say the family decides to be a little frugal for their remaining two weeks of vacation by renting out the one bedroom portion of my two bedroom condo in Lake Tahoe this summer. The price is an internet low $195 a night (vs. $250+) + the $25 Resort fee, cleaning fee, and taxes.

The total price comes out to $1,708 for check in July 9, check out 7/16 for seven nights. Now let's add on $50 for gas round trip. Add on $600 for food and fun and we're talking only $2,358 for a week in one of the most beautiful places to go during the summer.

Car Payments: $6,000

What a waste! But a $500 a month car payment (after tax and fees) is so common for many Americans nowadays given the median price of a new car is $32,000. I was considering leasing a $41,000 Jeep Grand Cherokee Limited for ~$500 a month, but decided to go for my dream car, a $19,025 pre-tax 2015 Honda Fit instead.

A $500 a month car payment (based off a $5,000 downpayment, another big waste of money) allows one to drive a BMW 3 series, Mercedes C-class, Lexus IS250, Audi A4, and a Jeep Grand Cherokee.

These cars are definitely a notch more luxurious than your Honda Accords and Toyota Camrys ($21,000 – $26,000) and so forth. But a $40,000 – $50,000 BMW 3 series is pretty common for a family making $200,000 a year, even though

I recommend a family should spend no more than $20,000 for a car. Just read the 500+ comments in my post on the 1/10th Rule For Car Buying Everyone Must Follow and see for yourself.

$4,800 a year on gas seems high now that gas prices have plummeted. So let's say the $4,800 includes all transportation costs, including bus fare, taxi rides, Ubers, and gas.

Related reading: How To Make Over $100 An Hour Driving For Uber

Student Loans: $0

A lot of readers who make a $200,000 six figure income level have pointed out in the comments that this couple is lucky because they don't have any student loans. They are right! They paid for their education along with the help from their parents.

If you're looking to refinance your student loans, I suggest checking out Credible as well. They are the leading student loan refinance marketplace where you can compare real quotes to get the best rate possible with no obligations. It takes just two minutes to get an offer.

Just double check on the latest government student loan rules.

Taxes: 30% effective

A 30% effective tax rate may be several percentage points higher than reality. The six figure income married couple is at a 24% marginal federal tax rate as of 2018. If they were to only pay federal taxes, the effective tax rate is closer to ~22%. But they live in California, where they face a state income tax rate of 9.3%!

But, oh yeah, they also have to pay FICA tax on wages up to $147,000 for 2022. That's another 6.2% for Social Security + 1.45% for Medicare = 7.65%. It's easy to see how the total effective tax rate is about 30%.

Thank goodness they have $25,200 a year in mortgage interest they can use to lower their taxable income by that same amount.

Property Taxes: $8,000

The $200,000 six figure income family lives in San Francisco and pay a property tax rate of 1.24% on the assessed value of their property. They bought property for $650,000 a year ago, and the city has assessed the property at $667,000.

Due to Proposition 13, property values can only be assessed by an index that rises no greater than 2% a year, even if the property might increase in value by 20%. If they were to sell their property now, they could probably get $700,000 or more since San Francisco prices have continued to go up.

If you want to invest in real estate more surgically, I recommend checking out Fundrise, the best real estate crowdfunding platform today. They are a great way to diversify your real estate holdings, especially into the heartland of America where valuations are much cheaper and net rental yields are much higher.


Another large platform is CrowdStreet, which specializes in individual opportunities in 18-hour cities. 18-hour cities are like Memphis and Charleston where valuations are lower and growth rates are faster. However, before investing in each deal, make sure to do extensive due diligence on each sponsor. Understanding each sponsor's track record and experience is vital.

I've personally invested $810,000 in real estate crowdfunding to simplify life and earn a higher income in early retirement. It's great to earn income 100% passively!

Healthcare Expenses: $$$

Employers generally subsidize your healthcare premiums through a group health insurance plan. The cost can range from $0/month – $800/month for a family. It all depends on how generous your employer's benefits are.

College Savings: Whatever is left over

Another missing item from the spreadsheet is college savings. Like most families with young kids, they aren't putting aside a specific amount of money yet because they've still got 10-15 years to go.

They've decided to just focus on saving for their retirement first in their 401k and after-tax brokerage account. Parents should also consider contributing up to $15,000 a year in their child's 529 College Savings plan as soon as they are born.

When the time comes for their kids to go to hopefully public school, they'll draw from their savings and brokerage accounts to pay as they go. Parents should also consider using a 529 plan for generational wealth transfer purposes.

Don't Let Money Rule Your Life

I read some study that in order for you to feel rich, you have to make 3X as much as you currently make, no matter what you make. So if you're making $50,000 a year, $150,000 a year in income will make you feel like making it rain at the clubs.

But if you're making $150,000 a year in income, you won't feel rich until you make $450,000 a year. In other words, human beings don't ever seem to be satisfied with what they have.

What we like to do is project our emotions onto other people. So for all those people making less than $52,000 a year, it's easy to say any household making $200,000 a year should feel rich and should shut the hell up about paying a progressive tax rate.

Making as much money through non-wage income (W2) is what it's all about.

The family in my example is going to live a nice and comfortable life, no doubt. After 20 years of work, they'll likely have saved over $500,000 in their 401k, and perhaps another $100,000 in after tax investments and savings, even if their $200,000 income stays static.

Nobody is going to cry for them. I just don't think this six figure income family will ever feel rich, just comfortable since they have to keep on working and paying an ever increasing tax rate.

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Diversify Your Investments Into Real Estate

One of my favorite ways to get rich is through real estate. The combination of rising rents and rising capital values is a very powerful wealth-builder. Mainly thanks to rental income, I was able to leave my day job in 2012 at age 34.

In 2016, I started diversifying into heartland real estate to take advantage of lower valuations and higher cap rates. I did so by investing $810,000 with real estate crowdfunding platforms.

With interest rates down, the value of cash flow is up. Further, the pandemic has made working from home more common.

Take a look at the two best private real estate platforms

Fundrise: A way for all investors to diversify into real estate through private funds with just $10. Fundrise has been around since 2012 and manages over $3.3 billion for 400,000+ investors. 

The real estate platform invests primarily in residential and industrial properties in the Sunbelt, where valuations are cheaper and yields are higher. The spreading out of America is a long-term demographic trend. For most people, investing in a diversified fund is the way to go. 


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 also have higher growth potential due to job growth and demographic trends. 

If you are a real estate enthusiast with more time, you can build your own diversified real estate portfolio with CrowdStreet. However, before investing in each deal, make sure to do extensive due diligence on each sponsor. Understanding each sponsor's track record and experience is vital.

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292 thoughts on “How To Make Six Figures A Year And Still Not Feel Rich – $200,000 Income Edition”

  1. Our household income falls into the $200,000 mark. It hasn’t always been that high, in fact much lower until the past couple of years. We have been in the same house for the last 13 years and never went out and “traded up” as our income grew. We have one car payment of $200. We are paying off our mortgage next month. Our house is now worth over $600k thanks to Austin’s booming market. I max out my 401k to include the extra $5k a year. On top of that we save $4-5k a month and can still take a yearly trip to Europe and live quite nicely. Our net worth is now over $2M. (I just turned 52). The point is not to brag but to show that by living responsibly and below one’s means, one can accumulate wealth quite easily. If one has to maintain a certain image and drive new cars it will be a tough slog.

  2. My dad worked 2 jobs to raise a family of 5 on $32,000/yr near the DC area. No BS, his one job paid $26k and the part time paid $6k. We all turned out fine, no there was no college savings for us, no private school for us. My brother and I got scholarships and went to college for not a nickel nor dime.

    And I make $155k/yr now. Living in the same area. I feel just as rich, as we did growing up with my min wage job. Moral of the story is, as long as you have your loved ones, with food on your table and roof over your head, you are rich.

  3. Papa Foxtrot

    These are called HENRYs (high earners not rich yet). The fact there is an acronym for this demographic just yells how much of an epidemic this is. Unfortunately, this demographic is driven by three things, location location location. In New York the average rent is $50,000 which is close to the average American salary. And in San Francisco, if you make less than $100,000, you are classified as lower class. Unfortunately, these areas make it almost impossible to improve your finances. I think we should remind people that you can live off $40,000 better in most places within the US than $100,000 in many of our cities.

    1. Live in LA now, from South Bend Indiana originally. I bought a super nice three bedroom house with a two car garage in a great neighborhood there when I was making 38k a year. I make 150k now and the thought of buying a house out here is comedic. I’m still paycheck to paycheck, in the midwest I’d be living like a god on this salary.

      I’m happier here with the sun and beaches and creative types everywhere and will never gove a dime to a red state again if I can help it, but I’m definitely paying for the luxury.

  4. I really have to laugh at all these comments here. Most of you should come to Western Europe and experience what it’s like to have super stagnant wages in pretty much every field imaginable and get taxed for roughly 50% of what you make with fast-rising living costs. Nobody from the states or Canada I ever met was able to really make it work here and everyone is always complaining about the states. LOL. Seriously, get some perspective and get outside of the states every now and then, it might help. You all got it good over there and if you f up it’s due to your own choices.

    1. Stanley Levine

      My wife is from Western Europe- the child care is $500, college is $0, health care guaranteed and minimal. You might not have jobs – but you have a far less hard nosed, be poor and die environment. The states is hard core – we’ve had countless friends move back to France, Germany, Spain, and Italy if those coming in didn’t have PhD, or high tech degrees.

      Maybe see the gaps in between that aren’t in focus. Arguing about this is ridiculous.

  5. AnonymousForNow

    Im new to this site, but interesting article. You dont address a topic that affects many–divorce. Im 50yo and make $225k/year in Wash, DC. I divorced 5 years ago, but due to antiquated divorce laws on the east coast pay I pay $45k a year in perpetuity to my ex-spouse. The legal bills totaled $200k and depleted most savings outside of our retirement plans. I have 2 kids in college that im doing my best to keep from student debt. I purchased a townhome that is too small for the kids when their home, but at least I do not have a mortgage. Without going through the rest of the details I live paycheck-to-paycheck with living expenses. Although I will build enough savings that I could afford retirement, the fact that I will continue to bear the alimony obligation until death will prevent it.

    1. thank you for this perspective. I’m 28 and will do everything in my power to protect myself financially when I get married. On first dates, I say, Im a huge prenup guy.

      1. That was your takeaway lol. Try taking your time to pick a spouse, making sure you share the same values, know marriage is hard belt getting into it and forgetting about getting divorced for “irreconcilable differences” and to end on a financial note also remember, “it’s cheaper to keep her”

  6. Also….you rent paying 30% of the entire 182K income. they should only be paying 30% of that tax bracket.
    $0–$9,700 10% of taxable income
    $9,701–$39,475 $970 + 12% of TI over $9,700
    $39,476–$84,200 $4,543 + 22% of TI over $39,475
    $84,201–$160,725 $14,382.50 + 24% of TI over $84,200
    $160,726–$204,100 $32,748.50 + 32% of TI over $160,725

    so the numbers arent super accurate.

  7. This article would be more accurately titled “how to be so spoiled and entitled that you think driving $150,000 cars and taking multiple vacations a year makes you ‘average.'” You make good money, can afford a home in an expensive market, and don’t even have student loans to worry about because you were born with a silver spoon in your mouths, and you still want to bitch about money? Give your damn heads a shake. I make less than these people, get by on a single income, and actually paid for my own higher education. Not once have I ever thought that I’m “average” just because I can’t afford a side of caviar with my steak.

    Most people who make low six figures are working at jobs that don’t enable them to take even one, let alone two, $4,000 vacations a year. I work 60 hour weeks, on average. I’m lucky if I can get away for a weekend trip (~$500-700) and haven’t had time for a real vacation in nearly 4 years. I also drive a used Honda because I’m not dumb enough to incur unnecessary debt when I can afford to buy a perfectly adequate, reliable car with cash. How much do you have to spend on a car to be paying $6,000 a month in car payments?? You’re driving TWO Ferraris?? And if you’re really THAT bad at financial planning, what the hell are you doing having a child?? Grow up and learn to adult before you try to raise another human being, FFS.

    1. I wonder if it would help if I added the word “annual” to the spending budget. I didn’t realize people would see my chart and think the $200,000 number was per month.

      As a teacher, Even if all my students understand except for one, I am failing. So your feedback is helpful to help me make my writing and my charts clearer.

      1. Nick Zasadzinski

        I understood the article perfectly unless it has been edited. The 6k was Annually not monthly. 6k a month car payment should not even seem likely to anyone unless it was the abovementioned “Ferrari” even then….buy cash no financing .

    2. I was worried about reading this but also kind of relieved. I am currently a student at an In-state University studying Aerospace Engineering and due to a few mess ups my undergraduate degree is actually taking 6years to complete overall and not the expected 4 years which is adding at least $50k in debt overall once I graduate. I am extremely worried that I will be paying for these loans for the rest of my life. I’ve already sold my brand new car and paid off what I owed to stay out of the debt hole. Any advice as to how I should go about deleting all of my loans as quickly as possible once I graduate?

      1. Honestly it depends on what your rates are. If you have rates that are lower than what you can earn by investing, etc., then sinking as much cash as possible as quickly as possible into paying off loans doesn’t make sense. One big mistake I see people make is dumping all their cash at once into paying off loans or buying vehicles without considering the time value of money. Spreading yourself thin to pay off those loans and leaving yourself no out should an emergency come up isn’t doing you any good when it comes to financial security.

        Secondly, you’re going into Aerospace Engineering, which means a close to 6-figure starting salary at worst. You’ll be in no danger of defaulting on your loans, so stressing yourself the way you are just isn’t necessary. It’s already lead you to taking whatever massive depreciation hit you experienced by selling that new car and paying off the principal and interest right away, with the difference in what you got and what you owed on it coming out of pocket. Maybe you negotiated some miracle sale price, and if so congrats, but otherwise you panicked yourself into an unnecessary loss.

        I don’t know your exact situation, but what I can tell you is that unless a decision will make or break you staying in your home/apartment, being able to eat the next day, etc., you shouldn’t be rushing financial decisions. You’re still in school, which means that odds are you can find professors and resource personnel on campus who can advise on these things and give you the whole picture to look at. If you had an engineering issue that meant there was a potential failure on the horizon would you rush to a solution or what you evaluate the entirety of the situation, apply the knowledge you have, look elsewhere as needed, and draw conclusions based on a complete as possible understanding of the situation? Your finances should be no different.

  8. Agree 200k does not “make you rich” if you define reach as being able to throw money on whatever you want. My wife and I live in LA and we make over 200k a year, we are both late 20’s and do NOT have children.

    Do we feel rich? personally I do… it is a matter of perspective. I mean we live so comfortable, we have access to virtually anything we want. Do I feel like going skiing? sure I’ll go buy a pair of skiis and go skiing. feel like mountain biking? sure I’ll go buy a mountain bike. Trying out food from anywhere in the world? sure let’s go to a Thai restaurant!. How is that not being rich? did you know 99% of the world population won’t even ask themselves these questions? You people are whining too much, and think that you deserve the world in the palm of your hands. Well hello, consider yourself fking lucky to spend EIGHT THOUSAND DOLLARS A YEAR!!!!!!! ON VACATION.

    So what’s the catch? yes… no kids… but life decisions man… we went to Spain last year for 2 entire weeks and spent 2.5k (including tickets), while eating out every single meal. We splurged big time!. Spain is crazy cheap and you can rent beautiful apartments on AIRBB dirt cheap and way nicer than hotels. We even rented a car and drove around the southern country. Hell people, why are you going to Hawaii!!! it is a rip off my man! go to the Caribbean, go to Dominican republic, mexico, anywhere literally NICER and WAY CHEAPER get out of your white american bubble.

    College savings. I mean… if I want my future children to have the life I have, they need to go to top 10 schools. Right? WRONG!!! My wife works for NASA and I work as a lead Data Scientist for a huge corporation. We both went to state college, so we have no student loans. I got my old company to pay for my grad school (at state school) and my wife got a research scholarship that paid for her grad degree too.

    Cars. We bought a used Toyota corolla with only 25k miles on it a few years ago. Why? because that car is build to be amazing, safe, and cheap!!! paid up front, no loans boom, it is just practical. Yes we did splurge on my dream car when I got my last job, a brand new jeep wrangler. But I got the most basic version, just what I need, paid more than half up front and took a 3 year loan that I paid really fast in 7 months. At this moment we have 0 car loan payments, a brand new wrangler, and a solid Toyota corolla.

    We go out to eat a lot, we go camping a lot, we go on weekend trips and stay in AIRBNBs or small inns etc… We splurge every now and then, but we do it in a smart way. For example I am into mountain biking, and those things can be expensive! but hey, I am by no means a professional rider, so I don’t need a 5k bike! so I bought a 1k bike that does great!.

    It is all about life choices and perspective. Be grateful for what you have and stop whining. Yes I understand children add a lot, and we know things will get a little more challenging. But we are rich, most people making this much money in the U.S. are rich. We just think we deserve the world and are privileged af.

