Let me tell you a sad story about who households need to earn multiple-six figures to live a middle class lifestyle today.
In order to comfortably raise a family in an expensive coastal city like San Francisco or New York, you’ve got to make at least $300,000 a year.
You can certainly raise a family earning less as many do, but it won’t be easy if your goal is to save for retirement, save for your child’s education, own your own home instead of rent, and actually retire by a reasonable age.
Although $300,000 is a lot compared to the median household income in the United States of ~$65,000 in 2020, it’s not an outrageous sum of money once you look at the realistic income statement I’ve put together for this article.
All expenses in my example use current prices. I’ve also cross checked the expenses with my family’s monthly expenses now that we have a son to make sure they are within reason.
I use $300,000 in this post because I also believe it is close to the ideal income for up to a family of four to experience maximum happiness.
At $300,000, you aren’t paying an egregious amount in taxes, you probably aren’t killing yourself at work if both parents are working, but you’re still earning enough to live a comfortable lifestyle anywhere in the world.
Half the US population lives on the coasts, therefore, this post is directly targeted at folks who need to live on the coasts because of their jobs, schools, or families.
Finally, this post should also provide insights to non-coastal city residents on how good you’ve got it if you enjoy living where you are. $100,000 – $150,000 is a rough non-coastal city household income equivalent.
Who Makes $300,000 A Year?
Before we look at the income statement, let’s go through a list of various $300,000 income households.
- A Bay Area Rapid Transit janitor who makes $234,000 + $36,000 in benefits who gets together with a Bay Area Rapid Transit elevator technician who makes $235,814 + $48,429 in benefits.
- Starting total compensation packages for 22 year old employees at Facebook, Google, Airnbnb and Apple range from $120,000 – $150,000. By the time they are 30 years old, they are making $300,000+ a year.
- 30-year-old first-year Associate in banking earns $150,000 in base salary + ($0 – $120,000) in bonus. In a couple years, she is making over $300,000 a year.
- A 26-year-old first year law associate at a big law firm like Cravath makes $190,000 base + $30,000 sign on bonus. By the end of his 6th year his is making over $330,000.
- A 29-year-old Director of Marketing at a startup makes between $150,000 – $180,000. She’s married to a pro blogger who makes $350,000.
- A 42-year-old college professor at Berkeley makes $235,000 and $279,000 at Columbia and NYU.
- The average specialist doctor finishing his or her fellowship at 32 makes $300,000. The average salary for a primary care physician is $200,000.
- A 26-year-old middle school teacher making $60,000 a year plus her $250,000 a year VP of Marketing wife.
- My 60 year old high school athletic director colleague makes about $180,000 a year plus his wife who makes about $200,000 working for the city.
- Thousands of employees at tech companies like Google, Apple, Facebook, Google, Slack, Zoom and more.
The permutations of people making $300,000 goes on and on. If they aren’t there now, they will get to such a level of income eventually.
Related post: The Top 1% Income Levels By Age
Living A Middle Class Lifestyle On $300,000 A Year
Please study the middle class lifestyle budget chart below closely. Every expense has been carefully vetted by hundreds of people who live in expensive metropolitan areas like NYC, LA, and SF and who diligently track their cash flow to give you the most realistic budget possible.
I’ve tracked every line item with my own budget (family of 3 in San Francisco), and they are pretty spot on.
Gross Income Review
With a $300,000 household income, this dual income household of three puts away $38,000 a year in their 401(k)s.
With the passage of the Tax Cuts And Jobs Act, they’ve lost their ability to deduct more than $10,000 worth of state income, sales, and property taxes. As a result, I’ve used the new $24,000 standard deduction for married couples to keep things simple.
For 2020, the FICA tax rate for employers is 7.65% — 6.2% for OASDI and 1.45% for Medicare tax. For example, an employee will pay a 6.2% Social Security tax on the first $137,700 of wages (maximum tax is $8,537 [6.2% of $132,900]), plus 1.4% of all income earned. Since both parents work, both parents pay the tax. At least both parents eventually gain when they collect Social Security, if it’s still around.
They have a marginal federal income tax rate of 24%, a marginal California income tax rate of 9%, and most of their income facing a 7.65% FICA tax since both work. Their combined effective tax rate is roughly 32%, for a tax bill of ~$76,160. In other words, their total tax bill is ~$12,000 more a year than today’s median household income, so hopefully folks who earn less can give them some slack.
What’s nice about 2020 and beyond is that this family now gets a $2,000 child tax credit to help support their middle class lifestyle.
In the past, the credit began to disappear for married couples who earned more than $110,000 and for single filers with AGI above $75,000. Now, singles and married couples can earn up to $200,000 and $400,000 respectively, before their child tax credit begins to disappear.
Bottom line: their $300,000 gross income gets reduced by roughly 38% after taxes and retirement contributions to $187,840.
Expenses Review
Childcare ($24,000):
A middle class lifestyle often includes kids. There’s no getting around this expense if both parents are working. Babysitting and childcare for $20/hour is the standard rate I’ve found in San Francisco. Some prices go up to $35/hour.
If the parents decide to send their child to private school, this $24,000 annual expense will increase to $35,000 a year for K-8 and $45,000 a year for 9-12. I coached varsity tennis at a boy’s private high school for three years and its annual tuition is now $49,000 a year. It’s a shame that so many expensive coastal cities have troubled public school systems.
In San Francisco, there’s a lottery system for the sake of social engineering. In other words, even if you buy a $1.5M median home and pay $20,000 a year in property tax, you are not guaranteed to have your kid get into the public school down the street.
Of course, if you have a second kid, childcare expenses will increase, but probably not double due to synergies. That is unless you want find some 4th trimester childcare relief. Then we’re talking $40,000 and up for three months.
Food ($25,200):
When you are a dual job household with a baby, there’s little time to cook. Further, given the family is living in a city like New York or San Francisco, food is world class, and on demand food delivery is ubiquitous.
It makes little sense to spend hours cooking when you’re already tired. You want to reserve your remaining energy for taking care of your baby. However, food is where this family can cut expenses if they start feeling a little tight.
Mortgage ($46,800):
A middle class lifestyle should include owning you own median-priced home. Although the payment is $3,900 a month for a $900,000 mortgage at 3.25%, $2,000 of it goes towards paying down principal and building net worth. Therefore, you can add $24,000 a year in forced savings to their $37,000 a year in 401(k) savings.
Their $1.5M assessed house is a standard 1,750 sqft, three bedroom, two bathroom home on a 2,500 sqft lot. For new homebuyers, only interest on up to a $750,000 is taxable.
Here’s an example of a typical $1.855M home in Golden Gate Heights, one of San Francisco’s best kept secret neighborhoods. As you can see from the picture, the house only has 1,288 square feet of living space. It is a simple two bedroom and one bathroom home. At least it has ocean views from the living room.
This buyer needs to spend another $50,000 – $80,000 remodeling the house because everything is about 25 years old.
The $10,000 SALT cap deduction for individuals and married couples really hurts homeowners in expensive real estate markets. Property tax on a $1.5M assessed house alone is roughly $19,200. Then the couple is paying ~$18,000 in state income taxes.
Bought Their Home Earlier
Further, this couple is lucky because they bought their home several years ago for $1.2M. Now imagine renting a house for $6,000 a month and trying to save up $300,000 for a downpayment on a median priced home. Difficult to do with less than a $300,000 household income. Probably impossible without living in a one bedroom for “only” $3,200 a month or getting help from their parents.
The good thing in 2020 is that mortgage rates have come down to all-time lows. Homeowners can now refinance to a lower rates and save money as a result. I recommend checking out rates on Credible, one of the largest online lending platforms today for free. Qualified lenders compete for your business so you can get the lowest rate possible.
I was able to refinance my loan for free to a 7/1 jumbo ARM at 2.625%. But I’ve seen rates that are even lower. Everybody needs to take advantage of record-low mortgage rates to refinance and maybe buy if you are ready to settle down.
Vacation ($7,800):
A middle class lifestyle includes vacationing several weeks a year. Some will say that spending three weeks of vacation is a luxury. However, I say spending three weeks of vacation is normal for two working parents who want to keep their sanity.
By law, every country in the EU has at least four weeks of paid vacation days. Meanwhile, Brazil gets 41 paid vacations days a year. Yes, their respective economies might be a mess compared to ours, but at least they are enjoying life!
Car Payment ($7,400):
When you have a baby, all you want to do is protect him or her from harm. Even if you are the best driver in the world, one reckless drunk driver might t-bone you one evening.
No longer do you feel comfortable driving a compact city car while transporting your family. Instead, you want a larger vehicle that has the highest safety rating.
Baby/Toddler Things ($6,000):
You can spend as little or as much as you want on your baby. But this family buys disposable diapers, not washable diapers. They buy tons of baby proofing material. They paid up for the best car seat and have two strollers. It’s funny, but one of the best toys for our son is a tissue box.
Entertainment ($7,200):
A middle class lifestyle includes general entertainment and nothing lavish. During the good old days pre-pandemic, date night could easily cost $200+ an outing for two once you include tickets to a ball game or a show and transportation.
Entertainment also includes the cost of sporting equipment, memberships, Netflix, cable, internet, and more. If your friends invite you to a weekend getaway, a bachelor or bachelorette party, or a function or two, your entertainment budget will be blown to smithereens.
What’s Missing From The Budget? This couple is lucky in that they have no student loans. They paid their loans off by the time they were 35. They are 39 years old today. Final Cash Flow Review
Ending Cash Flow Analysis
To live this middle class lifestyle, the end result is annual cash flow of only ~$2,920. $2,920 is not a great buffer because something always pops up.
But overall, this middle class family is building roughly $54,000 in net worth each year through principal pay down and 401(k) savings plus any appreciation in their investments and primary residence.
After 22 years of work with no change in income or expenses, this household will likely amass a net worth of over $2,000,000 and the ability for at least one spouse to retire since their son will have graduated college.
However, based on my recommended net worth goal for financial freedom equal to 20X annual gross income, this couple needs to accumulate closer to $3,500,000 to really feel comfortable for both to retire.
Earn Just A Little More
After analyzing all the numbers above, the ideal household income to raise a family is around $315,000 after deductions. At under $326,601 you pay a 24% marginal income tax rate and avoid having to pay a whopping 8% more in federal income tax on each dollar over for 2020. This marginal federal income tax jump is large compared to the 2% jump from 22% to 24%.