      1. I think you should tell your reader about the danger of stockbrokers. They always make you broker and the benefits of a financial planner. I also think you should write about the guy who dropped out and had a wonderful life playing and being irresponsible. We all end up in a bone yard so what the ….

          1. Much discussion going on about middle class and how much money does a person need to be rich. This is my yardstick.
            If a person has a closet he/she is upper middle class. If the person has a closet with extra clothes and shoes he/she is rich. If you don’t believe me, travel outside of America.

            1. It’s all relative. Feeling rich or not has more to do with your perspective than your income. A few years ago I was making $220K/yr and I felt rich! Now I make $450K/yr and I don’t feel rich. 2 kids, a bigger house, more ambitions…they changed my perspective. That’s not to say I’m not grateful or happy, just feel like I need to manage my finances better.

              1. Yeah, kids will do that to you. I didn’t believe it til I had one. They definitely live better than I did as a child.

  9. quincy morgan

    I did not see any utilities or phone in the budget: Heat, electric, water, cell phone, etc. Was it embedded somewhere?

  10. Los Angeles Transplant

    I live in East Bay across the bridge from san francisco . I’ve been here for 4 years. Prior to that, I lived in Los Angeles.
    Overall, Sam’s post is a good stab at the ‘average’ living in the bay area.
    It really tries to address cost of living of hte area, but also acknowledges that entitlements that I see prevalent in my community.
    However, below is an outline of what I’ve personally done to increase my wealth in the Bay area, which I hope will serve as inspiration for those struggling to live here:
    1. home ownership- the average selling price for a home in SF is 1.6 mill as of 8/2018. That’s a whopping ~7000/month mortgage= 96000/year.
    Even if one decided to live in a decent low crime suburb, homes are still AT LEAST 700-900k (3300- 4300/month or 40k- 50k/year). And that doesn’t even include home insurance, repairs, ect.
    Depending on the area, renting usually might not be any better FOR EQUIVALENT UNITS. And i personally know plenty of people who are paying the above.
    But here is where I’ll go on to the idea of personal entitlement. I think there are some people in the audience who make the assumption that they are entitled to live in a nice cozy home/ apartment in a safe neighborhood. And if you fall in that category, it’s totally fine, but really its not- because it’s probably costing you an arm and a leg. There are plenty of living situations in the bay area that can be had for less than 3k a month. I live in one of them with my girlfriend, but we definitely needed to take austerity measures to stay in this situation (one bathroom, two bed in a questionably mixed location). And before anybody starts poking fun about what ‘questionable’ means, i just want to remind everybody that there are plenty of people living my our neighborhood, and to put me down for this living arrangement is to put my entire community down as well; so let’s just keep it positive and say that my neighbors and I make the best of the situation and environment. As we share a room, my girlfriend and I pay 1000 of the 1900/month rent shared with a roommate (12k/year). even though I’m not gaining equity in this situation, my rent is probably about or less than property tax and home insurance (sunk costs anyway), so I feel like this is a good deal.
    So going back to my friends paying 3300-7000/month in mortgage/rent in the bay area, and complaining about it: consider searching for a less desirable setup if money is tight. It’s out there.

    2. $8000/year vacations-
    This figure is accurate for many of my friends, but again, it touches upon the idea of entitlement- “I deserve a good 2 week vacation every year”. I grew up with parents who came to America with $20 and a suitcase full of clothes. A “vacation” meant going somewhere local, staying with relatives or a motel, packing food, etc. you get the idea. Some people in my network are convinced that they are entitled to spend a minimum 3k on a 2 week vacation. Again, for those intending to increase wealth, it’s not a good idea.
    Even when I started making over 150k a year and tried a “fancy “ 1 week vacation to Hawaii, I kept my expenses (including airfare) to less than 1300 for TWO people (a combo of good airfare and hotel hunting, and frugal eating habits). Note how I took a ONE week vacation, and not 2. That is also something to consider.
    I’m not saying that vacations aren’t important. But to assume that 2 weeks a year is necessary will also cost more money. If you are really interested in finding relief from stress, I find that stress relieving habits/activities THROUGHOUT the year applied to the workplace and home setting are much more effective than any relief a vacation can provide.

    3. Food/going out- this is probably going to be my favorite section.
    If it’s one thing I learned growing up poor, do not underestimate the power of food.
    Some people find it acceptable to spend upwards of $150 on “date nights” every 2 weeks on restaurants. I totally agree that going out is important for any relationship/group, but my girlfriend and I make it a point to spend less than half of that, and actually do fairly well with that (even when we go out with friends).
    Anything labeled organic may just be a marketing strategy. No research proves that paying 20% more on organic products will improve your health.
    What IS proven, however, is that caloric restriction may actually be good for your health as a productive individual in society
    So 2-3 times a week, I intermittently fast, which I’ve been doing for going onto 2 years now. Skipping meals saves me about 5% on my grocery bill.
    In the process of transitioning to a fasting lifestyle (and this occurred naturally to my surprise), i found myself craving more vegetables from being 50/50 meat/everything else to a 20/60/20 meat/vegis/carb diet. So guess what happened? Spending less on meat = spending less on groceries- about a 5% reduction in grocery cost.
    One last benefit is that my stomach had shrunk as well, so I end up eating less overall (instead of eating an entire portion at a restaurant, I eat half, and save the other half later). Slap another 5% savings.
    Before you make any assumptions, I’ve been checked by my physician and he and I concur that I have not lost any meaningful muscle mass, only fat. In fact, I get a ton of complements now having lost about 20lbs since starting the regimen. Also, I can personally say that I’ve never felt so physically good in my life since implementing intermittent fasting.
    If the above seems extreme, it was meant to be examples to challenge the entitlement to food I see so often around me. The point I’m trying to make is that SIMPLE healthy dietary habits can save money, but they may be the most difficult to IMPLEMENT if one subscribes to any type of entitlement to meat/sugar/fat. Trust me, for the average american, there are more than enough calories that can be cut, and, IF CUT CORRECTLY, will lead to saving money and even improve one’s overall health and well being; and who knows, maybe reduce healthcare costs down the line (as obesity is linked to money wasting and quality decreasing chronic diseases such as diabetes, kidney disease, and heart disease; i personally know from my own extended family). Just food for thought (no pun intended)
    Anyway, my savings are real and tangible.

    4. Car payments- I had a friend that decided that it would be a “wise” investment to buy a tesla model s for a bargain 75k, trying to convince me that the gas and maintenance savings alone would pay for the car. I drive a honda civic that was a little less than 17k out the door brand new, which i will use as part of this example. In my analysis of my friend’s statement, I asked myself, “will an all electric car at that price really save money?” so I did a thorough analysis of gas savings in an electric car, electric costs to run the car, insurance cost of the model S over that of a Civic, maintenance cost of both the model s and the civic, and a risk adjusted estimated loss of a catastrophic failure of an electric engine (specific to electric cars) vs that of a honda civic’s gas engine, and what I found is this: the model S is still more expensive. The increase in insurance premium alone negates any savings in gas costs that the tesla might save over a honda civic; and the risk adjusted failure cost of the model S drivetrain out warranty (as my friend stated that he will drive it for over 5 years, and will eventually have a period of non coverage) was more than the entire risk adjusted engine failure cost and maintenance of owning a civic.
    The point is, as Sam implied, any vehicle over 20k is a LUXURY car, and any luxury car, in general, will cost money.

    Clothes- I spend at most 500/year on clothing. I frequent thrift shops and repair my shoes. for those that feel entitled to spend up to 5000/year, it’s costing you money.

    Charity- charity is great, but to be a realist, if your other expenses are overwhelming you, the biggest act of charity you can do to society is not getting into more unmanaged debt.
    I personally donate to good causes, ONLY BECAUSE I AM NOT IN ANY UNMANAGED DEBT.

    And consumer debt- I gave you my life habits above, do you really think I have any? Frugality is a lifestyle, and practicing it in one part of life will often times transcends to other parts of your life. So the answer is no, i do not have any because of HABIT.

    You got this far onto my post. 1.Iis all the above worth it where I live? and 2. how does this have anything to do with FinancialSamurai’s post?
    1. In the past 2 years, I have been able to consistently save and invest on average of 40% of my income a month (150k income last year, and expected income of 200k by the end of this year). In just 2 years, I’ve been able to save 120k (does not include what I made investing it.) AND ALL THIS WHILE LIVING IN THE BAY AREA with an average income of 175k. and
    2. Saving money and investing it correctly has everything to do with FinancialSamurai, even if Sam’s figures and opinions in this post may be debatable.

    So for those who live in the bay area and feel victimized by the cost of living which you believe is astronomical and unique only to this region of the country, stop being the victim, and challenge that assumption. IT IS, TO A CERTAIN DEGREE, AS EXPENSIVE AS YOU MAKE IT. The sooner you accept personal accountability in your own cost of living, the better off you will be in this area. Evaluate your own entitlements and accept that some austerity is OK.
    The reality is, most will reject any notion of what I’m writing, some will accept some aspects of it, and maybe one or two will make drastic life changes that will lead to wealth and prosperity. Good luck, I hope this gives some insight on bay area living.

    One last note: To be fair, I don’t have a child. However, after doing the math. Even if I did have a child, I’d still be saving 25-30k more a year than what Sam had estimated if my girlfriend simply had a child, gave it to me, and left me to care for him/her myself. However, that is highly unlikely. If we had a child and she decided to be a stay at home mom, we would save upwards of 40-50k a year more with our current habits. And if she decided to work, she would add an additional 100-120k a year to our income, which would totally negate the cost of child care in my original equation. So yes, those with children still have hope.

  11. Minnesota transplant

    I love how all these people are judgmental about how this couple spends their money. We all have different values and how much we spend on childcare or schooling for children is not up for the rest of you to debate. They’re NOT your kids so if these parents choose to drop $24k on childcare or private school then that is them choosing to put that money there instead of investing. They’re not complaining about it, they’re saying “this is what we value” so we pay for it and for those reasons what is left, is minimal.

    We live in Minnesota – one of the HIGHEST taxation states. Combined we make just shy of $250k combined with 2 kids. I just registered for my employer health benefits and all that. $21,600 is coming out of my check for all the employer subsidized benefits. Then of course we both max out our 401k. We also contribute about $8k annually to our kids 529 plans.

    We have a 2012 mini van that is paid for. we also have a Honda that is only $200/month
    We take lunch to work every day and make our kids lunches every day. They go to private school and day care so yes we spend $24k on that annually.

    One child has a medical issue that usually lands us in an ER 3x’s a year. We have no debt and we haven’t gone on a vacation in a while because it can’t bear to pay the outrageous airline prices with such bad service these days. Our shopping is primarily done at Costco – buying in bulk is best, our wardrobe for work is filled with the same clothes we’ve been wearing for 5 years+.

    We pay hefty taxes and yes we give to charity. By all means we are not rich. Sure we go out to eat once a week but that’s usually to some kid friendly place like Pei Wei or the Grocery Store Cafe. Nothing fancy.

    We save as much as we can but still we’re not rich. I can’t go buy a BMW or Mercedes. Despite what people may speculate about families who make over $200k. I will say that at work, my employees make the same as me. Therefore, I know my peers are making WAY MORE than I do. I just want to put that into perspective for you all. It is not difficult to make $200k HH income these days with 2 white collar workers in the household. The challenge is being able to reduce our AGI and actually keep more of our money.

    1. You mean the high income earners or the low income earners who are subsidized by the high income earners?

      I have spent 80k (progressive fees depending on salary) on medical in the last 5 years. Still making monthly payments. Now we are facing college tuition. I think we can swing paying 100% cash by eliminating vacation, using state school, etc – but darn, no tax breaks or subsidized loans are even available! My parents both lost their health (one died) at my age, so why shouldn’t I want to have a few nice things to enjoy if I earned them? I certainly wouldn’t begrudge you for buying something frivolous with your own cash! Good thing we have decent 401, but I will have to downgrade the house because it won’t be paid off when we retire. Your welcome.

  12. And this is why I haven’t moved to the San Francisco Bay Area. I could make twice the gross pay I make in my state. However, state taxes would take out a chunk of that increased paycheck (I pay none in my state). I would be in a higher tax bracket, so I would pay more in federal tax as well. The cost of living would be substantially higher. In the end, I have more disposable income with the lower rate of pay in this state than I would in most areas of California.

  13. The author’s numbers are off, and highly skewed.

    Even in 2015, a married couple with $200k income, no health / dental insurance premiums, and 3 exemptions (including their one child) would only have $32,243.50 withheld for taxes. That’s a 16.12% effective federal tax rate, not 22%, until you add in Social Security and Medicare. However, the narrative text added it in again.

    While they likely should save more than 9% of their income (and likely do if they receive any matching money), it points to the fact that they’re not necessarily “pressed” for every dollar.

    Furthermore, they somehow have a $500 per month car payment, and $100 per week for gas. That’s an expensive car that doesn’t just guzzle gas, it opens its throat and shotguns it based on current gas prices.

    Add 2 $4k vacations per year, and $8k in “charity, consumer debt, and miscellaneous” expenditures, while still having more than 10% of the median household income left over, and they’re clearly not hurting (just whining).

    1. WishIwereRichl

      The Personal Exemption amount ($4050 per person = $12,050) is money that is not taxed. As stated in the article, $25,200 is mortgage interest that is also federally tax-exempt (deductible). Add that to the state taxes (probably around $15,000, which is deductible on Schedule A, and you have a federal deduction totaling $40,000 or so. The effective tax rate is thus, nowhere near the 30% that the author claims. It is closer to 15% for federal and about 6% for state.

      Given that, the “What’s Left” line should look closer to $20k. And if you pull out all the excessive and egregious spending (like two $8000 vacations lol), the bottom line to the savings account should look closer to $30k.

      I make $200k and live in Silicon Valley. My taxes is $30k federal and $10k state. Oh, by the way, when you first start out, I recommend donating all $2,000 to your favorite charity… YOURSELF! But you should donate when you’re older, the kids have gradated college, and you’re settled down and fat and happy.

      1. Two vacations for a total of $8K is by no means egregious. Flights alone can cost $3-4K. Add food, accommodation and transportation for 7 days for a family of 3-4 and it easily adds up to $8K for one week of vacation.

        1. A flight for $3-4k?? Are you serious? Please find me one. Unless you are specifically interested in vacationing at whatever remote village in a Congo is the absolute most expensive to get to, you will be throwing away money to pay *half* that. You are shockingly out of touch.

  14. Scott A Van Epps

    How in the hell did you leave out health insurance? Don’t forget the huge deductible too!

  15. I live in SF, and I earn six figures a year (lowest end).

    I have no kids or anything like that. Life is really tough.

    I feel like I’m earning so little after all the bills and rent.

    I feel the pinch everyone is talking about, and I hope it will ease up some day.

    Any thoughts?

    1. I would find a company that allows you to telecommute from a cheaper location in America. It’s becoming for more popular and you can make close to San Francisco money but cut your costs by 70%.

    2. Identify what in SF is crucial to your happy life and find those things elsewhere. I’m serious. When I moved from Los Angeles, I missed all the ethnic restaurants, but soon realized those restaurants were the element that made life in L.A. bearable. They were unnecessary to my happiness. What I really miss are the long evenings that come from being in a more southerly location than I am now. Lots of southerly locations in the U.S.!

  16. Famof4inCali

    We are a family of 4 living in Southern Ca. My husband works full time making 60K a year, about 42K after insurance, 401K and taxes! and I go to school full time. I take night classes to avoid child care costs. We go one two $500 “vacations” a year. not very fancy or long but nice local getaways. Each child has one “activity” which costs us about $1000 a year total… My point is there are ways to cut the fat! We spend less on “vacations” and less on “child activities”… We are able to save 5K a year without any debt! If we can do it anyone can! and honestly, I don’t even feel “poor”. I feel rich! i live in a safe home, I eat healthy foods, my children are healthy, no our home doesn’t have new wood flooring, or chic color pallets, but it is filled with 4 people that love each other very much!

    1. Of course there are. But the point is that if you earn a good salary, it’s still normal to want to do extra things with what you earned. When you are younger, I think it’s easier to sacrifice because you have your whole life ahead of you. Then when your kids get college-aged, you realize that “oh crap,” I have to try to start my bucket list! But you really can’t because you can still ‘trim the fat’ to help subsidize …(name anything but your own desires).

  17. All of those expenses seem so plausible and as though cutting them a little wouldn’t make much difference. It makes me grateful I don’t have and don’t want children.