Based on my experience, happiness did not increase for me when I began making over $200,000 as an individual. Happiness did not increase for us when we began making over $300,000 either. Therefore, due to the increase taxes and increase stress, it seems pointless to put yourself through the ringer simply to try and make more from a day job.
Save Aggressively Then Move
In order for this household to achieve financial independence, they’ve got to either up their 17% gross savings rate, figure out a way to reduce expenses, or boost income. Their middle class lifestyle might have to take a hit for a while.
Since boosting income probably hurts their quality of life due to more work and stress, the best way is to reduce expenses and diligently keep track of their finances online for free with Personal Capital in order to continuously optimize their net worth.
Relocating To A Lower Cost Area Of The Country Works
If you feel the cost of living is too high, then consider moving to a lower cost area of the country. In this new decade, it has become much more acceptable to work from home thanks to the pandemic.
There’s a moving truck shortage in places like San Francisco because so many people are moving out of this expensive city and other expensive coastal cities. The trend is towards relocating to the heartland, where valuations are cheaper and net rental yields are much higher.
The best way to do so is by investing in real estate through Fundrise and CrowdStreet. You can sign up for free and review their pre-vetted properties. These properties were once only reserved for institutional investors or high net worth individuals.
Thanks to technology, there’s no need to grind so hard in cities where the median home price is over $1M. You can earn a similar amount of income working remotely while spending a fraction of big city living costs.
Life is so much easier when housing is affordable. The country is large. Go explore it!
Updated for 2020 and beyond
I was taught that your goals should be inline with your life style, which leads to the amount of income you need. Seems most that post here, make and income and then chose to live on less.
Boston Proper. Dual Incomes, One infant. 31/30 yo. Own 3br/1ba 900sf condo. This is almost identical to our budget (minus the car payments/clothes/vacations/entertainment). We also househack to reduce our mortgage by 70%. Great analysis for an HCOL city.
This is kinda hilarious to me. It should really be titled, “How to live an upper middle class lifestyle in one of 4 specific metro areas” (those being NYC, Seattle, SF, and SoCal).
I live in Philly, yes, it’s not as expensive as the above, no, it’s still urban and more expensive than a lot of places. I don’t know anyone here who makes anything near 300k per couple (*maybe* a few that are 200k as a team, most are well below 100k together), let alone anyone doing it solo. Not saying those people don’t exist, but they are the exception, not the rule. Exceptions to me belong in the upper class. None of the examples you described seem to me like the middle class occupations of friends and clients I know- really they seem more like upper middle class to upper class.
I know that you write what you know but it would be awesome to see more content in 2020 geared towards the 99%…er, maybe like 80ish%? Something like that.
Philadelphia is pretty darn cheap in comparison. Feel free to share your budget and your net worth figures by age and tell us how you made it happen. It’s all about sharing to build wealth.
Sure.
I was making $10-20k/yr until this year, 3 to 4 years into a career change. Was piecing together a couple part time gigs until one of them gave me enough opportunity to quit the others this summer (it’s still part time, which I prefer, although full-time is not an available option anyway, 40 hrs guaranteed is rare in that career). This is something very typical with most of my friends/colleagues btw. I just recently looked over income, it was $37k before any biz deductions (~$3k) but not other stuff like trad ira. I’m considered self-employed in both of my careers.
I don’t recall having any classes in school on financials, I grew up in a somewhat poor, somewhat rural area. So financial planning is very new to me. I’m 38, my net worth is $7.5k, although all of that is as of October this year when I paid off the last of biz startup expenses (70% of income is from acupuncture, which requires a bit of licensing, inventory, and insurance up front, though could be worse). 30% of income is from music and October had a lot of big checks from all the fall weddings and Octoberfest gigs so that helped me catch up bigtime. I used to be a musician full-time, definitely making more now. The friends I know anything about their retirement have very little- it’s either from a job they had once with a 401k they no longer work (or benefits got cut), or they are saving would-be retirement money to buy a house or more reliable car, etc. Or, it gets wiped out by emergencies (one friend had to replace roof earlier this year, another had dishwasher and washing machine break the same month. Another had windshield/car windows replaced 3 times this year). I’m known as very frugal among my friends, who also are generally quite frugal.
I rent a VERY cheap tiny studio in Fishtown (skyrocketing real estate there) @$640 including all utilities, except phone/internet (too much, right now it’s $80). It took me a good 6 months to find something like that, and only because I could read between the lines and understand it was an illegal apartment (super not to code, also no kitchen- they rent it as a “room”, it took a few tries to convince them I was cool). I was looking all over neighborhoods that were bikeable and got really lucky and also was right on it when I found it. Rentcafe describes the median 20% of apartments being $1000-1500, though doesn’t specify size. For my neighborhood it’s $1730. Many of my friends rent rooms in houses, including couples who try for a suite-type situation (example- a floor in an apartment). One friend owns, but he lucked out (um, sorta?) in his first marriage where his ex’s parents bought them a condo in SD, and when they broke up, he got half. Another’s grandma bought a house for them. Another’s husband bought a house in a bad neighborhood 15 years ago (his mom was a real estate agent) that now is considered hip. Another married a doctor. My boyfriend owns, but he lived at home until he was 30 to save up. I don’t know any others in my group who own a house. Most of us have bachelors if not master’s degrees.
Most of my group value good food, and the occasional hang. I looked last month and my groceries were $250, but I did more entertaining than usual. But going out and gifts were $400. That sucks. November was less than half these #’s.
Seasonal expenses hit the lower and middle classes hard and I was thrifty even. My boyfriend and I have been tracking budgets lately and are planning to eat out less since I cook better than most restaurants anyway :P
Transport is much lower- you live in the city, no need for a car. I average $150 between public transit and uber/lyft pools. Many friends do have cars to get to work, they tend to spend a lot of money repairing them, but it’s a cycle that’s hard to get out of, since where do you come up with the chunk of change to buy something better? Or qualify with lower income?
Many of my friends don’t pay for health care any more since the penalty is gone unless they have kids. Many of us can’t afford to/don’t want to have kids so it’s a moot issue. Often one person in the partnership is the one who takes a junky job to have benefits for the family if there are kids. Friends sit for kids a lot, so hiring a babysitter is minimal for most people I know, people try to set up play dates instead. It’s hard to afford it. Any spare money goes towards stuff for the kids. Philly schools suck mostly so it’s important to live in a good area or try to get a job at a private or Friends’ school.
Vacation is a must even if it’s camping for most of my peers, gotta escape the grind. I think I save more than friends here because I use miles and points. I also go to cheaper places- went to Colombia last time. I got dental work done there since I couldn’t afford it in the US ($300 vs $2k)
That being said, when you are used to living on so low of income, it’s easier to save if you make more, as long as you don’t get too stressed. Just have to prevent the lifestyle creep. It helps to have like-minded individuals to support you and I think that’s one of the biggest things honestly. I can read all I want online, but it really helps me that I can talk about these things with my boyfriend, or best friend, and come up with solutions. Right now I’m researching grants for first time homeowners, who are low-income. I never thought homeownership would even be possible, I think it could be a good step for me if the price is right and now my income is steady to building and I have a plan (airbnb, which I have experience with). Quality of life is important too, and often it’s easy to say- just make more! when the job opportunities are simply not there. One can only hustle so much, I’d rather put my efforts where they are giving fruit (with financial education, it’s seeming).
Dizzy,
So, I’m not sure why or how I ended up on this post/reply yesterday but it caught my eye for some reason. The exhange stuck with me into the night as well. There are a couple things in this reply that I do not understand. Maybe I am naive… but I can’t seem to understand the situation you have found yourself (along with friends) in.
Looking quickly at the average income in philadelphia, and it shows $65,090.00, looking at the median for a better accuracy I suppose, and you see $43,744.
The post said you were making between $10-20k for the first couple years?
I’m confused on this situation, I made more money than that in highschool working for a grocery store. I had a second job as well that I worked off hours at. Each of them paid between $8.50 and $9.50/hour and both part time. I think in the summers I would get up to 38 or 39 hours at one job, and work 78 hours over two weeks with off hours.
The basic calculation considering a flat wage, is hourly wage x hours worked x 52 weeks. Assuming you were working 37.5 hours (since you said not full employment) to make only $10k, you are talking about working for $5.12 (roughly) an hour.
I’m glad you made the life change to increase that. $5.12 is a hard pill to swallow considering that in some places they are paying $15 for minimum wage. So looking at the case again with say a grocery bagging job you could potentially make $15/hr or roughly $29,250 gross as a part time employee. This seem to only be about $8k less than what you claim as your current gross salary of $37k, and it takes zero “skill” and minor training.
Anyway, looking at your scenario gave me pause last night. Why would you choose to live this way? I sort of understand the “starving artist” mentality but at somepoint you need to shift pipe dreams into action. The music ability once earned will always be there, but if its not putting food on the table, perhaps its a hobby and not a job/career.
It seems like you have taken this step with potentially opening an acupuncture business of sorts, and supplimenting with your music gigs. however, I again don’t understand this. Looking simply at average for acupuncturist online, and you see something like $20-74/hour and/or $43-$110k per year. So if you are certified as an acupuncturist, why are you “selling yourself short”? Looking at PA in general the average acupuncturist salary is $71,042/year. looking at the bottom 25% and you still see $50k. I see the goal in owning your own place, but maybe working for another establishment for a couple of years might help you a bit more. At a minimum you could grow a client base on someone else’s dollar, and then try and sway them to your new operation.
So what is it exactly that you are doing, or choosing not to do that only brings in $37k with skills/talents that you have?
It seems to me that you (and potentially some friends) are choosing to live a more restricted life than necessary. Have you considered moving to a new area? The skills that you have, acupuncture, and music ability seem highly transferable. The state around PA (and including) are all in the $35/hour range for full time acupuncture.
Surely there are other options than $37k per year in part time work? Since you are looking at a financial blog, perhaps you should review some of the suggestions again and consider implimenting them.
I would suggest finding new employement for one. Looking at a location change for two. and finally I would only take a job that provides full time work with benefits. Doing less than these is only stacking the deck against you.
The last comment I have is associated with your friends and people arround you. Everyone (I believe) has a choice to stay the course or make a change. You note that your friends already consider you the frugal one. Maybe now is the time to show them you are more than just frugal, by going out and making a life change. Put those skills of yours to good use and pull down a salary that is more aligned with your ability.
Time is short, in a sense. Why keep yourself in neutral when you have limitless opportunities out there.
Good Luck.
So I definitely wasn’t working anywhere near 40 hrs/week, just not possible. My first year I had worked on a cruise ship (ok, so that was actually 52 hrs/week). I made 20k over a 7 month contract, I needed the rest of the time that year to recover mentally from it. Unfortunately I was so stressed I blew through a lot of it recovering/paying prior debt/moving to new city and starting up biz expenses). Was told I should be getting 50-100k there but really it seems like few get that, you have to get very lucky with your placements.
Then when I moved back to Philly, there are not a lot of acu jobs there. I honestly have never wanted to start my own biz but I was approached by a local yoga studio to do so, figured since nothing else was going on, sure. They of course made it seem like I would have tons of patients and would help more with marketing (they didn’t, naive me).
I literally have applied for every job I’ve seen since I moved there and have not been not hired for any of them (tho, the jobs I did get I actually did not apply for, so there’s that). There are very very few FT jobs in acu let alone with benefits. Most “jobs” are compensation based and you are 1099. 1st biz, was myself, I barely profited over 6 months (learned a lot tho, and have what I need should I start another biz again) and decided to call it when offered another job @ $20/hr. It was 11 hrs/week, was promised more hours eventually, but never manifested. Eventually got another job that gave me another couple hours a week in addition to some rando other one off acu-gigs at other places. The two main jobs started to conflict and I left other job since I made a bit more than staying at the other job and working more hours, by just working the one job.
I’m still only 20 hrs/week tho (now down to 5 hrs/week reopening after COVID this week. We will see what happens, my boss expressed real concerns we will survive. He already let go 2 of the other 3 acu’s there so I’m grateful for anything). Yes, I was also applying for other non- acu jobs but having already gone thru this years ago (I’d applied for close to 2k jobs in 8 months in the aftermath of 2008 nonsense without getting anything that lasted more than couple weeks) maybe you can see why it’s hard to keep banging my head against the wall. I did finally figure out the delivery hustle tho it’s been difficult since I was reliant on my partner for a ride to the city where I could do it (I have just bought a car tho so probs will start again this weekend; last week was shut down mostly w/protests).
That $70k salary you mentioned, as I’ve learned eventually, is from an average. There are a few people who are making tons of money. Everyone else is in the $20-50k range generally. I don’t know anyone here making anything near 75k excepting one practitioner who’s been in practice 20 years and 2 people who own multiple clinics (one of which is my boss). Most people I know are in the 30-40k range. Still a step up for me tho, better than when I was a FT musician!
Some of your numbers seem wild. $15/hr working grocery? Where can you find that. I know $13.50 is Trader Joe’s rate in the city (not burbs, my bf applied last month and it was $11/hr, not bad tho) which is the only place anywhere near that; I’ve applied for them many times over the years without getting hired, it’s very competitive. Everything else minimum wage. And of course, you have to get hired.
All in all I’m doing light years better than some others I graduated with who continue to live in a HCOL area. I saw classmates at a wedding last year, half of them had given up on acu completely and either were panicking, or had children/able to be full-time stay at home bc their partner made $$$. I at least moved to a lower COL area (Philly) where I had some contacts and made it easier. I cannot move now (nor would want to) since I am in a relationship with someone who owns a house in the burbs (have since moved into) and he does not want to move.
I do play music for a profession too make few grand a year. I *need* to do this. This, as well as my other side interest (long distance hiking, which yeah, I even get paid for this on occasion) are really critical for my mental state. Quality of life also beats money, I’m having enough of a hard time adjusting to suburbs life where I’ve recently moved.
Honestly tho, my expenses are v low. I’m now down to $650/mo fixed expenses including for car, if I include money for fun/vacation/etc it’s maybe $1k/mo. I’m self employed so I can have solo401k to dump savings into. I don’t have to work full time, I can do things like my job treating refugees (tho cancelled until fall, it’s only couple hrs a month); play music gigs, have time to develop other side projects, maybe take chance on a new $$ job if I got one (and then feel free to leave if it sucked) and most importantly for myself and now my partner. Most of my friends who don’t have kids are in the same boat. Not having tons of $$$ can be tough in some ways but also is good in others.
Anyway point of my post before was that the numbers in this blog just seem wildly high, I don’t see a lot of numbers that reflect the middle class people I know and/or treat on a regular basis. It seems like #’s here a lot represent the upper class. $300k in SF is $165k in Philly, which I know VERY VERY few people I’d say are middle class here make per household. $60-120k for Philly would be more realistic (for fam of 4), which is 108-217k there. Pewresearch dot org has a calculator, it says 300k/fam of 4 is upper class there, their cutoff for upperclass is 200k. That’s a 100k difference!!
I don’t know, reading all of this stresses me out. I’m not sure how you can go day by day or weeks on end with only 5 hours of work here and there. Don’t you get nervous without having a safety net?
As a side note, for the acu business… While I believe there is a market for it, I don’t think it’s one of those just sit back and wait things. I think you might need to push a bit more to attract clients and not just wait at a yoga studio. I know a couple people who are very successful with doing acu in the DC area. They have a couple of arrangments with other specialty care professionals. However, another key is they advertise with all of the endurance athletes, and groups of that type. Find a couple runners with issues and fix it, and suddenly the word spreads like wild fire. Similar with the triathletes, and likely cross fit and all of that. I feel like you should be going to visit those various establishments and trying to get a couple people to take it on. If they have success and see the benefits, then word of mouth as well as the positive reviews, etc on media can do amazing things. Something to think about, if you haven’t tried that route already.
I suppose i’m intriqued by the whole scenario. I started out of college with a job making around $52k plus benefits, and in the first 5 years, I bumped that to over $110k, the following six years I bumped that to over $150k, and from there it kept going. Also married my wife who was on a similar track pulling down six figures as rising as well.
Thinking about living on a $650/month budget stresses me out. Granted my rent at one point in college was $225/month so I understand the living style, but as you grow older and gain more skills ideally so should your quality of living.
I feel like with a trade that you have, you should be able to find something more profitable elsewhere. I understand the BF factor, but if they are living on $11/hr jobs as well…the future looks rough. Maybe you should both move.
Have you ever considered going into the construction field? PA has scaled rates and you could get a pretty huge increase in pay by going that route. It’s pretty easy to get specialized too, equipment operator, etc. Again, locked in rates which can get your dollars up.
I would have to say going back to the original post, the numbers are spot on depending on where you live. In a HCOLA $300k doesn’t go far. Sure there are plenty of optional spending in there, 401ks, 529s, etc. However, if you are able to set yourself and family up for future success, you should do it. So, when you start breaking it down as FS has, you see that the money gets allocated quickly.
I just think that in a time such as this, with the internet, and apps and gigs etc available. Dog walking, law mowing, house sitting, etc. All the task rabbits, and similar jobs. Personal shoppers etc. I think with all of those options out there, that anyone not making $100k is by choice. Sure not every salary is going to get you there on the base, but you can stack a couple of them and get to the $100k, easy.
Anyway. good luck out there, hopefully your business works out.
** I suppose one alternative idea, is you could go the whole MMM route and similar and talk about your frugal life style. Maybe start a website, or write a book – who knows you could be raking it in while talking about how you balance life with a $1k budget per month.
I make $150k plus I have a company car. We are a single income family of five and live in Orange County, 3 miles from the beach and we are doing fine. I am 45, I have $500k in 401k, $50k in college savings $50k in cash. I am putting away 12% into 401k, $1000 into college funds every month and still have $10k left each year. Your standards is just too high and only the top 3 percent can make it. That’s no middle class.
This really just looks at big city living… That’s the crutch of the problem.
I live in a non big city. The mortgage is 1400, and day care is 7200 a year. My SO and I pull in over 140k together, soon to be 170k together.
Our total expenses in a month total less than $3700. Bring home is more than $7500 together. Thats with a $550 truck payment and $200 car payment, her student loans, day care, utility bills, etc etc.
A $4000 mortgage is kind of ridiculous.. Where we live we can get a 3500 sqft house on 5 acres for less than $2000 a month. Homeowners insurance is less than 1500 a year and property tax is less than 1500 year (all included on mortgage via escrow anyways)….
I work as a web developer pulling in six digits with a 30 minute commute to work and no traffic as I don’t work in a big city. My SO works in marketing making 50+k and on the rise in her career and on track to get to where I am eventually.
If you live in NYC, San Francisco, yeah I get these numbers, but the majority of the US population does not live in these areas.
I don’t understand the appeal to living in big cities. Everything is outrageously expensive. Traffic is absolutely insane. Air Quality is horrible… And for what, a good paying job?
I have a good paying job with affordable living and amazing work life balance and I live next to a national forest with great air quality and I get to look at mountain views on my way to work every day and there’s virtually no traffic in my way on my way there. I haven’t seen a traffic jam in years. And I still have every store you could want or need within 15 minutes of my house.
Yes, it’s about making more money and then saving more money and then investing more money so you can retire earlier and move to a lower cost area of the country. That’s what a lot of people want to do.
If you don’t mind me asking, what’s your current experience and background look like now? I’m an entry level web developer, mid-20s, single income family of four and I don’t have my degree. I entered this field because of the possibilities of a future similar to yours (based on your comment). How long did it take for you to get to your income?
As one who took issue with the couple “struggling” on $500K in Brooklyn, I actually think this analysis is pretty fair. I grew up in a mid-sized midwestern city and currently work in Manhattan, commuting from the suburbs. The thing I’d point out to the naysayers is that it’s not really how much you have, but what you’re able to do with it. I grew up in a nice and quiet tree-canopied neighborhood of brick homes, in a 3-bedroom home with a big yard that still only appraises at ~$120K, and getting anything comparable in size and neighborhood out here would be ~$500K minimum in the metro NYC suburbs I live in. And in Manhattan such doesn’t really exist, but in, say Brooklyn, you’d still be looking at at least $1MM.
Also, if anyone wants to actually retire in one of these coastal cities, planning to have bought and paid for a home is an important factor. You don’t want to be on the hook for $3K+ per month into perpetuity if you’re no longer earning income.
Overall, there seems to be a dynamic socially where people are pressured to become accustomed to less and less. (Saw an article about people renting bunk beds in SanFran for $1200/mo.) Even if most people only make $50K per year, all that means is that most people have to accept a lower standard of living in these areas than they would elsewhere or that more people enjoyed in the past. I’m more interested in figuring out how we can make a higher quality of life more accessible for people than in chastising people for trying to figure out what they need to do to maintain what in every other area of the country would easily be seen as a middle class existence (as in neither struggling nor luxurious).