    We earn a similar amount to this couple, and live in a similarly expensive city (Sydney, Australia), but our budget works out much better, mainly because of not having kids:

    Income: pretty close to $200k (I earn $130k and my partner alternates between $60-120k depending on whether his job has enough funding to pay him full time or half time). So say $200 total as an average.
    Taxes: $55k

    So net income = $145k

    Mortgage payments = $24k (Sydney has a median property price of around $1 million, and ours was $900k, but we had a good downpayment, so the mortgage repayments are low).
    Mortgage interest = $8000
    Home maintenance = $3000 (we had to buy a fixer-upper to get a below median price house, so there are a few biggish expenses each year)
    Property rates = $4000
    Home insurance = $1000 (we have a large deductible to keep this low)

    Electricity = $1200
    Water = $800

    Car insurances & registration = $2000 (only 3rd party person & property)
    Car maintenance = $1000 (we have an old beater, so no payments, but it always needs maintenance)
    Fuel = $1200 (Because it’s Sydney, we live a long way from work (in opposite directions each so we can’t exactly live closer): my husband drives and I take the bus or cycle, depending on weather)
    Bus/train fares = $1500
    Bicycle maintenance = $300

    Food = $8000 (we only eat out about once a month, take lunches to work, etc but we do like things like cheese, wine, and fresh produce, which are not cheap in Australia).
    Clothes = $300 (we mostly thrift shop)
    Travel = $5000 (our families live in different countries so we have to visit them at least once a year, plus we try to have a (cheap) vacation once a year as well.)

    Medical expenses = $2000 (private health insurance + a few expenses it doesn’t cover)

    Gym membership = $1000

    Phones = $600
    Internet = $800
    Subscriptions = $180

    TOTAL = $56k, leaving around 90k per year in savings (minus miscellaneous costs which seem to average no more than a couple of thousand per year).

    The difference between us and this couple are: we don’t have childcare payments; no children’s classes or meals; less in the way of insurance cost; cheaper vacations; no car payment; no consumer debt; less property tax; less on clothes. On the other hand we don’t get any mortgage deductible in Australia.

  18. Wait, if 401K is 18K that means this budget is based on one earner and not two or else 401K would be 36K. If so not sure if child care should be 24K. On the flip side child classes of 5K might be too low once we take into account of summer camp.

  19. This looks very much like our family’s budget.

    We live in Seattle, where the going price for a house is $400 per square foot, or $800k for a 3 bedroom, 2,000 square foot house. (pretty basic)) Our mortgage is $3,500 with taxes.

    We have two kids – infant and toddler. Infant daycare is $2,000 per month, and $1,500 per month for toddler in Seattle, so we decided to pay a nanny at $18 per hour for full time – about the same at $3,500 per month.

    That means just our house payment and childcare is $7,000 per month….leaving about $3,000 for everything else, food, healthcare, utilities, two cars (we both work in outside sales and need a car).

    We don’t go on vacation ever! Not luxurious.

  20. Late to the party, but $24k/year for childcare??? I *wish* I could find such cheap daycare. I’m using a “cheap” McDaycare facility near my home in Boston that only costs $35,000/year. It doesn’t offer any special program, no foreign language, nothing – it’s just a run-of-the-mill daycare. A “quality” daycare here would be in excess of $40k/year. Maybe I should move to SF to get that sweet low cost of living :)

    * – of course, this is largely offset by higher salaries, but it’s fun to complain…

    1. Wow – adjusted for taxes, you need to make $50k (well over median personal income and close to median household income) just to cover daycare costs. Is it really worth having two income stream or can one spouse work from home?

      My 200k/year of the last couple years looks like this for wife and I (will be ~250k this year and ~300k next year – mortgage will be going up as we’re building a new house but otherwise expenses will stay the same:

      Gross Salary: 200,000 (one income, no kids)

      Income taxes (including FICA): 50,000
      401k: 12,000 (can’t max – company doesn’t meet safe harbor rules)
      NQ Def Comp: 25,000
      Mortgage (including taxes/hoa/insurance): 13,000
      2 Cars (loan/taxes/insurance/maintenance): 11,000
      Gas – 2,000
      Student loans: 7,000
      Other Debt: 6,000
      Food/Bev: 12,000
      Wife’s clothing/makeup/hair budget: 5,000
      Utilities: 3,500
      1m life insurance = 400
      Misc = 3,000
      Dogs = 1,500 (including insurance)
      Vacations: 10,000
      Gym: 1,000
      Cable/Internet/Cell: 2,500
      Gifts: 2,000
      Life happens: 5,000
      Healthcare: 3,500

      Roughly 175k-180k a year in expenses, including ~40k in 401k/def comp. This is Charlotte area. Expecting to have all debt but the mortgage paid off in the next 18 months.

      1. “adjusted for taxes, you need to make $50k (well over median personal income and close to median household income) just to cover daycare costs. Is it really worth having two income stream or can one spouse work from home?”

        This is a good question, but not so simple. Leaving the workforce for 5 years to take care of a child until they go to kindergarten can have a really detrimental effect on one’s ability to find comparable work from what they left, and they will be more likely to re-enter the workforce at the level (or below) from when they left. So even if all your income goes to childcare, it may still be worth it.

        Also, working from home with a child is not an option (unless you don’t actually plan on working). Can save some childcare costs if you don’t have to pay for care while commuting to an office, but any parent will tell you that kids don’t sit quietly for 8 hours while you do your work…

  21. The example provided doesn’t even included telephone/cell, internet service, television provider, gym membership, etc. I’m assuming these things weren’t meant to be covered under home maintanenance becuase that would leave no room for utilities, which I’m sure aren’t cheap in SF. There is also auto maintenance, gifts, etc. I also think $12,000 for food for a family of three in SF is very conservative. Perhaps if the family never eats out (only buys groceries at Walmart) and never enjoys a Starbucks it would be possible. The example also only has one of them maxing out their 401K (18K). Based on recomendations I repeatedly read here, this couple should be able to add another 18K to their 401K (max out both) and save an additional 20-75% of their net income (20-75% of 109Kish). Obviously this is not feasible even if they were living on ramen. I’m thinking that maxing out 401K (36K) and saving an additional 20-75% of net (22-82K) would require a family to make at least double (400K) or certainly not live in California.

    1. I think $12,000 per year is totally doable for food. My family of 3 lives just outside SF and we spend $700 per month on groceries (Trader Joe’s and Whole Foods mostly) and another $200-300 on lunches, eating out and coffee. I only eat out at work once per week and usually at a place with salads and sandwiches for $10 or less. And date nights are more likely drinks and/or an inexpensive dinner, not often steakhouses and trendy places. But it doesn’t feel like too much of a strain. Certainly not ramen!

  22. Good article

    Just goes to show that feeling rich is more about your mindset rather than how much money you have. There should be another study to ask people what they actually mean by “rich”
    it means so many different things to different people that its almost become pointless as a word.

  23. Lori Devlin

    If both people are working why are they not putting $36,000 into their 401K? That would lower their tax bill. Does it really cost $2000 a month for one child in childcare?

  24. Looks like Trump is actually raising taxes on 200k earners! The 33% bracket kicks in at 112k, screwing over middle class earners in expensive places like the Bay Area.

    1. Looks like it is an attempt to get rid of the marriage penalty. 33% bracket kicks in at 112,500 for singles, and 225,000 if married. Exactly twice the single level. The standard deduction goes up almost 250%. Some tax cut but not as much as I was hoping for. Might be time to hitch up and save!

      1. Good observation, and you’re right. I can’t see how the middle class $120,000 – $200,000 income earner has to pay a 5-8% increase in taxes. I don’t think his tax regime will pass.

  25. Its quite “scary” to see how every year it becomes more and more expensive to just live in America, let alone live well.

    These fixed cost parts such as insurance, kids’ tuition, etc. are HUGE in the US.

    I’ve been living in Southern Europe for the past 8-9 years and I can tell you most things, are so much cheaper than in the US, we are now a single income family (60k € per year) but have managed to save enough over these to buy a sea-view large apartment, have high-level health insurance, travel at least 5-6 times per annum for vacation abroad (luckily I get 6 weeks vacation, not the 3-4 as in the US), so if I try to put it down on paper, to get what I have here in San Francisco, both including property but also income value, it would probably take 150k $ or more…

  26. Sam – I use this article all the time to show how difficult it is to live in the Bay Area. Great read.

    My wife and I both work for large tech companies in the Bay Area so a good portion of our compensation is under stock and bonus. Combined we make well over $200k. When we max out our 401k, don’t see our bonus until the end of the year, company RSU (we don’t touch this to fund our future house), we have $2-2500 leftover after paying for our mortgage and expenses. We still live a comfortable life but we discuss any expenses over $100.

    We are in our mid-late 20s and plan on starting a family soon. I never thought I would be stressed about how we will afford a family with our income. I would be interested in an article on how to be financially smart about starting a family.

    1. Thanks for sharing the article. Have you seen this article? Scraping By On $500,000 A Year – Why It’s So Hard For High Income Earners To Escape The Rate Race?

      Good topic you’ve suggested. I plan to write an in depth one in 2017 as I like to write about everything from experience. But you’ve got to think that it can’t be that expensive raising kids in the Bay Area. There are median household income families with 4-5 children all the time! How do they get by?

      One topic of discussion I had with my buddies growing up was hitting a $1M net worth target before having the first kid.


      1. Hey Sam – I’m looking forward to that article. To answer your question, I think a lot of families today are surviving by going into debt, not working towards financial independence, or at the very least, not making smart financial decisions. I’m only assuming this based off statistics I’ve seen over the years that show the average American carries CC debt and doesn’t save much for retirement. In your opinion, what percent of parents in their 20s-50s are going to be set for retirement and be able to pay for their children’s college tuitions?

        I did read your $500k income article and to be honest, it frightens me. Those numbers are all very realistic for the Bay Area. Going back to saving for your children’s college tuition, I don’t even see that being part of the expenses for the $500k income family. We both know you can cut back here and there but my point is that with a $500k income I would have thought funding your children’s education would be an easy accomplishment.

      2. Yes, it can be that expensive to raise kids in the Bay Area! We have our child in a daycare outside the city that is state-subsidized and we pay $15,000 per year. Other daycares we looked at were closer to $24-30k per year. If you want a nanny for 40 hours a week, you’re looking at $41,600 (@$20/hr) and the market here demands paid vacations and sick days for them. Of course, we work 40 hours per week, so we actually need care for 50 hours per week. Even if we found a nanny share where you can pay half the going $24/hr rate for 2 kids, it’s $31,000 (50 hrs @ $12/hr). Everyone I know with more than 2 kids either has a grandparent do the caretaking, or one parent leaves the workforce.

          1. It was actually a nice accident! We are the only private pay family at this daycare, but the law says they have to charge everyone the same amount, so we only have to pay what the state pays ($1200 per month). Daycare does get cheaper as kids get older – our kid will go into a preschool at 2 years old, which will cost $18,000 per year for full-time care, but will be a better fit for his development, so we are willing to pay the higher cost.

  27. I have to disagree with how some of the expenses in the family of 3 breakdown are coded above.

    2 vacations totalling $8K is not an expense….this is $8K of disposable income you are choosing to spend on travel.

    Along those same lines…charity. While its for a better purpose than your vacation, its still an optional expense that you are willingly choosing.

    Regarding clothes, if these are for the kid, then they are expenses. But for adults? You can get by without spending this I’m sure. Buy some solid, well made staple items that you can wear for years.

    I’m fairly young in this game, but I already find it annoying how so many people treat certain “expenses” as mandatory. Hey, I love to travel too, but if I’m having a savings problem, that will be the first thing to cut out!

  28. Good stuff! It really is all about perspective. And I hadn’t heard of the “make triple what you make now in order to be happy” viewpoint, but it actually makes perfect sense. I think you’re right, humans are always wanting more and wanting PROGRESS, which I think is the most important part of the equation.

  29. Hi Sam,

    I can paint a bit of a bleaker reality at a $210k per year (household income). Some poor decisions and lack of plan and here is the result…..

    I feel awful writing this as many get by on much less (as I did for many years), but here goes..

    We are a two working parent household (late thirties) with two children (ages 1 & 3) living in south eastern PA – suburbs of Philadelphia.

    Here is our financial breakdown….

    gross salary $210,000
    401k contribution $8,000
    salary after 401k $202,000
    Taxes $58,910
    Roth $4,680
    Medical. Dental, Life Ins $10,000

    Net $128,410

    Child care $12,000
    Mortgage 1 (+prop insurance+prop tax)(30yr@3.75%) $23,760
    Mortgage 2 (15 year at 3.2%) $10,800
    Line of Credit (this was used to finance construction) $9,000
    Car payments ($18k car loan at 1.9%,we pay $700 month to payoff in 2yrs) $8,400 Insurance $2,300
    Gas $5,720
    Charity $2,200
    Dog Care (3 dogs) $4,200
    Pet Insurance $1,200
    Cable TV +Phone+Internet $2,040
    Vacation $0.00
    Student Loans $10,284
    Cell Phones $2,016
    Utilities $5,260
    Gym memberships $2,400
    Food $6,000
    Kids “Stuff” $3,600
    Pre-school $2,600
    Misc $3,800
    Savings $5,000

    All this leaves $5,830 at year end. Throw in some birthday parties for kids, gifts at holidays and the unforeseen “misc” – car repair, dental repair…etc. pretty close to net zero. Usually savings gets tapped for something too.

    Net worth: I made bad decisions starting off. I self-built our home, which we love, however the project became a “build it and it will all work out” job due to time constraints – and just life happening. So as you can see via our loan payments we have three home loans totaling about $565,000. For the perfect buyer the home might be worth this much – deduct realtor commissions and we are under water, maybe more than I realize. Plus I depleted $60k of our savings as capital contribution to construction. All in all I estimate our net worth to be around a negative ($115,000). Although none of this is news to me and I saw it coming I still shake my head every time I put finances’ to paper. I was raised in a family with a household income of under $50k per year; somehow my parents managed a nice life for all of us on that income. I’ve dug quite a hole to climb out of. I feel shameful given our incomes and the avoidable nature of debt accumulation.

    1. Are the mortgage loans only for one home? If for multiple, it may be worthwhile to figure out how to unload them or rent them out. That is a pretty hefty hole to dig out of. Fortunately, you are still young. Options obviously including hustling to increase your income, or better yet, figure out what fat to cut. Maybe consider how much you are using your gym memberships or what ways you could reduce your pet bills!

    2. TaoofInvestment


      Good to see that you have taken the first step towards proper budgeting which is learning about all your expenses. From your list I see a lot of “variable expenses” which can be deducted, thus accumulated into your saving account or used to reduce debt.

      Gas: $5,720 or $477 / mo. Based on my rough estimate, this amount allows you to drive 4500-5000km per month. Do you really drive this much? Maybe consider using public transportation more often?

      Charity & Gym memberships: Are these necessary at this stage given your financial condition?

      Cable TV +Phone+Internet & Cell Phones: Maybe consider Netflix or something similar to reduce the cost on TV? And do you have to have both cellphone and land phone?

      It all comes down to personal choices regarding where we want to allocate our money. If you choose to spend, you don’t get to save, and vice versa.

      When my family income reached 2X of our starting salary, we didn’t feel any richer because we spent it! There’s a tendency in human that the spending grows as our income grows. It’s only when we started learning about our expenses, and targeting on the unnecessary items, we were able to cut them out and use that money elsewhere (investing or reducing debt).

      It’s a long journey, and better late than never. Good luck!

  30. Keep playing tennis… the best all-around sport for body and mind!

    Yes, $26,200 is still a lot of money. It’s nearly half the median US household income of $53,657.

    The middle class squeeze continues for the self-employed purchasing their own insurance under the new laws, and it’s a financial burden until one’s income (and net worth) becomes so high the expense is just a mathematical nuisance.

    Having purchased healthcare directly long before the current government mandate, the new cost structure is substantially higher with greatly reduced benefits. The premiums for a high-deductible plan used to be equivalent to a modest car payment, now it’s a second mortgage. The greatest beneficiaries of our government overreach are the well-qualified healthcare professional in Thailand, Costa Rica, Panama and other Central-American countries where Americans continue to seek high-quality non-emergency care at more affordable prices. Outsourcing of medical administrative, diagnostic and IT services by American hospitals and medical groups has existed for years. The outsourcing trend continues today across all industries.

    As our national debt exceeds $19 trillion and all levels of government continue to increase taxes and fees, something to keep in mind from across the pond:

    “The problem with socialism is that you eventually run out of other people’s money.”
    — Margaret Thatcher.

  31. You want to know where $200k/y is poor? Manhattan.

    Modest Manhattan two-bedrooms, Upper East Side or Upper West Side, are going for $1.5 million. It doesnt get you much, 800 square feet or 1000SF. Dont forget the condo fees, $5k or $6k a month.

  32. Sam,

    Thanks for the interesting and largely accurate analysis. As budgets are very personal and unique so it’s not possible to do an absolute apples-to-apples comparison, but core expenses are omni-present.

    One big expense I noticed missing is health insurance and related costs (plus dental and vision).

    My husband and I fall into that income category, and since the Unaffordable Care Act has been active, our health insurance premiums have risen 398% and our deductible has risen 250%. We pay $1,100/mo premium, $13,200/yr. for bare-bones silver plan with a combined deductible of $13k., and we must both meet our deductibles before any co-pays kick in. Bottom line, we would pay $26,200 out of pocket before we derive any benefit. And, btw, we’re self employed, just crossed the 50 yr. old mark and we’re very healthy with no pre-existing conditions! Each year, the premiums will continue to go up. We’re former CA residents now living in the Carolinas, so we’re no stranger to the high cost of living in southern CA. But since the UCA has been in effect, the cost savings that we’ve enjoyed by moving to a lower cost state has nearly vanished. So, with an income in the $200k range, we are not wealthy by any means.

    But, this is America and there’s always a way to buck the system… we’re giving serious consideration to dropping traditional insurance and participating in a Christian HealthShare program… does any one have experience with these?

    1. Yes. Avoid them if you can. And it’s good to finally hear about someone paying into our healthcare system that can afford it. As a Christian, You should feel blessed to support others who are less fortunate. Your increase in premiums will support administration jobs and doctors lifestyles to boot.

    2. $26,200 is ALOT to pay in healthcare before insurance kicks in. Sorry to hear that. I’m currently paying $1,430 a month for two, so that’s $17,160 a year, but insurance kicks immediately. But, w’re under 39 years old each.

      I guess we have a great incentive to eat well and exercise to stay healthy!


    I found that monetizing my life made me feel rich. Since I am doing what I wanted to do all day, what else can you ask for? I also want to point out that real life riches are very different from what Hollywood portrayed riches. Just pick any Hollywood movies with a rich playboy executive driving a fast car, and then take a look at Warren Buffett, Bill Gates and Steve Jobs, you will see a very different picture. Most of what we learn about riches are just marketing.

  34. Sam,

    The problem I have with your budget is I get about $33,000 of disposable income. Your $13,000 with taxes, the $8,000 in vacation (just because they spend it doesn’t mean it’s not disposable), same with the $5,000 in children’s lessons, $2,000 in Charity, $3,000 in consume debt. I took half of the car budget money as well.

    I count the money I spend on my pets, my hobbies, (running whose costs include the weekly post run dinner with running friends and travel) anything over basic clothes, anything above basic transportation to be disposable. I spent it, it was disposable.

  35. Hey Sam-

    My spouse and I make around 200k combined, live in NYC and save about 50-60k a year. We are young though so feel like we still need to live very frugally because we have a huge savings mountain to climb.

    Have you considered writing a post about the marginal utility of increased earnings? On one hand, certain people feel marginal utility of making more money decreases once you have enough to cover basic expenses + reasonable discretionary expenses. However, I think marginal utility increases from that point because that is when you can start to save money, and every additional dollar earned (after tax) is a dollar saved, which is key.

  36. This is a completely overblown Article. I was offered a job which was 90k+, and that wasn’t even a “skilled” position, so my question is why you are two parents who are making a slight bit above minimum wage….spending money on “lavish” vacations, 700k house (which you can find better in San fran) ,, etc. This should not be listed outside of your “extra” money. From my spreadsheet I can see that you all should be clearing 20k+ in extra income. I think you are living a fabricated lifestyle, and should really do some soul searching on how to better utilize your money. Your being very ignorant in spending

      1. Be that as it may, it is clearly obvious that there’re a number of line items which can be trimmed to give this family $30k left over without touching their housing budget. Moral of the story is, they should be able save much much more than you presented regardless of where they live.

          1. I hear you, Sam. This sounds a lot like myself and my wife (we’re based in San Francisco too). We make $200k between the two of us…which sounds like a decent amount of money for a newly wed couple in their late 20s…but after student loans (just for one of us, thankfully), rent, and food we really don’t feel like we have much money to save or spend on fun things at all.

            Of course I know we’re very fortunate and do get to experience a lot more things than most people in the world do, but we live in a tiny apartment that is nothing fancy at all (and we’re thankful to be paying less than the current median of $3500/month in rent) and feel like we’re getting nowhere in trying to save up for a house someday. Neither of us have any prospects of winning the start up lottery given the industries we’re in, so moving away to someplace where real estate prices aren’t quite as inflated feels like the only real choice we have – which we’re looking forward to doing in a few years. Even if we have to take a 20% pay cut, having housing that is 50% cheaper sounds like a great deal.

    1. Anonymous- Is that your real name? I would love to know what state you live in. Last I checked $100,000 a year was somewhere near $48 per hour. If that is ‘a slight bit above’ your states min wage I may have to move there.

  37. After a significant financial crisis my husband (retired) and I are able to save money. I am 61 and will work 10 more years. Make $160,000 a year. Saving $4000 plus month. Buying a house in 2016 for app. $150,000. Planning on a 15 year mortgage. Thoughts?

    1. What does “for app” mean?

      At 61, I would just rent and focus on living in a a nice place that is easily manageable. Unless you want to buy your dream home you’ve been eyeing forever, and leave it to your kids.

      Mortgages rates are back to all-time lows in 2016. But I do see a softening in the real estate market over the next couple years as well. The cycle has turned imo. It’s been a good 7 years.

      1. For approximately is what I meant by “for app.” So by renting you take the down payment, add it to savings so you can pay rent when there is no income coming in?

  38. Curious to know where you read about always needing to make 3x as much to feel rich, as I think that’s pretty spot on. I made $20k/yr as a college student. Out of college I started making around $65k. Shortly thereafter I started my own business and got up around $200-250k. Last year I made around $1.1M. I don’t feel any richer. I only have a few more things.

    1. PhysicianOnFIRE

      Adam, you are wealthier. That’s a fact nobody can deny.

      You may not feel richer because after a certain point, additional money doesn’t buy much happiness. Feeling “rich” might include some non-monetary things that you desire to feel fulfilled. Or maybe paying half your income in taxes makes it all seem less than worthwhile.

      Either way, congrats on the successful business. It won’t take many (if any) more years like last year, and you can choose to live however you want.

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  42. Hi Sam,

    I believe that it is important to analyze budget, before we can talk of NW et all.

    Because budget only provides you insight into what you can save, and and what you cannot.

    I share my fixed expense breakdown at high level, living in Denver, with 2 kids.

    Even with a salary of $130K, what ones gets in hand is a little over $5K in hand pm (after deducting 401K, HSA, FSA, Health Ins premiums etc). And I have absolutely no idea how people manage with a lesser salary, with 2 kids, as the following breakdown provides some insight in my budget. Variable expenses (Food, Entertainment, Travel etc) is left out, as its discretionary.

    Am I spending too much on any of these? I dont see a way.


    Monthly Total Fixed Expenses 2700


    Electricity/Gas 120
    Water 50
    Home Association 50
    Home Insurance 100
    Property Tax 180
    Organic Milk Delivery 50
    Dish Network 50
    Home Maintenance 80
    Trash 20
    Subtotal 700


    Car Insurance 80
    Car Registrations 40
    Car Maintenance 50
    Gasoline 230
    Subtotal 400


    Cell Phones (3 smartphones) 180
    Phone/Internet 100
    International Calls 20
    Subtotal 300


    Dentist, Doctor Visits 20
    Umbrella Ins 20
    Life Insurance (self+spouse) 300
    Hair Cut, Gifts 30
    Subtotal 370


    Credit Card Membership 20
    Museum/Self Realization 10
    Subtotal 30

    2 Kids

    Daycare/BASE 400
    Kids Lunch at school 100
    Activity1 (Piano/Karate/Tennis etc) 200
    Activity2 200
    Subtotal 1000

    1. Thanks for sharing. Your budget seems reasonable to me. People might harp on your Kids activity expenses perhaps.

      $130,000 gross is not that much to take care of a family. Your example is additional proof. Where is your retirement contributions?

      1. And when you no longer need daycare, you will have to pay for college. If you haven’t been able to save much for college and want your kid to have minimal debt, expect at least $10k per year (state school, plus max loan student can get on his own). Then, if you have 2 kids, that’s $20k per year.

        Worst part is, when you were supposed to be saving for a kid’s college education, you were told it was more important to save for retirement and you should not skimp on that, plus you had no extra money to really sock away in a college fund b/c you had daycare expenses and made a lot less money back when the kids were young.

        Plus, you lose out on those sweet deductibles as your kids age out of that and as you inch closer to a income that doesn’t allow you to take those deductibles. Making somewhere between $130,000 and $175,000 is the WORST place to be. You don’t make enough to feel rich, but you suddenly find yourself unable to take as many deductions as before because the government thinks you make too much.

    2. Your subtotal fixed expenses are $2,700, out of at least $8,000 in take home pay. Where does the other $5,000 go.

      1. Hi Jane – Like I said in my post, a salary of $130K gets you about $5K in hand pm, after deducting 401K, FSA, HSA, Health Plans, given that max is contributed to each. Employers charge ~$600 pm for Health Ins for a family of 4 out of your paycheck, $18K to 401K, $2K to FSA, and then taxes.

        What do U get in hand, is what one can plan for.

        My budget was bare bones “FIXED” expenses – zero debt – no car loan/mortgage, no travel, no entertainment. Just to live in a home with 2 kids.

        Given, I could save $200 on some of the fixed expenses I mentioned, but really? I want to stay focused on fixed expenses, and not get into variable (which are so common with kids).

        I am still amazed as to how others manage it. How is it even possible for a family of 4 to live in suburbs of Denver with $130K salary?

        Where am I over-spending in fixed expense? I felt financially free when I was single, I could control my expenses. Now, Its beyond me, and my understanding.


    3. I know this is an old post, but responding to what Curious said:

      It is quiet easy to raise a family of 4 (or in my case 6) on $130k or less per year. I live in MD, Top 10 highest cost of living states, and survive on less than $130K/year. Own a nice home (less than 15 years old in a nice quiet area), have 3 vehicles (all paid for), 4 children and contribute nearly 8% of gross income to charity, have 9% going into a pre-tax 401(k) & ESPP plan and save another 5+% as cash. My largest expense is “Housing” which accounts for just under 25% of gross (mortgage, taxes, HOA, utilities, cable, maintenance, etc).

      When it comes to our money, we have a choice: to spend or not to spend. If I choose to spend money in one area, I can no longer spend that money in another.

      The problem is we (most Americans) want to compare ourselves against everyone else, and want to live like they do. Except most Americans have an unhealthy relationship with debt and probably can’t afford the life they are portraying. They want the new car (I don’t want a car that someone else has sat in), the new house (I don’t want a house that someone else slept in), eat out all the time (who has time to cook). And they want to do it all on credit (but the minimum payment is so small).

      For the example listed above “Barely getting by on $200K” I think that example is fairly comical. I understand they work in SF, but do they have to LIVE in SF too? I know someone I work with that commutes 60+miles TO WORK and another 60+ home. That is to avoid the cost of living in MD (they commute from PA). Also, $400/month on Childrens lessons (what activity is this kid involved in?). They pay $500/month for cars payment, but their insurance is only $125/month? I thought they lived in a city (always higher insurance rates) and a vehicle with a lien usually requires full coverage (I pay $150/month in the county for 3 cars and I don’t have full coverage). They pay $400/month in gas? Currently the avg gallon of regular is $2.48 in SF, that means they go through 161 gallons of gas/month assuming their vehicles get on average 30mpg that means they drive over 4800 miles per month?? But I thought they lived and worked in SF? They also spend $1,000/month on food for 3 people. That is absurd. Do they only buy groceries at Whole Foods and eat out 4 nights a week at a steak house? Again using myself as an example, my family of 6 doesn’t spend anywhere close to that amount, we have a healthy diet (no junk food, soft drinks, processed foods) and eat out 1-2 nights a week.

      If the family represented in this example is really concerned with the money they aren’t saving, they do have options. No one is forcing them to live in SF (or California for that matter). This is America, they do have the freedom to move wherever they choose.

      Just my $.02

      1. Pierson v. Post

        James, I think you have made some mistakes here. If anything the monetary figures in this article are wishful thinking and way too low.

        You argue that a person should move if costs are too high, but jobs that pay a decent wage are rarely available outside of major metropolitan areas where costs are high.

        You argue that people can just commute to work 60 miles each way! You even give as proof that this is possible–someone you know–commutes to work from a different state every day. Seriously?

        A 60 mile commute out of NYC or LA would take three hours or more. Maybe 30 minutes less in Miami, Atlanta, Phoenix, or Chicago. In San Francisco it would probably take 3 1/2 to 4 hours.

        Even if it is feasible to commute 60 miles a day–add 3 hours to both sides of your work day. Leave house at 5:30am to be at work by 8:30am and then leave work at 5pm and get home by 8:30 or 9pm. Woohooo you have exactly 8 hours to sleep when you get home.

        What happens if you have both spouses commuting 60 miles a day? What time do you drop the kids off at school? 4:45am? Pick those kids up somewhere before the 10pm news? This is the most ludicrous thing I have ever heard.

        You also make some kind of really strange wishy-washy argument about gas cost. From reading the above, I thought that you wanted people to drive more and live far away from work? Maybe I misunderstood. I live on the Main Line and take the train into the City every day so I don’t have a car.

        A pretty decent entry level car I guess is a BMW 3 series. Most of my friends in California leased one when they got their first real job.

        Assuming this hypothetical family had the very common BMW 3 series with a 6 cylinder engine– they would get 18-21 mpg city under best circumstances. This mpg would go down at least to 15mpg because of the hills in San Fransisco. The mpg would of course be much less going to and coming from work–while being stuck in gridlock.

        As per your argument about the family food budget being too high? You are flat wrong.

        Here is a chart from the USDA for Feb 2016.

        This chart assumes that all meals are eaten at home. This chart shows that a “moderate” family of 2 adults eat $623.80 and a 13 year old male would eat $353.60. Adding them together you get $977.44 a month. Considering the higher cost of food in San Francisco and the Northern California focus on healthier eating. I doubt the $1,000 figure quoted in this article is even attainable. I imagine that the average family of 3 in San Francisco spends $1,500 and up a month on food.

        As to the $400 a month on children lessons? Most children from white collar/ professional backgrounds are in at least one of EACH of the following programs: 1) tutor 2) sports 3) fine arts

        1) Most children today go to tutors as early as primary school in order to stay at grade level in good schools. Tutors routinely run $125 for a two hour session.

        2) Most children are involved with at least two sports teams that meet at different times of the year. Most cheap non-club sports leagues (lacrosse, soccer, competitive cheer, baseball, basketball) run $300 a season plus equipment–and most kids take a few private lessons (a minority take a private lesson every week all year long)

        There are also the club sports (golf, tennis, sailing, and equestrian sports) of course these sports easily can run $1000+ a month per child. Not all children compete in club sports–but the majority do that go to good public schools/ almost all do that go to good private.

        3) fine arts: the cost here of course varies. If you are just receiving violin lessons from a graduate student at the local University, or art lessons from an artist commune it could be quite cheap. If your child is in ballet with a quality company, or takes lessons from a competitive music program the sky is the limit. Foreign language tutoring of course has a broad range.

        Although it could be argued that children could receive tutoring, sports, and fine arts lessons for less than $400 a month. When all of these activities are put together with clubs, religious organizations, and volunteer work to pad college applications–the $400 a month figure seems quite low.

        James: I don’t really understand your argument.

        You first argue that a person should live far away from their place of employment–but then you argue that a person shouldn’t spend so much in gas.

        You then argue that a person shouldn’t spend so much in food and go off on some strange rant about Whole Foods (I assume you believe the prices there are higher than other places to purchase food?) It doesn’t matter though–I think the USDA guide shows that your argument that food could be purchased cheaper is flat rubbish.

        You also argue against paying a very minor amount for children to add breadth and depth to their education through lessons. We are assuming that these children are going to a public school–thereby saving the parents $25k a year. I think that the paltry $400 a month sum for lessons is well justified. The kids are already falling behind by not being put in the best schools.

        I think the most telling thing you posted here James was “[n]o one is forcing them to live in SF (or California for that matter).)

        What James is not understanding is that really there are VERY few places that the right kind of people want to live. San Francisco of course is a little out of the circle there–but not everyone wants to live in Downtown LA, Manhattan, or the other places that those on the Social Register typically live.

        Of course there are those that don’t care about such things. . . but their kids generally don’t gain admissions to the right schools/ get tapped out to the right clubs/ or get the good jobs after graduation.

        1. NoeValleyJim

          I live in San Francisco and we make twice as much as this family and we drive a Honda Fit. We spend about $200/mo on gas and mostly bicycle or take Muni to get to work. These transportation expenses are very high and luxuries, especially for someone in this income range.

          I spend half as much as this family does on vacations. $8000 is simply extravagant unless they have a large savings of at least 100% of their yearly income.

          Having lessons and daycare is kind of crazy, they should hold off on the lessons until their children are in public school. Why does a pre-schooler need lessons?

          The rest seems right though. They should be able to save $20,000 a year and $40,000 a year once their kids are in public elementary school. They should not bother trying to impress people with how nice their car is.

          Everyone who gets to know me knows I own multiple rental houses in San Francisco, they know I got there by being thrifty. No one judges me on the basis of my Honda. If they do they are are shallow and foolish and I do not want them in my circle of acquaintances anyway.

        2. LivingDebtFree

          Are you kidding me? The “right kind of people” ROTFL What a funny comment. Thanks for the comic relief!!