Maybe live within your means…..
It sure is easier to do so now that I’ve moved from San Francisco to Milwaukee, Wisconsin. Gorgeous 2800 sq ft. waterfront condo with boat slip from tiny “luxury modern” 1000 sq foot closet with nice view in SF. Going out here is so affordable and there is so much to do; however, the best thing is it’s cheap and people are much much nicer. Loving it in the heartland.
I’m supporting a family of three on 56k and we aren’t starving or going without…you hit the nail on the head these new generations are just over spending over extending and credit living like no other I’ve ever seen..we have no credit cards no loans and aside from cable internet and cell service no extra added unnecessary expenses..if I brought in 300k at this point wouldn’t even have a mortgage as I’d just buy a place outright in two to three years..don’t need a mansion just 2bd an a bath.. financial samurai ha more like financial sumo as their out line is bloated with extras that are completely unnecessary….
Financial Sumo, that’s a good one! :)
Great job supporting a family of three and getting ahead financially. I definitely could not do that.
I also comfortably support a family on 48k. I’m single with 2 kids and a grandchild. We do live in a small town in Mi so that does factor in. I work full time and I do take a lunch to work. We rarely eat out but have a pizza night once a week. We work together as a family to keep cost down. There is no child care because with our work schedules someone is always available to watch Layla. We also go on a yearly vacation. We don’t have charge cards. I think it depends on what’s important to you . We do what’s important to us and we plan and save for it. It can be done it just depends on what you want. We don’t struggle but we have to budget and be careful with how we spend. It works well for us
I live in Michigan. I earn $53k and we’re a family of six and it’s hard. I have an MBA so I know that I should be earning more but I feel like I’m on a hamster wheel. Do you mind me asking what small town? I’m learning a lot from this blog. It’s inspired me but I’m always looking for more advice. Thank you.
I’ve lived on both ends of middle class which is a subjective concept. I grew up lower middle class and now my life is much closer to the budget posted by Financial Samurai. What is presented here is the top end of middle class. My friends and I don’t see ourselves as wealthy but objectively we are. Whereas most Americans can’t cover a $400 emergency, we can weather financial catastrophes in the tens or possibly hundreds of thousands. We can always cut back on our 401Ks, 529s, vacations, gym memberships, etc.
I think the point here is that people making $300K have a lot of “optional” expenses that lower middle class people would opt out of, but there are not a lot of extravagances. We’re not sailing around on our yachts or flying business/first class on our family vacations.
What separates us from the truly wealthy is that if we lost our day jobs for more than a few months or year, our lifestyle would dramatically change. Our collective wealth is not yet self-sustaining despite not being extravagant spenders.
This isn’t completely unreasonable for 2 kids – for 1 this feels far too high, with expenses amplified by likely $20k.
1. $10k a year into a 529 plan? UC cost of tuition is $140k over 10 years. With any reasonable returns, this is going to overfund the the 529 ~2x. $5k/year is sufficient if investment returns beat fee inflation by only 3%
2. Someone paying $23k of mortgage interest is going to itemize. On the other hand, your mortgage payments are extremely low for a place like the Bay Area, so if anything this is too low — all in I think the housing costs about are on par with downtown SF renting ($72k/year).
3. $8,400/year post-tax for health care for 3 is extremely high. I doubt most families would burn though an HSA’s annual contribution limit ($6,900) which is pre-tax federally anyway.
4. The childcare expenses are basically assuming a private nanny. This is about the costs until the kid can go to public school at which point it drops dramatically.
5. Car costs @ $9k are really high. You might not really need 2 cars if you live say in SF. Can realistically cut $5k off here.
$180k is easily doable, but you are living quite affluent if you are spending that kind of money. The type of life (still reasonably affluent) on the spreadsheet can be done for perhaps $150k.
Sam, great article as always. I don’t thing there is value in picking the details, but more in stating the obvious: the top 2 expenses in your life as reasonably well off wage earners are mortgage and taxes. If you take into account tax trends, like elimination of SALT deduction, gas tax increases going to general tax funds, congestion tax, attempts at local income tax, sales tax, etc, and review which states dip into the red and fight it with new taxes, along with housing costs, the answer is to move from the expensive locations. Your map of housing prices tells half the story. The same map of tax rates will tell the other half. Refusing or putting off the obvious and correct decision, when you have options, is the most expensive thing you will ever do.
I think this is still off base. 250k for a family of four will qualify you for public housing in Pali Alto. You need HHI of ~ 400k to live comfortably (buy a house, pay for day care & tuition, plus have money to invest)
This was an interesting read. I run an online business and earn $300,000+ per year in profits from home. I was scouted by a few companies in the Bay Area when I was a freelancer a few years ago to work in-house but I turned the jobs down. Both jobs were starting over $150,000.
I’m a 27 year old Canadian and earn 100% of my income in USD. I thought it’d be an interesting perspective to show how far the dollar can be stretched in low cost areas.
I grew up in a small city (100,000 people) on the East Coast of Canada. The wages where I’m from are very low in comparison to the Bay Area. Most people are very happy with a $50k salary here. A decent sized house costs $200,000 on average.
We purchased a 2200 sq/ft House within city limits for $107,000 and put $70,000 in renovations. We gutted it down to the studs, put all new black steel windows & dark grey wood siding, modern kitchen, all new floors, doors, walls, walk-in showers, completely finished basement, 400sq/ft deck & a 6 foot fence around our back yard. After the renovation, our house was appraised at $300,000 ($120,000 in equity). So a little bit of money goes a long way here. The same house in Vancouver or San Francisco might cost $2,000,000 or more.
Our monthly living expenses:
Mortgage: $950 (Including Property Taxes)
Heat / Electricity: $250
Internet: $100
Phone: $100
House Insurance: $70
Range Rover Evoque: $700
Car Insurance: $75
Gas: $250
Food: $1000 (My wife loves to cook and we only eat out rarely. We’d rather host)
—-
Total: $3495 Living Expenses AVG
Earnings: $320,000.00
After Corporate Tax: $272,000
Personal Take Home: $60,000.00
Left-over in corporate tax per year: $212,000 (most of this gets invested)
Typically though, we don’t save $212,000. Realistically I probably save about $170,000 per year.
We like to travel. So we typically spend about $30,000 per year on travel. Last year we went to Yosemite & Big Sur for 2 weeks, Toronto for 1 week, Newfoundland for a 2 week road trip and Mexico for 2 weeks. We also went on 2-3 weekend getaways.
We typically spend about 8-12 weeks travelling per year. In 2019 we plan on going on a bunch of week long trips throughout the year to Yukon, Iceland, Alberta, Utah, Mexico, Florida and some other weekend getaways.
We also plan on saving / investing $150,000 per year while travelling.
My point is, $300,000.00 is a lot of money where I’m from. I have some friends tell me that I should move to NYC, LA or SF. But to me I’d rather just be where my friends and family are. Plus, living in a low cost area is great. It’s extremely safe where I’m from. Barely any crime. I think we had 1 Murder in the last 5 years. The biggest annoyance is putting up with the winters. But sitting in a hot tub on the deck while it snows makes up for that. Summers are fantastic, I live by the ocean & beaches.
NYC, LA & SF are great places to visit. I have friends who live in large cities, so I go to visit a few times a year. But at the end of the day… They’re just going to work, watching Netflix, and living the same life that most other people live. People like to romanticize or glamourize large cities. To me, they are great spots to visit for a concert, comedian, or just staying for a 7-10 days to hangout. But I couldn’t live there. I find that cities are dirty and claustrophobic. NYC looks incredible, but also smells terrible and the interiors on some apartments are awful. I’ve seen $4000/month Manhattan apartments that make me laugh. It’s like throwing your money into the fire. A $4000/month mortgage where I’m from, would get you a private beachfront modern house with 20 acres of land and a 4 car garage.
In the end, everything becomes the new normal. NYC, LA, SF, might seem incredible for the first 2-3 months. Then, it’s just day-to-day stuff. Watching Netflix, Eating Take-out, going to the same coffee shop over and over. Going to and from work. Except, you’re paying a premium to do all of those things. As this article stated – you’re making $300,000 to live a pretty normal middle class life.
There is nothing wrong with normal things, like I listed above. I love TV, Coffee, Take-out, hanging out at home. But my wife and I do it for $3495 per month.
We work from home. Wake up when we want, go to sleep when we want. Travel on a whim. & save $150,000 per year. This is obviously a rare scenario as high incomes are usually achieved by living in a large city. But, a few years ago I almost took a remote position for $150,000 (starting salary) from a Bay Area company. One of my friends just moved home from a city and kept their job, now working remotely on the same salary as they had in Toronto. It can be done & it’s becoming more common.
I find it amusing that so many people feel the need to move to a certain location for tech jobs. There are tons of remote positions available in the tech industry. This allows you to be location independent and not fall into the trap of living in a high cost area.
This article shows that financial success is relative. Of course you’d feel broke if you make $300K per year and average houses cost $1-2M. Of course you’d feel like you’re middle class if all of your neighbours and friends have $300k salaries and you’re only saving a couple thousand per month. It’d be easy to feel like you’re average if you’re making $300k while knowing 5-6 people who are making $750K+.
To me, I would much rather live in a low cost area and travel regularly while saving fast for the future. NYC, Chicago, LA, SF are great vacations. But on the regular days, if I’m going to watch Netflix and eat take out, it’s going to cost $3495 per month (All-in) – Not $7000+ per month. I wouldn’t take advantage of living in a city like New York enough. I might spend the first 2 months exploring and going to events, but I’d eventually just end up at home doing exactly what I’m doing now… except pay a premium to live in a terrible apartment. So, I figured it’s smarter to just go on trips and keep those places exciting.
It’s all about how you want to live your life. Maybe, you like the city vibe. That’s fine. You’ll pay a premium for it. No judgement from me. I just wanted to share a different perspective, from somebody who would rather just visit a City and live in a smaller place with a much lower cost of living. The more free you are financially, the more free you are in general. The more free you are to travel or save for retirement. I’m not saving for retirement – I’m saving to make work optional. I love what I do. Retirement is for people who hate their jobs. But whatever your financial goals are – Living in a high cost area is slowing you down.
I know people who are living for $1000 a month, everything included, overseas in a nice condo on the beach working online. Everything is relative. You can either stretch your dollar and get the most for your money. Or overpay for everything and retire when you’re 67.
If you’re struggling to retire early earning $300,000 per year – you’re clearly drastically overpaying for everything in your life. Is your location alone worth $100K per year to you? If not, why not look into other areas? I feel like location has become a status symbol now. As if being middle class in Manhattan beats being completely financially free and being able to go / do whatever you want, whenever you want.
HSSS, what a great post! Thanks for sharing. What kind of online business do you have? I’m a lawyer in the San Francisco area, and dream of having more freedom!
Loved your post too! My husband had a big job in SF so he asked to work remotely and they said yes. Talk about a winning move. There were already 4-5 others on his team that were doing this and I think its becoming much more common in SF. It’s so true that we were living the everyday life there, waiting for the elevator that was always stuck in a brand new bundling paying $7K a month in rent for what? Visiting is great – we kept our vacation home near Tahoe so we can go back when we want. But so far (it’s summer) we haven’t wanted to! I was also an attorney in SF now I’m an attorney in Wis, making less but everything is less expensive, and I’m also working less hours….
Over the top. The vast majority of folks in this country do not make that kind of money, that includes college educated. No sense of cutting back and trying to be honest about wants and needs.
I looked at your expenses. I live in the Bay Area not San Francisco but in Fremont Area, House worth over a million. I took out the expenses I don’t have, like a mortgage, childcare, all the major expenses I don’t have and I came out just below 100k. I estimate my expenses to be 92k which was almost in line with yours (which includes 15k of travel).
Wrote a blog on how Texas is 15-20% cheaper than the Bay Area not counting housing. Would move there if I could take the kids. Unfortunately, can’t do that.
Do you think it’s because you and your wife are in your 60s and have vastly different expenses than households with families? Perhaps it’s because costs 30 years ago were much less?
How old are the kids?
One is 31 and 28. The 28 year old is in her second year of being an ER nurse. My son works for AT&T.. He and his wife struggle a lot more.
Thoughts on helping them financially given your $3.6M net worth excluding your house?
How do we decide when to help our kids and when not to when they are adults? This is something I’ve been thinking about now that I’m a dad.
Yes I plan to leave a sizeable inheritance (I hope they don’t read financial samurai lol) because like you I do not intend to touch principal during retirement.
I had my trust set up for them to get certain amount at different ages but now they are more responsible.
When to help our kids is a tough one. With my daughter I have helped her less because she has a high earning potential. She is still renting though. She works in Bakersfield but salaries are much less. She can double her salary in the Bay Area but as you well know houses are in the stratosphere. Her husband just got out of the military and plans to go to school so they only have one salary
My son we have helped a lot more. We helped him get into a house at the bottom of the housing crisis so his house has doubled in price but he doesn’t have the same educational level as my daughter.
So we often help them when they run into trouble. He works very hard and I see him struggle sometimes 10 hr days.
When you start saving you never realize you will be helping your children once they are gone. I am just fortunate (even with a disability) I have the resources to help them.
My wife says she would rather see the smiles on their faces while we are alive then when we are dead.
We also pay for vacations for them when we all go, and I like to be generous at Christmas time.
They are very appreciative.
How do I get to your blog?
Hi Sam,
I’ve been an avid reader of your blog over the years. Thank you for putting things in the right perspective with this post.
As someone who has lived in the Valley for over 10 years now, I can attest to the prohibitive cost of living. My husband and I work extremely long hours to pull in 300k + each and I don’t see how we could be comfortable on one salary here. We have one toddler and school and after-school care bites a little into our savings. That said, I certainly count my blessings and have come up with a plan to live off 80% of one salary and save the rest.
One thing you might want to factor into your calculation is school district. A typical (read decent) home in a good school district in the Bay Area costs nearly 2 million. And property taxes run up to 30k per year. We’re in the market for a new home (since my son will be starting elementary school next year) and I don’t see anything that costs 1.5 million that is decent sized, at a short distance from work or new enough.
I might sound entitled to some, but is it unrealistic to expect a decent standard of living or want a good life for your children after several years of hard work at school and after?
at the end of the day, you have to be incredibly stupid to keep “fighting” against the current just to live in SF or NYC… if you claim you travel and all your money is created by not working you should’ve figured out where to live like a millionaire anywhere in the US with $300k/year. complaining about it in a blog just to make ends meet seems pretty stupid to me.
at some point you have to use your noodle. even if you work for a living you should be able to figure it out anywhere in this great nation of ours… you shouldn’t be complaining about earning $300k/yr because you live in NYC or SF.
I’m definitely not that smart, which is why I write to learn from others.
Do you mind sharing something about yourself and providing some guidance? You seem very wise and have your stuff together. Thank you.
Great post! I think one part of your net income calculation is slightly off. In the GOP’s effort to make the tax code simpler (sarcasm) while it did increase the child tax credit to $2,000 the max refundable portion is $1,400 therefore no more than than should be added back to calculate net income.
If you try to keep your expenses within reason, such as:
-Auto Loan @8% of income
– Student Loans @10% of income
– Mortgage @28% of income
___________________________
Total @46% of your income is gobbled up here
You have not even eaten yet. Let alone pay for utilities, gas, food, clothes, vacation, etc.
I notice that the only debt is a mortgage and car payment. I have to assume that all other debt has therefore, been knocked out. That sounds great. However, if much of America (last I checked it was around 76%) living check to check, I just wonder if the people described are really putting aside the max in retirement accounts and have a 529 for the kiddies. With inflation hovering around 2-3% annually a family like this should really be able/want to save more than $375 per month or $4500 per year. It’s a shame that living on the coast costs so much.
From what I have read you need to save at least 20% of your income to be able to retire one day, which this couple is in 401k/529 accounts, but they will be more house rich, cash poor. Since the 401k and 529 is not easily liquid how will they afford to pay for the what if’s in life? Like when junior needs braces for $8k or the Volvo needs a new engine for $11k. That wipes out the $4500 cash flow for just 1 item. If they are actually banking that money every year, then it’s great. However, if they decide to buy a vacation home, send the kids to private school, or certain other purchases could push them into using credit and possibly scaling back 401k/529/savings contributions.
I also notice the more prestigious the job title usually the more expensive the neighborhood the family may live in. Then they want the Range in the driveway to keep up with the neighbors, the gardener to keep up with the curb appeal set by the HOa, etc. etc…
And gentrification may push housing through the roof! Making your $300k feel like $75k. Ugh!
The jobs may pay well, but the expenses tend to go up exponentially. It also negates the extra pay. As you say, this is a sad story indeed.
Well, all I have to say is that I’m glad I live in a more sensible part of the country then. Our family of 4 monthly budget is around $6K. And $800-1000 of that goes to charity because it’s a lot of fun to give it away. My truck and the wife’s SUV are both paid for and the combined insurance is less than $1200/yr. We spend less than $3K/yr on gas because work, school and play are all within 10 miles of our house. Our mortgage is less than $100K on a $400K home. We contribute to the retirement accounts, my brokerage account, and the 529 college accounts. We try to plan a nice vacation every year with some side trips here and there within the region, spending between $3-4K. We have a net worth that ranks in the 80th percentile nationally. And oh BTW, last year (2017) was the first time our combined gross income cracked 100K…. So $300K is NOT necessary to live a comfortable middle class lifestyle in the more sensible parts of the country… and the biggest perk… LESS STRESS! That’s priceless.
300k minus taxes, deductions and your take home 12-13k per month. About 1/2.
In the time it takes for a Ceo to go to the restroom they make that much. Many make in one year what people don’t make in an entire life of working .maybe they deserve it, and glad we live in a land where people can really excel .
In my mind 300k is a decent living. No you aren’t flying jets wherever you go, but you can live comfortably and meet your obligations.
No Ebenezer 300k is not excessive , it’s middle class.
300k is not excessive, but by definition, it’s not in the “middle”. Not even in the Bay Area. Median family income in the Bay Area is something like $120k. So if you take middle to be +-25% from the median, you won’t have families making $300k in that class. And of course in the majority of the US 300k is top 2%.
Don’t confuse middle class income with middle-class lifestyle. If you have a middle-class income Of $120,000, it is extremely difficult to afford a medium priced home of $1.5 million and raise kids.
Family with 4 kids. Midwest. 3000 ft home. Newer cars. 2weeks of vacation.
401k savings, paid for kids college. Over many years went from 15k to 300k in pay . Expenses rise up to meet income.
No vacation home, no toys . No country club. I consider myself middle class. Kids went to good schools , all of which are public. Neighbors college educated. Engineers to business owners and executives. 300k is not rich in my mind. It’s a level where you aren’t struggling to pay your bills . Have health insurance . Suburban life in the Midwest. Seems like unexpected bills always arise, and updates to your home etc.
…Expenses rise up to meet income…
You nailed it. Let me rephrase this, “We allowed our expenses to increase with our income” This is the root of the entire debate, IMO. Families that controlled expenses, banking increases see ther 300k as the high life. Whereas, the families that allowed their expenses to increase with income have slowly increased their wants and expectations making 300k, meh.
So maybe you start out with a used car. You keep it 10 years. You have one car. Then you splurge and buy a new Ford. Later you have two new cars. The kids need cars and you get something for them.
Same thing occurs with Houses etc.
you could refrain and sock every dollar away. That’s your choice.
Can you live below your means, sure.
It comes back to what is middle class.
I could survive on less than 300k. Plenty do.
Is education important? Well it varies by where you live. Better live in a more affluent area because that’s where the best schools are located. College costs money, are you going to educate your children or saddle them with an anchor around their necks when they start out.
You going to live on social security in retirement? Or do you want to maintain your lifestyle in retirement .
You want to drive an old clunker, deal with breakdowns and repairs .
I grew up modestly with parents that grew up on the depression. They were frugal and never on the government dole, as they called it. My parents didn’t make what I do today . They were middle class.
I enjoy a better life financially. But I think I am solidly in the middle class.
In my opinion the middle class is eroding because incomes for many are not keeping up. More are poor. They have downgraded their own view of what is middle Class life.