      2. All of the Bay Area is unreeeasonably expensive and traffic is a living breathing nightmare; and I’m originally from south Orange County. I lived across SF on the east bay because it was sunny whereas there was perhaps one or two SF neighborhoods that would get sun – if there was sun. My place was 17 miles away from work but took me approximately 1.5-2 hours each way in rush hour traffic. Very difficult to commute and public transportation was also a waking nightmare as it simply tended fatigue.

        1. That commute is a nightmare. It’s gotten so bad over the past 5-7 years for sure. I’ve been in SF since 2001 and since then, the traffic feels 100% worse.

          But it does feel like it’s gotten 2-3 degrees warmer on average. I moved out to Golden Gate Heights near the Inner Richmond and can see the ocean almost every day now. No more commute. Just peace and quiet! Check it out some time.

    4. I think your geo arbitrage is spot on…. Case in point I live in GA. One income, Teacher salary with a family of 4. But no matter where you live you can easily spend way more than you should on home and vehicles which in my opinion are the two biggest money drains. My monthly budget as follows:
      Take home pay $3800
      Roth IRA- 900
      Auto payment-$0
      Insurance(health/auto) 350
      cell phone- $18 (republic wireless)
      food/gas $1000
      Electric/H2O- appr 350
      Extra money goes towards emergency fund/investments

      It can be done. Find a cheap clean place to live. Don’t spend on stupid crap. Simple

    5. You don’t see a way because you didn’t open your eyes! There seems to be confusion on wants vs needs.

      Organic Milk Delivery 50, Is this really necessary?
      Dish Network 50, Why do you need this, just stream content for much cheaper.
      Cell Phones (3 smartphones) 180, Why do you need 3 smart phones (need vs want)
      Phone/Internet 100 Remove the phone portion, just use cell phones
      Credit Card Membership 20, Why would you pay for a membership, there are great free credit cards
      Kids Lunch at school 100, Do they not bring food from home?

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  46. We live in San Francisco. Here is our budget (we max our 401ks). Family of 2 (200K income). You have to add vacation and other stuff too.
    Kids: Babysitter & Daycare
    Home: Mortgage & Rent
    Food & Dining: Groceries
    Taxes: Property Tax
    Food & Dining: Restaurants
    Home: Home Supplies
    Health & Fitness
    Home: HOA Dues
    Shopping: Clothing
    Other Expenses $250 
    Auto & Transport: Gas & Fuel
    Bills & Utilities: Mobile Phone
    Food & Dining: Restaurants (Work)
    Auto & Transport: Auto Insurance
    Financial: Life Insurance
    Bills & Utilities: Utilities
    Bills & Utilities: Internet
    Home: Home Insurance

      1. Yes kids are expensive in San Francisco! 43K just for daycare last year. My budget is a “worst” case scenario budget by the way.
        I pull out the 2014 actual numbers (Thank you Mint!). $134,549 total. We paid our car in cash and put a 40% down payment on our house by the way. Mortgage is at 3.5% – 30 years fixed. Also contribution to 529 you forgot in your article. My term insurance is 2M also not 500k :-)
        Kids $44,851.21
        Home $38,279.42
        Food & Dining $14,220.82
        Taxes $9,483.15
        Travel $6,601.72
        Shopping $6,177.03
        Health & Fitness $3,892.33
        Auto & Transport $3,134.79
        Bills & Utilities $2,884.63
        Gifts & Donations $1,565.19
        Financial $1,535.90
        Fees & Charges $873.63
        Business Services $502.14
        Entertainment $317.64
        Personal Care $229.84

        1. oh yes, the cost of daycares/private school is totally insane. No wonder why families leave the city!

        2. Wow. Kids are indeed expensive in the city. Two of the toughest aspects of moving out of the city is that the incomes may be lower elsewhere (if your line of work even exists) and less culture. I’m facing this decision myself.

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  48. This scenario pretty much mirrors our own situation as a couple with a baby living in NYC. Similar net pay and expenses but some of the individual categories are higher/lower. $2k in child care is spot on in my experience. Food costs seem low to me actually. We spend about 1500 /month.

    What is starting to fascinate me is how much less gross income you need if you achieve it passively. For one, you won’t be contributing to a 401k since you are no longer in an accumlation phase. But you also won’t be paying payroll taxes. And no need for child care since you won’t be working. Lower tax bracket too. There’s almost a virtuous downward cycle. I’ve calculated for example, that we would only need roughly 100k/year in passive income to achieve our exact same lifestyle. I’m already at around 70k.

    Moving to a cheaper area to unlock some home equity, lower taxes even further and optimizing some expenses and it could be achievable sooner (maybe now). The biggest “mental block” for me is healthcare costs. The fate of the ACA is unknown, and atleast in NY the costs for plans are still very high. And you still have high deductibles to meet potentially. No big medical issues now, but having a kid has made me realize that unexpected little things come up all the time.

    I read both this and the MMM blog to gain both perspectives (Financial samurai concentrates more on building income while MMM focuses on cutting expenses). I realize the virtues in living on 2k/month as MMM says he does, but it just feels like too big a change for me and my family.

    1. Great point about leading LESS passive income to sustain a similar lifestyle. You’ll enjoy the post, The Best Passive Income Streams By Rank, where I spent about 10 hours putting together the post, chart, and analysis using a 5 factor ranking system.

      I have/had a mental block on healthcare as well. Bottom line, it just costs money, lots of it. $1,200 – $1,600 for two, and $2,000 for a family of four.

      There’s only so much I can talk about regarding focusing on cutting expenses and living very frugally. It’s much easier to do, and there’s not a lot of thought in it. That said, b/c it is easier to do than trying to make more money, there’s a larger following. I like a bigger challenge of making more, and I realize not as many people will bother to try.

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  50. thats depending on the person, if they decide to have all those debts and useless spending…

    A 200k family should try living like a family of of 5 living off 80k a year… and a 500k income family try to live as a 150k family… then up from there…

    How were you living when you were making 250k sam? how would you feel spending 240k out of 250k ? would you personally do it?

  51. You can cherry pick expenses and argue that many of these things are “needed” by the hypothetical family. They could very easily trim many of these areas. Lets leave housing alone since rents are very high in SF.

    Food, $1000 a month is absurd. Granted I don’t have kids but even on Long Island, NY where we have a fairly high COL. My SO and I spend $250/month on groceries and another $200 on happy hours and meals out. Lets Assume they can cut this to $700.

    The car situation needs to be optimized. Sell whatever car has a payment and buy something cheaper and more gas efficient. I spent $7600 on a 6 year old nissan with very low miles that 4 years and 50,000 miles later has only depreciated $3000. Driving a cheaper more gas efficient vehicle will cut that $400/month gas cost down substantially. Amortize the cost of a new to them vehicle over the span of even 4 years, cut gas by $100/month and you have a savings of $6000/yr

    Vacations, there are many options in todays day and age to travel and enjoy time off work without spending that much money. Travel hacking, using reward points, etc can shave a ton of money off vacation costs, digging a little deeper for discounts, etc. No need to blow $8000/yr. Lets assume they can tinker and spend $5000 here.

    Those are three areas to address fairly easily and literally DOUBLES their disposable income.

    If this couple values their time, maxing out that second 401k can lead to a much longer and more luxurious early retirement.

    I guess it all depends on how financially savvy someone is, and what is truly important to them

  52. Man, I wish mortgage interest was tax deductible in Canada! That would help a lot!
    Where I live, my 3 year old’s daycare is now lower than when he was an infant and is still $1875/month so $24k isn’t too far off.

  53. supernova72

    Curious—both work and only one contributes to their 401K? Maybe senior moment on my part.

  54. My wife and I make about $265k in base salaries and about $100k in bonuses and let me tell you we don’t feel rich at all but comfortable. Here is a breakdown of our major monthly expenses (we pull in about $16k a month after taxes):

    Mortgage – $5k
    Student loans – $2k
    Property taxes – $1k
    Food – $1.25k
    Shopping – $1.25k
    Backyard construction – $1k
    Furniture financing – $600

    1. This, 100%. Can’t believe Sam doesn’t even include student loans in his chart. If you’re pulling $200k/yr, you probably have some sort of advanced degree and are likely to have financed at least a portion of it. Wife and I financed grad school and were paying almost $4k/mo to student loans (on minimum payments) when we graduated. Thankfully have that down to $1.5k/mo due to big bonuses we applied to loans. So many people have over $1k/mo in student loans.

      1. couldn’t agree more. I make a base of about $135k and my wife stays home with our little girl. we also live in a materially cheaper city than San Fran where we have a starter home with a $1k mortgage. But I have $1450/mo in student loans from law school and MBA (jokes on me, i know).

        I would love to see an article about the squeeze our generation is going to be in with relying on 401k/private retirement vehicles. seems to me there is going to be a very large shortfall/standard of living adjustment given the research into average contributions.

        1. We have definitely been lucky. My parents paid for all of my undergrad education ($35k a year liberal arts school) and my work paid for my advanced degree. My wife was not so lucky – she graduated medical school with about $275k in debt! So what did we do in the same year she graduated from residency and started in private practice? We inflated our lifestyle immediately by buying a McMansion (actually in Southern California $1M does not go very far). It’s hard to fight the urge to splurge for medical residents who’ve already delayed gratification for about 8 years. Luckily, my wife and I are on the same page with the rest of the finances and make a healthy income that should go up by another $100k in the next couple of years. My handy debt snowball calculator says that we’ll pay off all our debt (including mortgage) in 19 years and I can retire by age 49 (as long as my wife still grinds it out as a doctor another 10 years!!!!)

          Here’s to dreaming Sam :)

  55. I too thought the $24k for child care was high, but I polled the guys around me who pay for child care and that is in the range for SF. It was $18,000 up to 26,000. That is a lot but we don’t know much about this couple. The next thing I did was put down my expenses next to theirs. My kids are older 16 and 19. So I don’t have child care. Or do I?

    We are an active family and my kids are both club swimmers, different clubs. So they each have a car to drive. And I pay for the auto insurance and the gas. Since they swim they eat even more than most teenagers. Through in 2 iPhones, tutoring so they maintain good grades, and the extra life insurance I carry until they get out of college and you get pretty close to $26000. Granted I combined the ‘lessons’ with the childcare. Could I do this cheaper, certainly. But I view the swimming and tutoring as investing in my kids future. No they will not be Olympians, but one already swims collegiately and the other will. And they are in great shape. The tutoring is to help them get into the schools they want to go to and maintain their grades.

    What I am trying to show is my budget and most likely this couples budget reflects those things they value, and that is why they spend as they do.


  56. I am pretty familiar with that childcare study. One thing I remember about it was that in high-cost childcare areas (e.g., MA), there was a HUGE drop in the price of care as the child got older (esp. once he/she reached school age). I just looked it up and here is the stat I am recalling: in MA, avg. cost of full time care in a center is $16430 but before and after school care for a school age child is $4378 (2012 data). In CA the figures are $12068 and $2792. For lower income states the drop off isn’t nearly that severe. Anyhow, the reason I say this is that if you are trying to get a “typical” snapshot, childcare costs should be looked at as an average over time, and the school age years get much better. Looking at this data makes my husband and I think that the plan for most couples should just be to try to tread water during the years when you have 2 kids in full time care and make up the difference in the after and (esp.) before years.

    1. Clarification: the first number in both cases is the average cost for an INFANT in a center. In both states, a 4-year-old was less (but not that much less).

  57. Ronald@therichimmigrant

    I live in Southern California and I can understand how expensive living in San Francisco could be.They could have bought a cheaper house outside of San Francisco but have to deal with a slightly longer commute.The mortgage and property taxes are too high.Not sure what lessons the kid takes for $5000 and they can also enjoy great vacations within California or nearby states and save a large portion of the $6000.

  58. Great read as always. Though different expenses will come up as time goes on, this family wont need to pay 24k for childcare forever. So looking after 20 years they could possibly save some of that and use to rest for other things like college savings etc.

    My wife and I make 150k/year, and live in FL where the expenses aren’t nearly this high. The main problem we find is taking money to the end of the year…..almost like when you have the money you spend the money.


  59. Agree with $200,000 not going far with a family. I can’t imagine how families get by on the national average household income level. Also agree that no matter how much money you make, you will never be satisfied. As for myself, I make over 200 with no family, and still somehow feel like I don’t have much money. I have no car, pay ~$1,500 for rent, no debt, but my travel and entertainment expenses are pretty absurd. Weirdly, the deeper the whole I feel like I get myself into, the more motivated I am to work even harder and make more money. Anyone in a similar boat as me?

  60. 200k a year may not feel rich in expensive area, but it’s still very upper middle class income. Childcare and housing costs may feel absurd, but it’s just the free market system at work. On the flip side, to an employer, the 200k salary to the employee may feel absurd. If someone wants to get ahead, then the obvious answer would be to cut costs or make their skills more valuable in the free market.

  61. Sam – curious why they are only deferring 18k into a 401k? They should be both maxing out at 36k.


    1. Take a look at what’s left at the bottom of the spreadsheet. Contributing another $18k pre-tax would make things too tight at the moment.

      If another maxes out, where in the budget do you think they can/should cut?

      1. Cut the vacations from two to one, drive a cheaper car and reduce the car payment, reduce charity significantly and spend 1/2 on credit cards (consumer debt). That will save them $3K, $2K, $1.5K and $1.5K for a total of $8K. They can put this in 401k. I know people will call me an @$$h0|3 for reducing charity but paying yourself first is important. If you have money left over at the end of your life, you can leave it to charity in your will, if you so desire.

  62. Seems about right. I live in the DC metro area and we have 3 kids ages 6 and under. Childcare is very expensive. Your estimate of 24k a year per kid is pretty accurate.

  63. Sam, the childcare figure you have is exactly what I pay. And I do not live in the Bay Area.

    I budget $800 a month for food. I cook a lot at home and always bring my own lunch to work. I do buy everything organic, grass fed, etc. I do work hard to save on the food budget. I buy things in bulk like oatmeal and other grains. It is really easy to blow the food budget and spend $1000.

  64. As a SF resident, I totally believe these numbers. It’s expensive here, but we all love it. And 200k can go fast, especially with kids.

    I think you’re totally spot on that it takes earning 3x one’s salary to feel rich. Sure there are non-monetary aspects of feeling “rich” too, but that ratio makes a lot of sense to me.

    Geoarbitrage is definitely a good option to consider if you can work remotely.

  65. Gotta love your fan base. 3K year clothing expense for two working professionals plus a child is far from outrageous. Sorry, this professional and DH not wearing rags from Walmart or shopping at Goodwill on the weekends. And we save 35% of our income.

  66. Hey Sam,

    Do you ever feel that these San Francisco (proper) real estate prices are starting to top out? I mean realistically, a household income of $200,000/year finding a geographic location unaffordable is really pushing the so-called “middle class” envelope.

    Are there really enough leftover Chinese millionaires, whom are interested in buying California real estate, to push these prices up further?

    Besides….. A single car garage? No front yard? Probably not much of a back yard? $1,000,000 for this?

    The school system probably sucks too!

  67. This is all hypothetical so its funny to see people get their panties tied all up in a wad over this. The part that does deserve a doubletake is the bashing of women who don’t stay home to take care of kids because their income is about the same cost of childcare. Kids are home for 18 year max (any longer than that and you deserve what you get). A career is for much longer and the costs of staying at home are way much more than just the lost income from the stay at home years. Try reading about stay at home moms trying to reenter the workplace and how hard it is. Or stay at home moms recently divorced that have to rely on the working husbands for everything financial or suddenly have to go back in the workforce after having been out of it for 18+ years. There are a lot more points to this discussion than the obnoxious “Cut childcare – when you choose to have children, then you should prepare to sacrifice – if they can’t live on 1 income, then 2 of them should work opposite shift.” Get real!

    1. Thanks Becky for pointing this out.
      Why is everyone so casually and easily suggesting one spouse can stay at home to cut child care expenses? Why should only one spouse (usually the wife) have to make such a huge and unfair sacrifice and put their future security at risk? Just because a wife is making less than 100K, she needs to stay home ? What about promotion, raises, future potential, 401(k) and even personal satisfaction? Is that all simply disposable? Sure, childcare costs are high for 4-5 years but damage to one’s career by staying home is permanent.
      What if the husband with his enhanced earnings and fabulous career leaves her for a younger woman?
      Staying at home is almost always a huge financial blunder. We talk about being savvy investors, but staying at home is biggest financial risk you are taking with no diversification. Why are we so happy to let poor women take such a stupid risk with no upside rewards? Sounds like incredibly bad investment. I wouldn’t invest all my net worth in one stock, similarly won’t put keys to my financial security in hands of one man, never. Childcare costs should be compared against combined income of the couple, not just looking at the wife’s and say she can save more by not working. It is incredibly short sighted and unfortunate that society encourages and makes it noble for women to make such foolish choices that will impact rest of their life.

    2. Everyone has a particular situation that is best addressed on an individual level for sure. Why does staying home have to equate to 18 years? That seems extreme to me, once theyre in school, seriously, no need to be home.