Decent home•
Healthcare•
Savings•
Retirement money•
Decent education •
College education•
Vacation•
Decent clothing•
Financial security•
Life insurance•
Home maintained•
Not living paycheck to paycheck
Kids sports and activities •
Food on the table •
Going out to restaurants •
Decent quality of goods you buy •
Both parents working• wasn’t always necessary in the past•
Sam, I’m re-reading this article again (it’s April 2019), the scarry truth is, these numbers start to align more and more in Seattle. Ordinary 3/2 house in good area starts to fetch $1M, thus the mortgage item aligns.
Child care is expensive too. Even our food budget for a family of 3 (with 1yr old son) is more than $1,200/Mo and we don’t eat at expensive restaurants a lot (we do buy organics products for our son).
I earn ~$250k/yr in tech. We drive paid off, older Japanese car. But the $300k budget above starts to become reality for middle class in here too.
While I agree with you on a few points, I disagree with you on many others.
First, I live in the northeast(coast) and $300,000 is not a middle class salary. It is higher and yes, our taxes and costs are high. Most people I know earn about $100,000 a year. That’s middle class, with two incomes.
Second, many of the expenses you cite are elective, as in vacations and recreational choices. So, many of us do not spend our hard earned $$ as you describe. Life is about priorities and smart financial choices. Your portrayal does not describe most.
We (2+2) live in a nice town in Bay Area with ~1.5 jobs and make about this a year. After taxes ~ $15k, but our “free cash flow” that we save and invest mainly in SP500 index funds is about ~6k a month. Some things that we do much cheaper: 1) We don’t have a mortgage but rent a really nice house for $3500/mo, so obviously no maintenance or prop tax. 2) We rarely eat out so food is less than $1000/mo 3) Our two Japanese cars are also ~6-7 yr old (paid in cash) so there are no monthly payments. 4) And $500/mo on clothes??! It’s California.. t-shirts and jeans/shorts is all we need, so maybe $150/mo. 5) We don’t do much entertainment either, so a couple hundred there a month. 6) And as we have really flexible schedules our childcare costs are about $800/mo. We lived as well when we were making $150k/yr, but obviously not saving anything.
This is how it goes. Your manager says Your getting a 2% raise. So aren’t you happy your getting an extra $800 annually. Oh but your healthcare insurance just went up, so don’t expect much in your paycheck . Press just announced your Ceo’s pay increase is 30%, and on list of highest paid executives.
The government does nothing to control the slave labor coming from South America. Largely they talk and talk and nothing ever happens. Republican and Democrats alike. Because the rich don’t want them to do anything .
Then in the guise of the law of comparative advantage they flood the country with goods from foreign countries . All the while the Fortune 500 benefitting from the effect on earnings. Ceo wins , stockholders win, but your neighbor is broke. Look at some of our cities. It’s disgraceful
I am a lifelong republican , grew up republican and conservative . I always believed in our great country and that through hard work and sacfrifice one could better ones life.
Our country worked because all shared.
Our country worked because people thought they had a voice.
Look at the sacrifice of our people in the wars, look at how they stood up. Proud of their country, proud of our ideals.
Too whom much is given, much is expected . Spread the wealth.
Your numbers don’t seem that far off to me in most categories. I pay $1,300 a month for full-time pre-school for my one son, $3,100 a month on my mortgage so those two expenses eat up most of our salary real quick. We have lived in Denver almost 20 years and are cashing out this month and moving back to the Midwest. We’ve loved our time here but it’s time for a change and this move will allow for much more freedom in our lives. The Denver market may continue it’s rapid growth but we are taking the money and running while we can.
Which is why the “democrats” are working so hard to convince you that you are all “privileged” anyways and don’t have any right to complain. They need you to feel too guilty to stand up for their destruction of the middle class.
I don’t see a single sacrifice in there at all. That is living very comfortably at all levels. I think $15K/yr on recreation and vacation is a bit extravagant. $1K/mo on clothes and baby seems rather high to me.
Corporate MBA definition of middle class -broke. Small home, 10 year old car. Social security for retirement . Kids borrowing for college. No vacation. Scrapping by to make ends meet. Both parents toiling away. Fear of losing job.
That’s not middle class. Frankly the middle class seems to be eroding away.
Sorry to sound jaded, but look around you. We are increasingly moving toward a rich and poor society . The middle class
Sadly seems to be going away. Our country was great because all shared in the wealth . Not just the few. You might not have been rich , but you didn’t struggle like people do today . 300k is not excessive even in the Midwest.
This is absolutely right. Sadly this is right and society evolving into two classes. Haves and have nots. Obviously those that are on this site are likely more educated on financial issues and likely higher earners. But next time you’re at the airport or a public place look around…love the comments
Saving for children’s college. Home maintenance, remodeling etc. I live in Midwest and have 4 children. I think 150k is very low. 300 would put you at comfortable and not living the high life.
Sam,
Your site is peerless and one of the few sane, informative places left on the blogosphere.
I wanted to shed light on why people have such emotional reactions to your “middle class” or income based articles which non of the 300+ comments seem to quite capture.
The issue is not about differing lifestyle or cost-of-living strategies, rather its a visceral envy; they know its actually is quite difficult to make $300k for a family even in NY/SF/coastal metro.
I graduated an Ivy MBA program 5 years ago.
In my class of 200, ~100 went into consulting or finance. Five years later, only about 25 are still at a top consultancy or bulge bracket/PE firm. That means only 13% of the my elite (using that term relatively, I’m by no means anything special) class are still on track to be conventionally ultra-high earners.
Passive income, smart investing etc. are the true ways to establishing wealth but most people are delusional and hope to just go into the office and get a fat paycheck every 2 weeks.
Going back to my class, only 25 people will be partners or managing directors making the real $500k+ paycheck year in, year out. What’s left is a of people toiling at the corporate wheel to hit $175-200k. Very few couples can maintain the dual-income high earning commitment once kids get into the picture and are thus 1 income. I guarantee this scenario describes countless law school grads as well.
Some readers take your advice and start their own business, do rental property etc. but I guarantee, most are just looking around at high earners green with envy (like your old golfing friend!).
Anyway, sorry for the rant but no one had said the obvious and wanted you to know. Keep up the good work!
While you have touched on numerous salient points, you have no clue what you’re talking about when it comes to “middle class.” The people in the middle class do not spend $6k/yr on clothing, $8k on vacations, waste several thousand on food, nor drive a $50k luxury SUV. A middle class family has to make choices on where to spend and where to cut. They don’t say, “Hey, I’m blowing 8k on a 3 week mega vacation” and it just magically happens. They’ve had to spend their money to make ends meet so do something local, or some camping, or whatever other cheap alternative they can come up with. You have a baby and you’re going to do everything you can to protect him/her? If you’re middle class and that’s your mindset, then you’re buying a used Explorer or CRV at best. And you’re not having someone deliver your food to you every night, you suck it up and loose family time because you just can’t afford to do it any other way.
Just because you need $300k/yr to make your life of luxury work for you doesn’t suddenly mean you are somehow middle class. My household income puts us solidly in upper class (top 10%ish range) and we don’t spend anywhere NEAR what you suggest for most of these line items. Now if you want to say that it costs 300k to live comfortably (I’d argue very luxuriously), then that’s arguable. To somehow claim that this is “middle class” just makes this all nonsense.
And if you were paying ~$600/month on $40k in student loans then your interest rates were over 13%. That doesn’t add up either unless you were financing it irresponsibly.
I am having trouble rationalizing this relative to actual income statistics. Based on US Census data, the median HH income in NYC is 53k and the 95th percentile of NYC households earn 240k. By stating 300k is needed to be middle class, you are implying that 95% of the population in NYC are below middle class, or lower class. You also imply that the middle class makes up less than 5% of the population in NYC (the 95% – 100% of HHs by income). That doesn’t seem to be at all ‘middle’ to me. Can you please define what you mean exactly when you state ‘middle class’?
Thanks!
https://statisticalatlas.com/place/New-York/New-York/Household-Income
This article is also seen on CNBC website. Way to go, Sam!!
Whoo hoo! Patting myself on the back before heading off to see my foster care mentee.
http://www.foxnews.com/politics/2018/04/26/gops-salt-cap-may-speed-exodus-from-high-tax-states-report-says.html
And another.
“As the migration speeds up, it will raise real-estate values in low-tax states and hurt them in high-tax states,” the authors add.
Ahhhh, my thesis of investing in the heartland is going more mainstream!
https://nypost.com/2018/04/25/ex-new-yorkers-are-flocking-to-this-midwest-sanctuary/
Article on folks flocking to the Midwest from NYC>
I am self employed, live in the Midwest with a little over a $300k self-employed income. I did a spreadsheet inline with what you had laid out Id be happy to email it to you and collaborate on an article about living in the midwest living if you are interested.
It is much cheaper to live in the heartland but at the end of the day money come and money go – especially when you have kids and hobbies :)
I max out the sep IRA every year, live in a modest home with a pool and on acreage. Life is good in the heartlands. We have 2 kids and my wife is able to stay at home but we still like the development social aspect of daycare so our oldest son goes a few days a week.
Its a good article but what these articles always leave out is the time cost of quality of life for your years on this earth. I work a civil servant “middle class” job but I do in the middle of the country. I commute 15 minutes a day in a metropolitan area. I can live in a 5 bedroom house and afford it on a two parent working salary. But I’m not always stressed out with the cost of living and the over crowded SF city like area. I’m two hours from the mountains, the beach, or D.C. but I can come home from work and actually enjoy raising my kids in the neighborhood we live in. I actually have time to spend on the things that matter. Maybe those coastal cities are fun when you are single and just starting out but when you have a wife and kids, and don’t want to pay for private school (you want your taxes to just pay for the school you live at) and want a safe neighborhood that is not an ultra-wealth gated community, you got to move away from the left coasts.
Yeah I get this budget it hits close to home. NYC suburbs, housing is expensive but even more so is property taxes I pay almost 40k in property tax, so my housing expense is 80K before talking about maintenance, utilities, etc. So basically my big cost driver is 100k in housing expense, childcare, commuting costs, and insane insurance costs(car, house, liability, jewlery is 9k for me) everything else is pretty much in line with the rest of the country. I’m cheap so at the end of the day I can save 50k hard cash plus the 401k max(with company match it’s 50k for the 2 of us), I have a 2 bedroom condo on the hudson river that has no cash flow but is on a 15 yr mortgage being paid down by my tenant so I make 20k per year in principal. But yeah food costs are high we both work and commute, and daycare is very expensive, healthcare is also a killer it’s not only the premiums but the fact that you need to spend 6k before your insurer really picks anything up.