      For some its a luxury and makes financial sense currently. It can definitely be tough to get back in the workforce, there is no easy fix for this problem unfortunately.

    3. While you bring up some salient points, I’ll throw a few back at you:

      1) If the woman really wants a corporate career, then that would make it less likely to be a stay at home mom. I’ve found the opposite – women in general can’t wait to get out of the corporate rat race. Most people do not enjoy the rat race and once women start having kids they tend to shift toward mommy-ness.
      2) There are many jobs you can do from home.
      3) Men do stay home more now, too. One of my tenants in my most expensive rental I own had a stay at home dad (does consulting work from home) and my old CFO’s husband stayed at home with their kids (special needs child)
      4) If a woman becomes a stay at home mom and they split divorce, in most cases the woman is set for life with both alimony and child support. If my wife were to leave me now, I’d be paying $70k/year in alimony for the rest of my life and if we had kids at all it would be over 100k till the kids were grown. If I could be guaranteed $70k/yr income and never have to work again for the next 50 years, I’d do it in two seconds. This varies by state but its worth checking out your state’s alimony laws.
      5) You really only need to stay at home until the kids are in school and then you can go back if you like. What you typically have happen though is the wife doesn’t want to go back to work or if they do just part time.

      All boils down to the spouse’s preference for work, ability to work from home, and how much the spouse is making.

      Quitting a $100k/yr job at 28 y/o probably doesn’t make sense to save on ~$38k in child support (pre-tax 38k, post tax 25k) – especially considering promotions and such and ability to jump back in is difficult at this level.

      Quitting a $35k a year job (median annual income is this) however is basically a no brainer since it net saves money, and it’s not that hard to come back 4-5 years later and find a job paying close to that.

  68. Sam,

    Don’t forget this family can take a tax deduction for childcare expenses and property taxes. There are also a few other top line deductions besides the 401k they likely can take such as (tax qualified corporate fringe benefits) health insurance, group term insurance, disability insurance, medical and dependent care flex spending. Thanks as always for your great work. – Abe

      1. This can be done through a dependent care FSA. The annual max contribution is 5,000, the money can be used for the care of a dependent that is under age 13 or disabled.

  69. This is why I’ve always maintained it doesn’t make sense to live in an area with insanely high housing costs. We grossed over $200K last year, spent $50K on our DINK living expenses (invested the rest, except for federal income taxes), and lived a pretty lavish existence from where I sit.

    I can’t speak to expenses like childcare since we don’t have kids, but the biggest difference I see is housing. You’ve got this couple spending $45K per year on their Mortgage, Property Insurance, and Property Tax. Our monthly payment for those 3 items is $1,151, under $14K per year, less than a third of your hypothetical and the beach is just a quick jog away.
    Our income taxes are also lower due to the fact that we have no state income tax, and I know that number can climb quickly in California for high income earners.
    There are other savings, of course. We spent about half of what you quoted here on travel by combining our big trip (Sydney) with a work trip, our car insurance is less than half of this due to downsizing to one commuter car since the second was increasingly superfluous, and spent about 60% of the amount quoted here on food by trying to be cognizant of reducing waste and working on removing processed foods from our diet.

    Then again, we also spent on things that Sam omitted – like utilities, cellphones, internet, entertainment, gym memberships, medical expenses, iDevices, bikes, an antique car, SCUBA certifications, and other stuff. But all of that doesn’t balance out the differences due to housing and taxes.

    I think more than anything, Sam’s post is a great example that if you get your location right (wrt housing cost and taxes), it makes the rest much easier.

  70. Giving $2,000 a year to charity? I suppose for many people one percent of your income would seem like a tremendous amount. While it is a personal thing I find it fascinating that there are those like Al Gore who gave $500 when he was vice president. Funny how liberals want to tell you what you need to do to take care of the poor with other people’s money but have zero personal accountability.

  71. Sam,

    This budget reeks of entitlement, if it’s intended to show that it’s hard to be happy with a $200k income. My family’s income is currently, “only” $150k/year, and we feel fantastically blessed beyond all reason, and we still save 40% of our income. Sometimes, I think people in this situation need a reality check, and should recognize that our standard of living is better than 99% of humans who have ever walked this planet, including sovereigns of entire nations in times past.

    People don’t have to live in super high cost of living areas in order to make a decent income.

    People don’t need status luxury vehicles in order to be happy.

    3 year olds don’t need nannies and professional piano lessons in order to grow up to be successful adults.

    The types of restaurants that have a bill of $200 for two people for a single meal should be limited to very special occasions, not “twice a month.” You define those restaurants as “decent” – but to me, a $10 meal at Panera’s is a luxury, and a $200 meal at a fancy restaurant is incredibly outrageous unless it’s a 30 year marriage anniversary. I’m perfectly happy preparing my own healthy meals for a fraction of that cost.

    An annual vacation to Hawaii as “normal” is kind of emblematic of the entitled mindset. Sure, my wife and I did an expensive European cruise for our honeymoon, which approaches that scale – but our normal annual vacations tend to be simple roadtrips with a few nights in a hotel.

    Childcare is expensive, but there are always options to save money. There are in-home daycares, you can pay nearby family to help, one parent can stay home or switch shifts, etc. Also, you can save money via a Dependent FSA, and take advantage of the child tax credit. And, childcare costs go down over time, so it’s a temporary expense lasting about 4-5 years, until they go to school (and no, private school is not a “necessity” of modern life).

    1. Josh,
      I agree with the points that you made about child care. We currently use Dependent FSA and use a in home day care with a monthly cost of $1200 and we do live in bay area.

    2. You lose a lot of tax deductions going up the income scale, idk where exactly, but you do. None of the usual apply (student loans, child care credits, standard deduction per dependent etc…) and even mortgage and other ones people count on start to get docked.

  72. While looking at these budget and income numbers, I come to realize why I feel pretty rich even though my base income is about 40k less than theirs. I am married to a stay at home wife and currently have no children, so many of those numbers in the expense column are slashed by 50-100% including childcare (of course), food, clothing, car and vacations. It also really helps that I live in a very cheap area where the median household income is approx 34k/yr. So my annual budget looks more like this

    Base Income 160k
    Income taxes 45k
    401k + roth contrib. 24k
    Food 7k
    Clothing 1.5k
    Healthcare (insurance + spending) 1.2k
    Utilities 4k
    Housing (mort., tax, ins.) 21k
    Car (gas, maint, ins) 3k
    Capital depreciation (saving for new car, fridge etc) 6k
    Vacations 7k
    Entertainment: 1.5k
    Gifts 5k
    Misc 2k
    Total expenses = 128.2k
    *expenses not shown such as student loan, consumer debt, childcare etc would equate to 0)

    Remainder = 31.8k. (remember this number includes built in savings of 24k for retirement). Also wanted to add that the income amount does not include 401k match, capital appreciation, or cashflow from rental property, but all of these are reinvested and as such, does not “feel” like income.

    It seems like such a good benefit to have the income produced from one worker, so much so that even after having 40k less in salary, we can feel a lot richer than this hypothetical couple in Cali.

  73. Finally a budget with realistic child care cost. I live in DC and that is pretty much spot on. Now try paying for twins like I do. Unless one parent wants to stay home with the child, I don’t see giving up 100K salary & 401k match to save 24K as a smart financial move.

    Probably wouldn’t be spending 5K on activities for a kid still in preschool.

    I think the food is realistic but agree if they really wanted to save they could cut that a bit. I think the budget you put out there is close to reality for many people. Maybe you could do a post on what that family could do better.

    Sadly I think one might be considered “Rich” if you can spend 5K / yr on kid activities, take a vacation involving an airplane ride and save for your kids college.

    Life Insurance should definitally stay. Most employerers offer 1x or 2x insurance. 500K seems low to me. Is having Life Insurance another “You must be rich if you can afford it”

    @Josh, would love to see how you save 60K, making 250K and do all that you say you do or are you a troll?

  74. Why not reduce income by 1/3rd? It’s the gap between spending and income that makes one feel like they have enough money and need no more.

    No one is forcing them into buying tons of clothes, not maxing out 401k, or having a mortgage. They could definitely rent for cheaper. No one is forcing them to own cars, they can move where one isn’t required. No one is forcing lavish vacations (anything that requires air travel is lavish, sorry, and they don’t have to choose an expensive Lake Taohoe destination either).

    Despite all of this they would still be able to save quite a bit more than most.

    The fact is, lifestyle creep has them by the neck. They’re already living a “rich” lifestyle, but they’ve chosen to do that while working, so their money isn’t going nowhere, it’s actually getting them a lot of great things by anyone’s standards. Owning a house near or in one of the worlds greatest cities is enough to be as rich as you’ll ever be or feel.

    I don’t understand the obsession here with income. You said it yourself, geo-arbitrage creates opportunity but can also allow one to live on MUCH less. It’s not about income, it’s about what makes you happy. People retire with $750k-$1m and live like kings all the time. That’s ENTIRELY doable with hypothetical family if they sacrifice for a while in a short amount of time. Just because you make money in one place doesn’t mean you have to stay there.

    How much happier in life are you really if you own multiple houses, fine dine all of the time, or jet set to cities and locales similar to your own? What’s the point in having a $200k income if you’re never going to spend it all anyway? And how does spending $200k REALLY make anyone happier than $50k? Humans are so selfish. I’m glad I’m not tied up in the rat race.

    1. Sounds like you’ve found the secret to happiness Ricky. Congrats!

      Living a rich Lifestyle by spending most of their money has to have some positive value so long as they aren’t feeling stretch every month, which they are. Hence, adjustments will be made.

  75. This is hog wash all around. My wife and I make between 200-250k, live in Southern California, drive two newer cars (2014 and 2011), own a nice house, pay for excellent child care, eat organic/healthy, take nice vacations to Hawaii and the Caribbean. With all this we’re still able to save 60k a year. Yes, you can definitely spend a 200k salary easily without having to just throw money out the window of a moving car, but that doesn’t mean that it’s a “normal” or “middle class” life. It’s anything but. This made up couple could easily be multimillionaires in 20 years while living a relatively high class lifestyle.

      1. Hope my reply didn’t come across as as an insult to you or your site. I’m a big fan of your site.

  76. 401k should be 36k instead of 18k, is tax really at 30%, you can deduct mortgage ins, property tax.

    BTW, where are the utility bills, cable, phone, internet, cellphones?

    Some of the expenses seems high, but I get the point. This is a feel rich article, the rich should be able to spend on things they want without cutting back.

    The cost of owning a home in SF is too high, 44k (mortgage+property tax) is alot.

    200k in SF would be equivalent to 140k or less in other part of the country, and that’s not rich by any standard. That’s why 77% of the rich people owns a business. And the rest are the one that holds high position in company or working for a startup that gone public. You can’t feel rich with 200k salary now unless you willing to live below your means for 10-15 years with that salary and save up a big nest egg.

    Feel rich and being rich are 2 different thing. You can be top 10% your income but if you want to feel rich, you won’t be in top 10% in NW.

  77. Interesting article. My family has a slightly lower spending budget (but this seems like good estimate for Bay). We make 265k total and are able to save a lot more than this couple – 38k for 401ks, 11k backdoor Roth, 12k to 529s, 15k to taxable account. And rather than quibble over Sam’s line by line, I think it’s interesting to think about whether I’m considered rich. With a high income and net worth for my age (34) most would probably consider my situation to be a rich lifestyle. But do I feel rich? Not really! We are still incredibly diligent in budgeting and making spending decisions, and I just don’t “feel” like we have a lot of discretionary spending. I do feel blessed, like I’m not living paycheck to paycheck, and that I have a really nice life. One example that we were just discussing at the dinner table is how our wealth affords educational options for our kids – a good neighborhood school (because of our nice neighborhood), a good nearby charter school, and the option to use the expensive private school down the street if we want. So in that regard, 200k (or 265) may not be rich but it affords opportunity. But probably not Net Jets anytime soon.

    1. I’m digging the $70,000+ in savings a year! HIGH FIVE!

      May I ask if you own your house or have a mortgage and any other debt?

      I’ll get to Net Jets territory in a future profile!

      1. We own our home, valued at about 730k. We owe 550k on a 1st mortgage at 2.875% and 65k on 2nd mortgage at 4.375%. We have 10k in student loans at 3.5%. We have 60k in cash and 450k in retirement accounts. We’ve thought about just paying off the student loans and 2nd mortgage, but are probably going to do a 400-500 sf addition instead (per your other post on adding value to property by expanding).

  78. I typed up a significant comment (length)… was distracted for a few minutes, finished the comment then hit “Post”. I received no warning or error of any kind… yet the post is gone. Is there a time out window? if yes, please tell us what it is.

  79. I find the whole “what is considerate rich” interesting. I think Sam is correct that at the low end of the rich scale it’s all very relative to where you are as an individual (sam says rich to you is about 3 times what you make.. and maybe have). I think everyone would agree that someone with 20 million in investable assets is clearly rich (even that person would agree), but 3, 4, 5 million in assets?, people over estimate how much income that will generate if that was their only source, not rich to me, very relative indeed. In my case for example, I live in HB (surf city) consider myself (as Sam says) “comfortable” but certainly not rich (approx. 200k in total income, active + passive, a decent nut, I’m 53). My friends (and adult kids for that matter) who have no idea what I make, have said on many occasions that I am their only “rich” friend (I know my 35′ boat has a lot to do with their view), plus I host all the football parties etc.. I guess compared to them I am rich but I don’t accept the label…again, it’s all relative. I for one think your scenario is probably pretty accurate for most people in that income class… not saying it’s smart, but common. And those are the types that don’t read this blog, they are fat dumb and happy and are not trying to change a thing. I don’t judge them, they are successful people in their own right that will probable need to work until 70 but that’s the choice they make. For me, 55 sounds about right (I know that sounds old to you Sam but it’s the best I could do… and still have a nice boat, choices ;-) )

  80. Above Average Black

    Unlike some commenters, I agree with the 18k 401k number. They would probably have a monthly deficit if they both maxed out. The 3k credit card debt that some are complaining about might be much higher, if both maxed out lol

  81. I’m definitely missing something. I live 10 miles from Boston, and my total expenses last year were less than $30k. That amount includes thousands for ‘fun’ (electronics, vacation, etc.). I saved the rest. My ~5yo car is paid for.

  82. So, I must be missing something.
    How about utilities (gas electric water phone internet) medical expenses, savings for college and things like haircuts. Are they all discretionary?

  83. Many of these expenses seem outlandish to me. Perhaps, due to lack of a family and me being a renter, I don’t grasp the full extent as to how expensive it is to live but, I feel like this family is doing everything wrong.

    I’m able to save around $25k a year off of a $75k salary + $15k bonus, in Seattle (a fairly expensive city to live in… fortunately, I don’t have state income tax). I’m 24, so many of these expenses don’t apply to me (i.e., child care and life insurance) but, I feel like this hypothetical family needs to reevaluate their finances. Buy a more affordable vehicle, learn how to bargain shop for clothes ($3k?! wtf?), and stop filet mignon every night ($1k is crazy).

    I still go out every weekend and partake in numerous activities (skiing, wine clubs, concerts, bars/clubs, etc.). This family is just poor at financing. I understand this is a hypothetical family and you are giving us liberal numbers to put things into perspective but, come on…

  84. Love and hate these type of articles…on one hand they motivate me to earn more, on the other it makes me realize how little I make.

  85. I think the childcare expenses are on the low end in this example for two full time working parents (if your child is not in school yet). In Seattle the going hourly rate for experienced nannies is between $18 – $25. Daycare is of course less expensive.

  86. Day care is ridiculously expensive, especially in our part of the world, but so many people we know send their kids there while the mum goes back to work. But in most cases I can’t see how the extra income from going back to work really offsets the cost of daycare, so it doesn’t make sense to me. Unless they’re really passionate about their job, or are earning a ton of money, which doesn’t seem to be the case.

    So on top of that added cost and potential stress, are people really happier with this setup? At least with my wife at home with our almost 3 year old now, and another on the way, she is incredibly happy raising our girl even though it’s a tough job, far happier than any work she could be doing. And similar to the first comment by Jack, she’s great at saving money and finding deals etc (not to mention she’s an awesome cook :) ).

    What’s even crazier is that I’m seeing a trend of some mums staying at home, but sending their kids to daycare for 2 or 3 days a week so they can have some ‘quiet time’! Guess everyone has different priorities right?

    1. The equation is pretty simple. It is completely related to how much the Mom makes. It was an easy decision for my wife and I. Day care costs us about $24k after tax. Wife makes about $100k after tax so this was a no brainier for us. Her income also allows us to afford vacations, lessons for the kids (no plans on them being pro’s, just want them growing up active) and such.

      Do we have higher stress? Maybe with pick up /drop offs but a benefit (I think anyway) is our kids see our work ethic and there is a certain stress reducing factor when your day to day money concerns are almost non existent. People say watches, hand bags etc are luxury. Real luxury is not having to consider what you want to buy for groceries!