Here is what my P&L looks like at $300k (which is very close to my 2018 total – next year higher), rounded to nearest $1k
Income – $300k
Taxes – $70k
401k + Def Comp – $30k
Healthcare – $5k
Housing (all related) – $25k
Cars (2x, with ins/tax/gas) – $17k
Food/Bev – $20k (yeah, we like to eat out)
Vacations (3-4x intl) – $12k (usually 1-2x to Europe, 2x Carib)
Life Insurance – $1k
Household Items – $3k
Student Loans – $6k
Clothes/etc (90% wife) – $8k
Other -$10k (gifts, entertainment, etc)
Net Savings $93k
This is a controversial post! I live in Toronto and I feel the 150 per person is only necessary if you’re maintaining both a high savings AND spending percentage. At this time my focus is more on saving so the spending is more restricted.
But I think what the point of this post was to depict a salary where you don’t have to struggle day to day. For that, I would consider 150 k a person to be a good fit, even in CAD. Certainly you can make do with much less however.
My wife and I live in the small-to-medium sized midwestern college town (a very blue town in an otherwise red state, the latter of which sucks) in which we went to school, loved it, were fortunate to get well-paying jobs we loved here and never left. We’re what James McMurtry sings about in his song, I’m not from here.:
I’m not from here
But people tell me, it’s not like it used to be
They say I should’ve been here, back about ten years
Before it got ruined by folks like me
She worked for a giant telecom company and I worked in the physics department of the university. Together we always made a six figure income – in a town where a family of four could live a pretty nice life on $50K – and have owned all our own homes since we married a few years after school. We’re in our third house now, a 2,800 sq ft ranch on 3/4 acre in a nice neighborhood half a mile from the edge of campus that has been paid for for ten years.
We put our two boys through college as far as they were willing to go (one with a post grad degree and one who did not finish his undergraduate studies) and we retired early; she at 56 and me at 57. We each had six weeks of vacation for most of our working years and took the boys on many theme park, beach, desert and mountain vacations and even to Europe. We spent a year overseas while I was on sabbatical and my wife and newborn oldest son were able to join me because of her company’e generous maternity leave program.
I coached youth sports, including four years of youth football, five years of basketball and twelve years of baseball; from Little League T-ball through Babe Ruth. As well as typical family vacations, we also spent a couple of weeks every summer traveling to all-star baseball tournaments. Those were some of the best times ever!
Because of our busy schedule with work and kids (and their myriad activities) we dined out a lot, but once the stable life developed when the boys were older we cut back on that behavior and it’s hard to believe how much money you can burn along with all those excessive calories! My wife kept track of every penny we spent with her own spreadsheet and when we decided in our early forties that we wanted to retire early, we started cutting back on a lot of other non-essential items, like the ~$400 per month we were spending at the book store, and similar amount for wine and spirits. I also stopped upgrading my beloved BMW motorcycles every year or two. :(
We had always been good at tucking extra cash away but since we both had decent pensions to look forward too, we weren’t fanatical about saving. But by deciding to retire early, we knew wouldn’t have SS to supplement the pensions for some years, so the savings plan picked up speed. Plus, we had a few windfalls that most folks aren’t lucky enough to enjoy. On top of my regular job I picked up some extra work on the side helping out a large Internet company for four years, and put about $250K away from that. Plus, I owned a popular enthusiast website which generated an extra $25K – $50K a year for a number of years (most of which I invested), and I eventually sold it for $250K. So before we were fifty my wife and I had already built a solid and fast-growing portfolio.
Although she didn’t expect to get out quite as early as age 56, in an effort to shed older, more costly employees, my wife’s company offered her a lump-sum early retirement supplemental income package (SIP) of nearly seven figures in lieu of a monthly pension, and along with a $180K 401(k), she (we) were giddy with delight!
I’m a year and a half younger than my wife and – feeling we had secured some measure of financial independence – planned on retiring at age 56 as well. However, the only other person in the world who was familiar with my systems (strange, one of a kind nuclear physics apparatus) took a position with another lab, and not being one to leave my own lab in a lurch, I stuck around for an extra year, training others on my equipment and writing over 800 pages of technical documentation for that as well as for a SQL database for which I was responsible.
Also, at about the time I was ready to retire I was struck with an unusual physical disability that, although not life-threatening or limiting in mobility, does interfere with some of the activities I used to enjoy. The Social Security Administration agreed that I am indeed disabled and therefore granted me SSD. We would do perfectly well financially without that income, and I would be especially grateful to not be disabled as I am, but coupled with my pension, it has afforded my wife and I the luxury of not touching our investment portfolio, which has allowed it to experience significant growth over the past seven years (I am now 61 and my wife is 63). Our financial adviser just last year insisted that we begin to withdraw monies from our account (we’d be forced to do so at age 70 anyway) and we have taken his advise although it’s not making much of a difference in our quality of life. We’ve both always been able to afford to drive late model cars (my wife owns a 2018 Volvo XC90 Hybrid – haha, Sam!) and I just bought a new Audi Q5 SUV. The difference between now and ten years ago? We paid cash for the new cars.
Thank you for your financial advice and everything else you provide to your readers, Sam. Good luck with your long, long retirement!
Sam,
Love your blog but I think this post is way too generic. A middle class income and mortgage in San Fran is crazy different than in Cleveland, Indy, Pittsburgh, Detroit, Columbus, etc. There aren’t any “middle class” families in the Cleveland area that are paying over 2,000/month for their mortgage. Most of my friends live in houses valued from 200-350k. Depending on the suburb. 350k can get you a pretty decent home. A $3,000/month mortgage in this neck of the woods is almost unheard of unless you are a doctor, attorney, etc. that is at minimum income statement affluent.
Again, I love your blog and learn something every time I read it. I appreciate your perspective. I just think you’re comparing apples and oranges here however. Your numbers are probably right for crazy places like Cali where you pay loads for something of no value. But who wants to live in Cali anymore anyways? The taxes, home values, and traffic are terrible. I know several affluent people moving to NV and TX to get out of there.
Thank you as always for such a thoughtful post.
Sure, no problem. If you would like to write a post about the middle-class lifestyle in Cleveland and those other cities I welcome it! Thanks for sharing and helping diversify the content on the site. Please share your background and expenses. Thanks
I agree with this point. I live on the east coast, but most cities are no where near as expensive as NYC or San Francisco. For the median reader $300,000 per year is going to be solidly middle class or better.
Sam’s definitely really close on his call that 300K/year is middle class. I personally consider this the lower end of upper middle class, but again it depends on where one lives. The government wants people to believe that if a family of 4 makes 50K, they are middle class. This is absolutely false! Don’t let the mass media and government try to fool you. 125K in the midwest is middle class. 225K-250K is upper middle class. 500K+ is upper class.
Again, a great point that Sam makes is that lifestyle needs to be factored in along with income to better define class. In my opinion, there are some line items in Sam’s budget that seem high at first glance, but someone from SF at a similar income level should really submit their financial profile for comparison.
I will submit my midwest budget and we will see where it lands!
Living in NJ, I find these expenses to actually be on point or if anything too low. They do not include a 2nd car for the other spouse (5k per year) and once you have a 2nd or 3rd kid in the equation you will still have the childcare expense plus school payments for an older child of 5k-15k per year. Add in another 5k of summer camp each year and birthday parties for ones own kids as well as friends kids + holiday hosting and associated presents (5k/year).
In the end though the typical family that would be identified above would find themselves being in their 50’s with a fully paid off 1.5 million dollar house (in todays dollars) and several million in 401k (which I suppose would not make them middle class in retirement). So perhaps struggling a bit now but very much ok/”rich” in retirement.
The anger in many of these posts are ridiculous.
The bottom line? It should be to work hard, be frugal, find ways to enjoy life with your family, and consider ways to retire well. If it takes $300,000 to be middle class and attain these basics on the coasts, then I have no problem with them being middle class.
I was upper class in a third world country, and now I am making over 8 times my annual salary here in the U.S. versus the third world country, with lower capacity to take vacation and travel. It is a choice to be made.
The vacation expense is way too low IMO if you have to fly somewhere. Living in NYC doesn’t allow that in February…
Hey Sam-
It’s interesting how so many of the comments get frustrated with 300k as a middle class benchmark because it’s higher than what middle class technically is.
I think what you’re basically getting at (which is exactly how I feel), is that making 300k allows you to be comfortable and save some $$. A lot of successful people consider being comfortable and saving some $$ “middle class” even though it isn’t. They would consider people who sold companies and made millions, make over 1M a year at their jobs, or inherited a ton of money to be wealthy.
I’m in the top 2 percent of income earners for people my age, and top 1 percent in terms of savings. But I don’t feel upper class at all. I feel like I’m just grinding away trying to save as much money as I can. I know I’m wrong but it’s just how I feel. It’s interesting how comparing yourself to other people can make you feel.
I live in San Jose California and we make close to 300 K a year. I would consider myself upper middle class in the way we live and toys I have. We also save close to 200 K a year after the expenses are paid. We do not have children so I guess that makes up for many thousands of dollars and serious amount of free time. Moved here 10 years ago and have Less than 20% of the house to pay off. I feel a lot of Sam’s so called expenses are really true luxury and not anything resembling middle class lifestyle. If you choose to live small when it comes to housing, restaurants, and automobiles your paycheck will be going into investments instead of wasteful spending.
Saving $200,000 a year after paying taxes that’s quite impressive. Do you guys live rent free? Please share your expenses so other people can learn how to save such a high percentage of their after-tax income. As you can see from this example, the after-tax and after retirement contribution leaves this household with less than $200,000. Thanks
You don’t pay taxes? Making $300k in San Jose is less than $200k after taxes. And no matter how frugal you are, you need at least $50k/yr for living and expenses for two.
Dang!! $300K? In Hawaii, not many households even make half of that amount.
I think the mortgage number is a little off or there is a huge assumption about a down payment. Your property tax is based on a 1.5 million house. If one puts 20% down, the mortgage is $5700/mo on a 30 year amortization at 4%. That is substantially higher than the $3900 figure you mentioned.
Are you suggesting this family put $600,000 down on the house? If so, then the parents must have been saving for a LONG time or had help.
Even if the savings was done before children, that would be, at best, another $50,000 a year towards a down payment.
What am I missing?
Sure. They bought earlier at a lower price and saw the value of the house rise.
But there is no doubt parental help is strong for buying property in expensive cities.