  87. I feel that some of these expenses are a bit high. $1000 a month for food for a family of 3 seems high. A budget for clothes seems high too but having a growing kid can cost a bit when it comes to clothing.

    The family can probably save a lot more money but going to 1 vacation per year, or going to vacation closer to home.

  88. this is basically our lives! we’re currently DINK but will have a baby this summer so we will be this hypothetical couple (2 incomes 1 baby) in the Bay area. we actually currently spend a little bit less than their monthly budget and to varying degrees I think the budget breakdown is true.
    Here’s the differences:
    -we have a 15 yr mortgage so our monthly payment (P+I+escrow)=$4000 (a little higher than your estimate)
    -we have no car loans (drive two japanese cars, but one car is likely due to be replacement in the next few years and we don’t have a marked account to pay cash for that yet, ideally I’d be saving for this planned purchase)
    -we both have student loans from undergraduate and graduate programs (to the sum of $1400/month)
    -we do spend about $800-1000/month on food (groceries, work lunches, and dining out-not extravagantly, maybe an ethnic meal once a week)
    -we max out multiple retirement plans (total of 3 401k type plans between the two of us)

    we currently spend about $9K/month (take home money, not inc. pre-tax retirement funds) and we’re thinking it’ll go up to $11500 a month with childcare added. I’m worried I won’t be able to make any post-tax contributions for a 529 or other mid-term savings goals (like car, vacations). any thoughts?

  89. Time to get super blunt, Sam-a-rella shake it up one time. So here we go……

    a) Ditch the life insurance. Each of them should be getting it through their employer.

    b) Ditch the car payment. They should drive 10 year old used cars. What’s with the entitlement? Repeat after me. USED COROLLA. BMW 3 Series? Really? It may be common for a family making 200K per year, but that doesn’t mean it’s a remotely intelligent move. They are allowed to spend $800 to have noise deadening material inserted in their Corolla doors. A quieter car is a more pleasurable car.

    c) Ditch the two vacations per year. ONE vacation per year, and not Maui, for f’s sakes.

    d) Cut the “lessons” budget down to $100/mo per kid. That’s still generous.

    e) I question having a home maintenance line item in a budget. I question having any line item in a budget other than actual estimated hard spending. That means ix-ne on the “miscellaneous” category. This is a private household, not a gov’t entity with line items that must be spent “or else.” The emergencies, home maintenance, etc., are IN SMALL PART why you save.

    f) They should have no debt other than their mortgage. You’ve got 3K in debt on top of a mortgage (debt) and car payment (debt). Ridiculous.

    CONCLUSION: Who cares how they “FEEL?” Boo hoo hoo cry me a river we make 200K and can’t drive a new BMW. What a joke. They should be saving another 20K/year on top of the 18K they’re putting in the 401K. Who says so? Me. These people need to grow a pair.

    1. Time to get super blunt.

      Not every employer offers life insurance. And they are woefully underinsured. I’d buy whole life just because I’m guessing you are completely against it. I’ll go with the product that has 150 of years of history backing it up.

      But why do you take it so personal on a hypothetical budget for a hypothetical couple. If they want a nice car, why do you care?

      1. I don’t care if they want a nice car as long as they don’t whine that they don’t “feel” rich.

        10 years of $400/mo savings growing at 7% = $69,233.92 before taxes.

        5 year depreciation on a 2014 BMW 3 Series that costs $33,050 = $16,584 — according to Edmunds.

    2. But what if the lessons make their kid a world famous virtuoso, or the next Roger Federer? Imagine their potential. You have the money to spend on your child, why chance not giving him or her the very best?

      When you have a 3 series, you start looking at the people driving 5 series.

      1. What if their child becomes a psychopathic schlub playing crappy acoustic guitar music right inside the entryway of the urine-soaked Powell BART Station, stationed next to the crazy who insists you buy a copy of the Street Sheet?

    3. Lessons can be expensive even in a rural area: One of my kids was a serious pianist, and to get a good teacher at her level (she was competing at state-level competitions and doing well) we had to drive almost 100 miles one-way (involving time off work for me and gas) and then pay $95 for the lesson. Usually once per week but often more prior to a competition. Not to mention books, trips to competitions, entrance fees, etc. …

      Hopefully worth it, at least it kept her busy enough that she didn’t have time to get into much trouble and she learned something about discipline and long-term effort. She’s planning to minor in music in college.

    4. At some point I think you should just get rid of life insurance. But that’s just me and I prefer having extra money to invest! My dad is constantly saying I should get it but if I die and my (hypothetical wife – unmarried now) isn’t happy with with net worth at the time she probably doesn’t deserve the money I’ve slaved over making.

      Actuaries create these proforma’s to be profitable. It’s like going to a casino and betting on the slot machines in the houses favor as opposed to the machines in the players favor (as few of them as there are). But I’m a big saver (80-95% of every pay check of my take home) so if I die there would be plenty for whoever the beneficiary is. Every penny counts on getting rich so cutting life insurance here is just another way I’m climbing my way up in society! I imagine many multimillionaires don’t have life insurance either (besides using it as an investment, I’m not 100% informed on how that works though, just know a couple multimillionaires around the nation and they’ve told me about it).

  90. Sam,

    Something to consider that is left out of this scenario. Many families that make $200k a year are professionals that hold student loan debt. The growing student loan debt in this country attests to that. I think it’s reasonable to include that in your scenario.

    1. Indeed! And I will have a student loan line item expense in my next couple profile that is real.

      This couple is fortunate to not have any student loan debt. But $20,000 a year in payments is not unreasonable, thereby crushing their budget into the red if they don’t make adjustments.

      I’m glad you brought this up. I was waiting!

  91. I definitely agree that six-figures may not make people feel rich in some parts of the country, especially if they’re trying to keep up with their peers. I have friends who make six-figures but in their circles, it’s expected that there will be private school, expensive lessons, sports, vacations etc… They may not “feel” rich but they can make a choice to save more money if they ignored their peers/neighbors. Easier said than done, I know.

    We make way less than six-figures and are managing with two kids. They will most likely never be able to go to private school, participate in expensive sports/activities, or travel extensively until they’re on their own.

    There is a huge gap between being rich but not feeling it, and those who actually earn less and make harder sacrifices.

    Oh, finally, when most people compare the cost of staying home and daycare, they forget to factor in loss of opportunity in terms of investing, 401k and career/promotions. It is also hard emotionally to be dependent on one-income.

    1. Good final point. Hence, it’s not a one for one income tradeoff / cost swap.

      Living off one income while having two incomes is one thing. Living off one income while only having one income surely will be a stress for althe family and the sole income earner!

  92. Mysticaltyger

    Sam, I think you summed it up well in one sentence when you said “No one is ever satisfied with what they have”. That is the bottom line. That’s why there are sayings such as “Count your blessings” because we need to consciously remind ourselves of how well off we really are. Psychologists have found that gratitude practicing exercises such as counting one’s blessings actually make people happier. (See Sonja Lyuboirsky’s “The How of Happiness” for more on the subject.) If we don’t make a practice of being grateful, we tend to want more, more, more and become dissatisfied as a result.

  93. My family of three live in Manhattan right now. I work in financial services. However, next week we’ll be moving to Virginia. The salary is slightly higher, but instead of going into debt each month to the tune of $3k, we’ll be saving $3k. It’s amazing the impact that state/city taxes and housing costs have on the feeling of wealth (I started feeling wealthy right after I accepted the offer).


  94. Cut childcare – when you choose to have children, then you should prepare to sacrifice – if they can’t live on 1 income, then 2 of them should work opposite shift.
    $24K is outrageous. If it’s not an option, then see if employer has program to do child care in pre-tax form $8K saving.

    Cut car – Stupid car payment – get down to a beat up car until they have their financial situation down from living from pay check to pay check … good grief!! beat up car then they don’t have to pay more for comprehensive insurance – $6K in car saving and $500 insurance

    Cut food – cook and pack your own lunch, you are in San Fran, grow some herbs!!

    Cut Vacation – you are in prime vacation area – good grief – enjoy bakery in Chinatown, sushi in Japanese town, drive on the Russian Hills for thrills. Practice hiking in the Yosemite mountain or something in the meanwhile. Have family visit them instead of visiting family.

    Cut food – I don’t like to cut food – but $1000 for 3 is steep – no expensive pre-made items. Cereal is expensive. I’d have egg benedict in the morning with 2 pieces of toast and a bowl of mixed veggies … etc … list can go on and $200/person I have plenty of organic fruits and veggies I want, and chicken breast, shrimps, fillet mignon, nuts, lagumes … spice things up!

    Children lessons – statistically most of the children dropped out of piano in the first 5 years, most soccer kids grow up paying other sport other than soccer … the list goes on. Pick one, and the rest should be family time!! You teach your kids math and science, and cooking, and cleaning … making kies and fly it in the park. In fact, drone is a big thing right now, $5K for 1 drone, I’d be thrill to own one!!! Heck!! I want one right now! ehehhe (I understand if some children need speech therapy and other medical condition that require a therapist to work with, but generally, kids are thrill just to get to hang out with their parents instead of boring piano or violin lessons).

    Whatever float their boat! I don’t look down or look up to these people. People have choices. They choose luxury, they get luxury! They seem pretty well off to me!

    1. Thing is, even if they drop it from the $333ish/person now to $200ish/person, it’s not going to save them much money. Maybe 5k per year. It’s also going to cost them a great deal of time, which is something they’re short of as working professionals. Furthermore, that’s a pretty barebones cut. I think they’re pretty close to the pareto point at their current setup, going out once or twice a month as a family and eating out at lunch.

      Regarding lessons, I agree. I didn’t take lessons in anything growing up (well, maybe some martial arts in the summers) and it didn’t end up bad.

      Something my dad did to save money on childcare during the summers was to drop me off at the local public pool with lunch in the mornings before he went to work, then had the babysitter pick us up in the mid afternoon.

      A day pass cost about $5 (90s money, so $10-15 nowadays?), we were supervised by the lifeguards, and we mostly kept out of trouble. It wasn’t an uncommon tactic — other parents in the neighborhood did the same thing — so we kids knew and looked out for each other.

      This meant that instead of needing 8-10 hours/day of daycare, he only needed around 3 or 4. Not to mention it turned me into an amazingly strong swimmer.

  95. Sam, I would like to see a revision where 2 peeps maxing 401k. Property taxes are much higher near Chi town, more like 2% of the value (especially in good school districts). The rest of the numbers are close to what people spend. You forgot to mention AMT (which sux balls, you can only deduct mortgage interest for the most part) as well as State tax (Illinois is 3.75% flat but i know Cali is progressive with high 9.3% for income over 67.7 married joint). 30% tax rate average is probably underestimate for Cali, maybe even for illinois

    1. Sure, in a next post.

      A 30% effective tax rate for them is probably 5% too given they have a dependent and mortgage interest deduction (details in post). This includes AMT.

      Their AGI is like $157,000 after mortgage and 401k, which doesn’t get hammered by AMT.

  96. SavvyFinancialLatina

    I work in tech, albeit not in San Francisco. In Dallas, your money seems to further, but I still see families overspend especially in North Dallas. It’s all about keeping up with the Jones.

  97. I live in the UK (not London though) and your numbers look familiar. They’d support a nice living though. I often wonder just how much where you live affects your outlook and well being? I lived in Charleston, South Carolina for a year and loved it, beautiful place, fantastic weather and lifestyle. However, I became somewhat bored with the heat and found myself missing Scottish rainy days in Glasgow when you could curl up in front of a fire or settle in for the night in the local pub! If London, San Fran, New York etc., are so great, why aren’t we all living there, or close to there? Eventually you have to put roots down and making an effort to contribute to your community is much more important than where it actually is. And I’m not sure you can do that with one eye on where you are going to move to in two or three years’ time so that you can save some cash!

    1. Where you are living has so much to do with how you feel about your future and whether you can get ahead.

      When I’m in Honolulu, I feel my future is static. There’s not much growth, but there is a lot of happiness.

      When in San Fran, I feel optimistic about growth, but I also feel tired because everybody is hustling like crazy to take advantage.

      Part of the reason why I moved 5 miles west of downtown was so I could get away from the madness (and traffic), and look at the ocean. I wanted to bring Hawaii to San Francisco.

      1. Interesting. I’m in Portland, and definitely get a feeling of growth, but it’s much more laid back. Which I do think matches the vibe of the city as a whole. Everyone is very conscious about keeping cost of living low and quality of life high, even as we have more and more bigger players moving into town.

  98. I would be interested to see a break even or factor analysis regarding at what point it makes sense for one spouse to stay home with the kids. Obviously every situation will be different but an analysis surrounding what factors a couple should be looking at (decrease in taxes, decrease in child care costs, increase in family “risk” as tied to one employer, etc.) would be a good article/exercise. The media seems to push both couple to work and if you take a narrow approach and just look at gross income this makes sense.

    1. This would be a great post – I like the idea. Possibly in the style of an earlier post about the financial benefits/disadvantages of getting married (although that one focused more on taxes).

  99. This is our income and the expenses are a bit high, but not out of the ballpark and generally reflect what we spend. The main difference is that I absolutely feel rich. I live in a home that I know is out of reach for most Americans. I take vacations and do hobbies and otherwise spend money knowing that our income makes it possible. In short, we have options that others simply don’t have. And that is why I feel rich. It’s not about how much money is left in the bank AFTER I choose to spend it on things that I know others can’t afford. “Disposable income” is not that bottom line figure. We have a huge amount of disposable income above our basic needs, but we choose to spend it on a more expensive home, more expensive food, more expensive vacations, etc.

    1. Interesting. Spending most or all of my disposable income would make me feel poor, not rich. I guess it the philosophical difference between “money does you no good if you don’t spend it” vs “money does you no good if all you do is spend it”.

      1. I hear what you’re saying, but I guess my point is that just because someone chooses to live a lifestyle that results in spending nearly $120k, doesn’t mean they can turn around and say they have no disposable income. They have plenty of disposable income above necessities, they are just choosing to spend it.

    2. Anon E. Mouse

      The problem here is in how one characterizes disposable income, and some of it reeks of entitlement. I’d count “two vacations per year” as not obligatory but as a way that one chooses to spend one’s disposable income. Same thing with charity, and the children’s lessons. Those are not the product of living in an expensive neighborhood. Not that I think you shouldn’t give to charity, but to list it as an obligatory expense to victimize yourself is intellectually dishonest, imo.

      While I would call this family upper middle class, they aren’t remotely poor and I don’t see why they should feel victimized by the system when they have a very comfortable lifestyle that affords them everything they need, and then some.

      1. I agree with everything you said except ‘upper middle class”. They are upper class. Just because there is disparity between the bottem of the upper class and the top doesn’t mean you have to be raking in millions to be upper class. What in your opinion would push them to upper class?

  100. Looks like one of them is working for for next to nothing, once all is said and, done.

    Curious how the numbers would look if one parent stays home. As Jack pointed out, a motivated spouse at home can be worth more, by saving the family money.

      1. Pls do, we were quoted $48K a year in Boston for three 8 hour days childcare for both our twins. We decided the nanny route as you get a break for multiples with a nanny, not if you put them in childcare. We now pay our nanny $17 per hour for 35 hrs a week = $544 per wk or $28k to $30K a year (range due to hours fluctuation during yr). And we paid our former nanny $20 / hr.

        1. Dang, that quote is a lot!

          I wonder if the people not believing in the cost of childcare in this post have actually ever investigated the costs?

          Childcare costs are absurd, but what’s more important than your child?!

  101. He is having fun with us. I have been reading this site long enough to know that this family he just described is ripe for a financial intervention. (Financial samurai style)
    I will wait for a followup post of him telling us how wasteful the current situation is.
    Bases upon previous posts this family should be investing over 110k per year fairly Easily.

  102. This resonates as my income as a single person is similar and I have a 3-year old. I spend more on my kid (combination of nanny, preschool, ski lessons, hockey lessons), but less on food, vacation, no car payment, and housing (property taxes here are only 1% – I would also not feel good about borrowing as much as in your example but I guess I’m lucky to live near great schools and the mountains for not too much money), plus because I have a better tax situation thanks to real estate investments. At this income, I feel continuing stress about finances and think about it all the time. Running off to Thailand for $2000 a month is a recurring thought! Quit work, hang out on the beach with my kid and live like a queen off rents and dividends.

  103. A couple things…

    Children’s lessons… $5,000 a year. I’m sure, Sam, you’re thinking tennis or something, but in reality, if a kid is going to childcare, they are young and aren’t taking lessons in something that costs $5,000 a year.

    Consumer debt… $3,000 a year. I think this can be taken off outright, since they don’t have a deficit each year. I could buy this being student loans, but then we’d add back the interest deduction.

    401k… agree with the other commenters that a dual income family should be contributing $36K.

    Clothing… $3,000 a year. That seems steep, even for two working professionals.

    I do buy the $6,000 car payment a year. If they both need cars for work, assume they both buy reasonable cars, such as Toyota Camrys. If each Camry costs $20K (10% rule… QUESTION FOR SAM: if you have a 2 car family, is it a 5% rule for each car?) @ 0% for 48months, the monthly payment is $400 per car or $9,600 a year. Reduce the cost of the cars to $10K each and you are still pushing ~$5K in total payments.

    This is a tough one. They live in a very high cost of living area, the only way to cut back and still maintain their standard of living, or save more is to move, which may not be an option for their lines of work.

    1. Concur what was the thought process behind only doing 18k instead of 36k ? And why no IRA’s Roth or otherwise.

      Also agree that childcare and expensive lessons wouldn’t both be included. …. At least not by anything I’ve seen.

      1. IRA limits out at $193,000 for married filing jointly. Unfortunately, they don’t get the tax breaks anymore.

    2. At what age does childcare become babysitting? I know three and four year olds who are getting music lessons now.

      A decent suit from Banana Republic costs $500. A higher end suit costs $1,100. A Giorgio Armani suit can cost $2,500 no problem. Then there’s socks, underwear, shoes, shirts, jackets, etc. Then, what about the wife?

      $3k for clothes a year is frugal in the big city. Some handbags cost more than that!

      1. mysticaltyger

        $500 for a suit? Bah. My ex boyfriend always had to get dressed up for work and he would always buy nice suits on sale for half that amount (or less) at places like Macy’s…and he was a total clothes horse. He also had a ridiculous number of beautiful, high quality shirts and ties that he bought at gay thrift stores like “Out of the Closet”. I think SF has one. Most of the ties he had were beautiful and were bought for $2 or less….and he had hundreds of them (which was ridiculous, but the point is, these things can be had for much less if you plan in advance and shop around).

      2. 3 and 4 year olds getting music lessons now is ridiculous. That’s on the parents. There is no reason a 3-4 year old should be enrolled in music classes, except for the parents hoping for some sort of child prodigy. Classes for 3 year olds can only last for 30 minutes before they lose interest. So this hypothetical family is spending $5K for 1/2 hour of lessons 1-2 times a week.

        As for clothes… you can stock up on quality clothing, then rarely have to shop. Yes, a good suit can cost $1K+, but most places don’t require suits anymore. $3K yearly on clothes, even for both husband a wife means their closet is bursting after 2 years.

      3. I’m confused, am I supposed to feel bad for someone who is buying $2,500 suits and spending thousands of dollars a year on their three year old’s piano lessons!?!

        What was the point of this article? To say that people making six figures are poor because they ONLY get four weeks of vacation a year, so they HAVE to spend $8,000 on said vacations, and they can’t STUNT their three year old’s life by not having them in the fanciest, most spendy private schools and lessons?! Are you kidding me!?

        And if these bay area residents want to talk about how expensive their life is and how they can barely get by on spending $1,000 a month on organic, free-range, perrier watered dinosaur kale, then they always have the option … to move. GASP!

    3. One of the “big wins” for me has been to learn to bike, walk, and use public transit instead of owning and operating a car. I can get a flat unlimited transit pass from the city for $900/year (although I get it free through work), and maybe $400 for either a decent new commuter bike or a really fancy used one.

      My total transit cost on an ongoing basis is less than $1k/year due to these changes. Even if both parents can do this (they do have a kid, after all), chances are that one of them could.

      Cars are much less of a necessity than people make them out to be, especially in dense metro areas.

    4. They make too much to deduct any student loan interest. This is yet another penalty on those who take risk and work hard to be successful.

  104. I was disappointed to see that only one person is maximizing their 401K contributions. One way to reduce expenses in this case is for this couple to be just a little more frugal. Imagine if they didn’t have a car payment and stopped paying so much for a vacation….they could save $14,000 per year.

    We make a little more than this hypothetical couple and I have to say that I am certainly glad that we live in a lower cost of living area. Not only that but both my husband and I are more frugal. We have only had one year of car payments in the past 13 years of marriage. Our only debt right now is the mortgage. Of course, we have two kids so that does cost some money. But we are fortunate to no longer need as much child care.

      1. We save $36K a year in 401K, another 10K in our Roth’s (though I am not sure if we will be eligible for this past year), and another $15,000 a year in taxable accounts. So $61K a year for retirement purposes. What I didn’t include is the $2,400 we save for the kids college, which admittedly is not a lot. However, I work on commission so sometimes we are able to save an extra $10,000 grand a year and sometimes not.

        We have two kids, one who is in competitive gymnastics and I actually agree with the $500 a month for activities. Of course, we no longer pay for daycare either so we can afford it. My kids are 9 and 6.

        We live in a small town in Delaware. Real estate taxes are super low where we are. I am pretty sure we pay less than $2,000 a year for taxes on a $400K home. We do not have a budget per se, but we save a lot of money and don’t feel like we need one at this point in our life. For us, having no debt is ideal. We go back and forth all the time about paying off our mortgage so we can be entirely debt free.

  105. Great post, Sam!

    It’s interesting to see the numbers you came to for the budget. I’m going to run them against my own to see how we compare. Maybe I can pass it along once done as we are very close to your example above. Household income is 191k gross for 2015. We live in a much smaller city on the east coast than SanFran so our money goes further, but I would have to say while we feel wealthy/upper middle class, definitely not rich!

  106. First, why only 18k in the 401k? Shouldn’t it be 36k for two earners?

    Second, $1000 a month for food? That’s absurd. It could easily be more like $500 a month for people who try to optimize savings, freeing up $6k a year.

    $3k a year on clothes? What? I don’t think Ive spent 3k in my entire life on clothes.

    $5k on “childrens lessons”? Are they taking violin, piano, golf, and cooking lessons all at the same time?

    $3k on consumer debt? Would a family with $200k a year income really have consumer debt?

    $6k car payment with $4k on gas? What? Why would a family with 200k income buy something they couldn’t pay for up front? And 4k on gas seems like a lot.

    Your trying to find ways for this hypothetical family to spend money (2 vacations a year, yeah….). In reality, a family like that could live (quite well) on 60-70k a year (most of that is the 36k mortgage) and still save 50-70k a year(including 401k), after taxes.

    But you article makes one main flaw, and that is equating high income with the politically charged term “rich”. Having wealth makes one rich, not having high income or lots of stuff. High earners have an easier time becoming rich, since they should be saving (a lot) more, but income in and of itself does not make one rich. Many high incomers (your hypothetical family) squander their opportunity to build true wealth by spending according to this article.

    1. I agree. We make a little more than this couple, live in a lower cost of living area and are able to save over $60K a year. If our friends knew what we made, they would think we are rich. But we certainly don’t feel it.

        1. Not really. I feel like this hypothetical couple could save more IF they wanted to….it’s all about choices. There are areas it appears they could cut back if they wanted to…but not everyone wants to.

          1. Science Girl

            Another Bay Area resident to confirm that Sam’s numbers are pretty spot on. This area is unique, and outsiders don’t seem to get it.

            1. Note the couple’s take home salary after their massive tax bill. California has high state taxes. As Sam points out elsewhere, this couple is not even subject to AMT. They are probably still deducting their dependent- which can’t be done with AMT. They only need to make around $50k more.

            2. To those who say they should rent- terrible idea. Mortgage deduction is their only deductible expense from their tax bill. Besides, rents are ridiculous in the Bay Area. Cheaper to own. For my husband and I (combined income in starting AMT range) it makes sense to buy a home in the million dollar range to optimize mortgage deductions from our tax bill.

            3. They better be living in a decent school district because if not, they will need private school once their child is old enough. A decent public school is a great hedge against the insane cost of private. But a decent public school district costs money. One more reason to buy, you hedge against insane rent inflation. We have family in Manhattan renting a high end apartment. Their rent increase was on the order of a few percent. Bay Area rent increases are on the order of 20-30%, sometimes more! Rent controlled options are only available for lower income families or lucky folks who got grandfathered in.

            4. They need two cars. At least one would need to be reliable, so it can’t be too old. That number is very reasonable. Anyone who says they should use public transportation – well, doesn’t really exist outside of San Fran, which is not where most employment is. Spouses often work in opposite ends of the Bay Area. Long commutes are the norm. Living close to work, even if work is in a dump, costs money. Commutes are insane if you live in the cheaper areas we’re talking 3 hour round trips.

            5. Food is expensive here. Even if you cook most meals.

            6. We don’t have kids yet- that changes very soon for us though. Toddlers start ballet etc. not strictly needed, but who skimps on their kids development? It’s not about keeping up, it’s about staying within the norm for most parents. Also, I am looking into day cares now, and I find that 24k a year is very reasonable and mid range. The really ‘good’ day cares cost 40k a year for young infants.

            7. Is it a rat race? Sure. My husband and I only stay here because we’re both at the start of our careers and things are already good. We anticipate career growth which will make all the ‘struggle’ seem worth it. This growth isn’t possible anywhere else, especially since we both expect to see that growth. This is why we aren’t moving yet.

            It’s hardly a struggle to be fair- my husband and I live well, travel a lot, and save a full income (for the down payment of our next home + buffer, and the rest is for retirement) because we bought our little 2 bedroom starter town home at the bottom of the market on a very low mortgage. Once we move to our permanent home (talking 3 bedrooms, decent schools, 1500-2000 sq ft if we’re lucky), our savings rate plummets as we will be tripling our mortgage. Add a kid to the mix now..and ugh. Our savings outside of 401k are now starting to look far more gloomy. I can see where this couple is coming from and I’ll venture to say they lucked out on timing of their real estate. Their mortgage is fairly low.

            So where do we shop? Ross, Nordstrom Rack, Macys. I always buy on sale. I don’t bother with expensive handbags. I color my own hair. Get haircuts and manicures twice a year maybe? That stuff is expensive, but most Americans think nothing of it, no matter what their income bracket. My engagement ring is under half a carat (my choice, it cost my husband a week or two of income!) and we had a modest wedding, well below what you’d expect people at our income levels to spend.

            Maybe if I made double of what I did, I’d consider that, but material objects don’t do it for me. I’d rather spend money on experiences such as travel or eating out. We are hardly extravagant or living like royalty as much of the country seems to think we would at the 250-300k range. If we lived in Texas, with no state taxes and ridiculously low real estate, perhaps. But as I said, it’s a choice we make because of the potential upside. I suspect that’s how most of us living here feel. If we crash and burn, we can always move, right?

            1. Love your comment! Your sentiment is very reflective of the 20s and 30s generation here in the Bay Area.

              It s expensive here, but the potential for great fortune is here. Why not try? The weather is great, there’s a ton of growth companies, the food is some of the best, and the diversity is wonderful.

              Rent and housing is painful, but if you can make the next level or have a liquidity event, you’re set and can always move!

            2. Still doesn’t mean they need a vacation that expensive or lessons costing them that much. Truth is, there a number of expenses they can easily do without regardless of location

            3. uh, your “we stay here because” is irrelevant. move elsewhere and prepare for your future. escape the bay area vortex.

    2. I’m agreeing with Sam on this one…child activities are expensive! And you don’t want little Janie or little Johnny not being the best at everything! I also agree with the food- how do you eat healthy without spending a decent amount of money. I have 3 children and we spend over $1000 so they can learn good eating habits! Also…traveling with kids is expensive too- $8000 sounds about right if you want to stay at an OK hotel. I think Sam did a great job with the numbers.

      1. Agreed. The example couple lives in San Francisco. Paying $1k a month in food would near about be a miracle.

      2. So many comment disagreeing with the $1000/month for food, but as someone living in Los Angeles, I can relate with the numbers. Healthy food seems like a reasonable investment, so I purchase mostly organic produce, milk, eggs, and chicken. I do my best to shop around, get whatever is in season (cheaper), and only buy what we need. We even grow herbs and vegetables in our garden. We still find it difficult to spend less than $100 a week on groceries. If we go out to dinner once or twice a week (occasional mental health breaks also seem like good investments), that’s easily $75 a week. That’s already $9,100 a year (($100+75)*52 weeks/12 months), and we’re still DINK. If we’d added another $100/month for baby formula, we’d be at $858/month, and that’s WITH time and effort to remain cost conscious. Easy to see how people like Sam’s hardworking, hypothetical couple can spend much more!

        1. you could save an easy $100/month by ditching the organic habit. Organic is neither healthier for you, or better for the planet; rather a marketing ploy which millions of otherwise intelligent people have fallen for.

          1. Very true. depending on how far you take it “organic” can add anywhere from 5% to 20% margin despite no proven scientific benefit. Especially in the bay area where that kind of stuff is trendy. Funny thing, so much science and technology in one place yet heavy on the “organic”.

    3. “Second, $1000 a month for food? That’s absurd.”

      Not at all. I live in Silicon Valley and my wife and I budget $800 a month for food and we hit it every month. We cook at home a lot to save money. We do not buy caviar or anything crazy at all. Very normal things. We tend to buy organic, and we don’t eat a ton of bread or pasta, so our calories tend to cost more. Regardless, we hit 800 a month for TWO PEOPLE! I think it’s insane, but it is what it is! I can imagine it would jump a lot from 800 with a kid.

    4. $1,000 for food for three seems normal. Date night at a decent restaurant with wine, tip and tax once every two weeks costs $150-$200.

      Lunches for two in downtown SF cost $20-30. That’s $400-$600. The rest to groceries, breakfast, dinners at home.

      I wish they were the perfect 401k retirement savers. Alas, they are not.

  107. My wife and I live in NYC and have a combined income of around 300K. In our neighborhood I see this is just about middle class. We love it here and I’m not complaining but on the 200K income you are discussing in this article we would just about survive. We live quite a simple lifestyle, nothing extravagant. It’s a rat race here but I am driven by the energy of the place. Moving to a less expensive location is not an option at the moment as my business is geared for the NYC market.
    I’m a big fan of your articles Sam. Keep up the good work.

    1. BB, I love NYC! Nothing beats the energy of that place. It just seems hard to save and get ahead without a $250k+ household income there, at least not in Manhattan. Temptation is everywhere to spend.

        1. Ordinary Riches

          At tech companies in the bay area you’re looking at only paying $30 bucks a month for yourself in health care costs. Add $100 for wife and a kid. Still not bad

  108. Living in Silicon Valley, we’re intimately familiar with the high cost of living here, and looking forward to relocating to a lower cost of living region in the future.

    With our new baby, we’re saving money by becoming a single earner family. Counter intuitive, but with the high childcare costs, and low take home pay my wife had after taxes, etc., it made more sense for her to stay home and take care of our child than pay the exorbitant daycare fees. As an added benefit many of our other expenses have gone down since she uses her new free time to find deals and other ways to save money.

    I never would have believed we’d be able to live where we do on one salary, but we’re making it work.

    1. …and you both will be SO glad you did…raising children is the most important job in the world- sometimes money doesn’t mean everything- especially when you are paying taxes, childcare, etc. I’ve seen women sit at their desk and cry when they get a call from their nannies about their kids.

    2. It’s not counterintuitive at all. It makes a ton of sense. I would say the value of staying home to raise a child is a $100,000 a year job in the Bay Area. Maybe more!

      Might write a post about child care costs in the future.

      1. Not at all. We did the same thing. After you do all the math, childcare, exhaustion, eating out, cleaning, illness (daycare…), and the obvious being taxed at the highest marginal rate and double payroll…many times it will actually be beneficial to have only one earner.

        It certainly makes the life of the sole earner much nicer and less hectic, somewhat of a gift. Plus, your child is getting great care. The only downside would be a fantastic health plan or retirement matching that could have high future value. In our case we had neither for her, so it was simple…stop paying to work.

      2. I am looking forward to this post. It would be an eye opener for many to have figures showing how expensive to raise a family is and why, as it was in my wife’s case, it may make sense that a spouse quits his or her job and becomes a stay home parent, even if that meant giving up a $100k income (btw, my wife chose to stay home as she was not going far in the corporate word and the family mattered her more than the little money left after all the childcare & nanny expenses)

    3. I agree – it’s extremely expensive to live today. The analysis does have 1 major flaw in it. It does not account for deductions from the paycheck and most importantly, does not account for the exorbitant cost of healthcare premiums. In addition, some of us have high property taxes which inflate 3% or more a year.

      1. No. 1 way to save more: Eliminate car payments. Save that $6,000 a year for four years, earning interest, and buy a car for cash. Save more by making it a pre-owned car. You also have nothing on your list of expenses addressing car maintenance, tax, title license – or flood insurance and earthquake insurance, both needed in much of California. Also SSI – state disability insurance, a mandatory deduction. Also: if the budget is this tight, maybe just one trip a year to Hawaii is enough!

    4. We were a two income family. My wife actually made about 50% more than me. But after subtracting the marginal costs of her job, (car depreciation, increased income taxes, fuel, FICA, clothes, day care, etc), she netted about $2/hr. Coupled with the reduction in personal time, job aggravation, occasional odd hours, and 3 wrecked cars (not her fault-snow, cut off by BMW on right, and inattentive driver following), it wasn’t worth it.

    5. I didn’t see health insurance and related expenses on the budget. It varies from house to house, but usually very costly.

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