See: https://www.financialsamurai.com/a-massive-generational-wealth-transfer-is-why-everything-will-be-ok/
Perhaps a more accurate title for the article needs to be “Why Households Need To Earn $300,000 A Year To Live A Middle Class Lifestyle SEVEN TO TEN YEARS AGO”.
In other words, if a young couple who is renting decides to invest in property TODAY, they would need nearly $2,000 additional per month to cover the property. Maybe you need to change the middle class threshold to $350,000!
By the way, I’m not knocking your premise AT ALL. I’m in an east coast suburb, 850k house with a 650k mortgage. I don’t have kids (yet) and our monthly spend is around $11,000 not including contributions to retirement accounts.
Our income is around $400,000
> But there is no doubt parental help is strong for buying property in expensive cities.
Cite?
And the plural of anecdote is not ‘data’.
> Sure. They bought earlier at a lower price and saw the value of the house rise.
Oh, great, so they took out a loan of almost $1 million with minimal money down?
They ‘need $300,000 to live middle class’ is only because your hypothetical family was astoundingly stupid with their money.
Turning a $200,000 down payment on a $1.2 million house, into $500,000 + the principal paydown over several years isn’t too shabby. I’d take it.
How much has your $300K house increased over the past several years?
Nice to see you respond with derision to people questioning your example.
In your ‘example’ your couple took out essentially a million dollars in debt for the house and car with – as your example shows – essentially zero leeway in their budget. That’s one job layoff, medical emergency or real estate crash (pretty sure it’s happened before) from total financial disaster.
I’ll repeat – the reason your family ‘needs’ $300,000 is because it’s an example of a family being incredibly stupid with their money.
> How much has your $300K house increased over the past several years?
Completely irrelevant to the point at hand, but since you asked, roughly 10% over the past two years. And I don’t owe a dime on it. Thanks for asking.
A $27,000 gain in two years on your home is great! Not sure where you think this derision is coming from. Just look at your initial comment. Making a $300K gain is pretty good and I think many people would take it too.
I think the key to happiness is minimizing the comparison of one’s situation with others. Be happy you paid cash. No need to say someone who took out a mortgage is “astoundingly stupid.” Be happy with your $27,000 gain in two years. No need to say someone who made 11X more in the same timeframe is a fool.
$6,000 spent on some clothes? Good grief! That would be insane. Imagine how many hours somebody would have to spend shopping to bring home $6,000 worth of clothes. Wandering about in stores and spending money is not a productive use of valuable time. In just 5 years they would amass $30,000 worth of clothes. Furthermore, where would they store all of that? Will they be renting a warehouse?
I think the $6,000 is for 3 people. Just to put it in a little perspective, you don’t necessarily have more clothes with a bigger budget, just better quality. High quality classic clothing lasts and looks great for a very long time. I have some things 20-30 years old and they are still cool. Some people would spend that on kitchen appliances or sports equipment but I prefer clothing. It can be time consuming to shop, but I have 3 favourite stores and buy 2-3 times a year. I am looking for specific items that I have wanted for awhile, not just wandering around in malls buying random items on impulse. As for storage, I don’t have a lot of items or closets, and I cull regularly for charity, so my closets and drawers are not stuffed and I wear everything, and most of it for many years. There have been years (e.g. big mortgage, no job) when I stretched every dollar, bought cheaper clothes and wore one pair of jeans and 5 tee shirts, and that was okay too.
I’d say that the numbers are about right, obviously its more on the higher end of middle class for San Francisco. If you put the numbers in any cost of living comparison calculator, it makes sense. I’ve lived in Manhattan for over 10 years prior to living in Indianapolis, and I ‘d say a family of 4 in Manhattan would need about 400k to be upper middle class.(That income level you should be able to afford 2 million dollar apartment, nothing luxurious) In Indianapolis it is about 150k. (Which would allow a 700k house, which is not a mansion in Indianapolis but nice upper middle class house) When I put these numbers in the cost of living calculator it actually is almost exact. For example compare Indy to San Fran, if you made 300k in San Fran, you would need only 150k in Indy for same lifestyle. I think the point is making 300k in San Fran or 400k In NYC your not considered rich by any means for a family of 4. Now if your single and making that much then your having a grand time.
The numbers seem about right, but that’s why I’m glad I took your advice when first starting to follow the site. “You need less than you think to retire.” Still retooling while I figure some things out, but the single best decision we made was to get a 10 year mortgage in 2001 for the co-op that has tripled in value. We can live on one income in Brooklyn for 1/3 of that and still have access to everything. I’ve seen this city radically change with a lot of foreign money and mass gentrification in every corner of the city. I think passive income development in the midwest is a good idea, but I think the “flip-up” strategy that some people mention could remain flat for an extend period of time.
Wow!
Late to comment, but have a few thoughts: Geo-Arbitrage (love that term) is alive and well in our home. My husband is an MD, and we live in western NY. Although we do pay HIGH NY state taxes, as well as extremely high real estate taxes ($10,000 for a home assessed at $325,000), the actual cost of homes is relatively inexpensive here. Utilities are also reasonable, as well as auto and home insurance, entertainment, maintenance services, etc. Our home is 2,800 sq. feet, on 1/3 acre, 4 bedroom/2.5 bath. We have lived in it for 30 years. Just recently have home values begun to increase. Because they had been basically flat for 25 years, our area did not suffer in the 2009 real estate downturn. My husband earns a very decent salary (probably comparable to what an MD would earn in a large coastal city) and we live cheaply. He grew up here and we loved raising our family here. The schools are top notch, and my boys attended Ivy League colleges.
Being from the tri-state nyc area, and having a son and sister living there, I think your numbers are on target. So I guess we are lucky to have been able to avoid the rat race and live an upper class life. We can get to Toronto and NY fairly easily, so we have enjoyed the best of both worlds. Not sure where we will go in retirement, but I have a feeling we will at least keep a small home here, and maybe leave for the winters. To be decided.
We’re probably neighbors. A number of people rag on Western NY–“Can’t wait to leave”, but what they don’t understand is how much we have here. At this very moment there is a developer selling brand new 4 bedroom homes on 1/4 acre lots starting in the high 200’s in one of the best school districts in the state (and ranks well nationally–97% high school graduation rate). That house is 5 minutes from the interstates, 15 min from the airport. Tons of colleges around here and unemployment is low as well. A million people in the greater area but no major traffic problems.
But, the area is not “sexy”, so people instead grind out an existence with $6k mortgage payments, living on top of each other, in a 1200 square foot living space in a big city like NYC.
Ditto others’ comments on the heartland being more appealing in this scenario. I lived in Singapore for 5 years (consistently ranked no 1 in total cost of living worldwide) and came away from that (pricey) experience telling myself I will never live in a high COL area again if given the choice.
It’s incredible how many people in other countries have no choice but to live in their country’s high cost of living areas due to various factors outside their control. Geo-arbitrage is truly one of the mightiest tools in the US that MANY people elsewhere simply do not have, or not to the same degree.
Some people are forced to go where the work is, but is the quality of life in the expensive coastal cities so great to offset the total life cost? I’ve seen that lifestyle and for me it’s simply not worth it. The number of life options given to me in a lower cost of living area far outweigh the downsides, in my view. If I reach financial independence far faster living in flyover country for a few years, I can then spend my time visiting expensive areas and enjoying their amenities…
If you’re willing to slum it a little, living in a not-so-nice neighborhood can save money.
I bought a home in East San Jose in 2010, still close to the bottom of the market. We are not in Evergreen, which is where the upper middle class types live; we’re a few miles south.
Given living in a poor school district, there is an after-school program that both my kindergartener and second grader qualify for. They go into it directly after school program for free, although we have to pay about ~$70/mo for the 1.5 hours D5 gets out a little earlier, they watch her on campus. We pick them up at 6PM. I estimate this saves us ~$1200/mo in child care expenses.
There is also a summer robotics “camp” in the same district. It is 7 weeks and costs $4.50/day, and it includes meals.
Another interesting thing is that their primary school is the first in the county to put all children on and “all kids go to college” track, starting in Transitional Kindergarten. The Asian kids in the Evergreen district don’t have to worry about that since their parents will make sure they all go to college (*wink*) but for the rest of us, it’s an interesting program.
I make in the $120k-130k range (depending upon bonus and whatever stock I liquidate each year), pay some child support, and do just fine here. I anticipate paying off my home in about 10 years, after which I either retire, or have the liquidity to pay for my kids’ college. I only put $150/mo into their 529s (I originally put $100/mo for every month since they were born, but increased it this month), which will pay for tuition at a local college if they choose to live at home. My thinking at this point is that they need to take ownership of the funds I’ve set aside for them. If they choose to blow it trying to go out of state, good luck to them. If they choose to take AP courses and/or get their AA/AS in high school in order to eliminate time at a 2 year or minimize time at a 4 year college, then even better.
Sam – I thought I did with my link to the AP article and the stats from the last recession. For 99% of people in the world, there are 2 keys to success:
1. Resilience
2. Education
Sure, if you are born a billionaires kid you probably don’t need either to get by. From my experience though, a large majority needs both. A vast minority does not need education but the earnings statistics prove the value of a college education. There are problems on the cost side. That is clear. For me to have to spend $165K for 4 years of Penn State (all on the main campus though) is incredible.
Hi Sam,
Could you elaborate on your decision to save $700/month in a 529 plan? I’m investing a similar amount for my two children and was wondering what your thought process was behind that amount.
Thanks,
JM
I superfunded my son’s 529 plan in 2017 to the tune of $70,000. Then my wife is contributing $15,000 (max) for 2018, and the max each year until the plan is maxed out. We did it this way b/c we felt that the market was a little toppy at the end of 2017 and we didn’t want to use all our bullets.
Related: Everything To Know About The 529 College Savings Plan
JM,
I base our 529 level based off the max state tax deductible amount. In our state (VA) this is $8k. Each parent can deduct $4k per child on a joint return.
It’s actially each parent can deduct $4k per account, so really in VA if each parent had an account for each kid you can deduct $16k. With 2 kids. Also note that you can open a VA529 in any name at any time so you could start saving for yourself and then switch to kid.
A couple of things immediately stand out. The median middle class household does not pay property taxes of $19K a year and live in a $1.5m house unless they live in San Fran or NYC. Anywhere else and the range is probably from $2 to $8K a year. $24,000 for child care and baby-sitting? For 1 child? That seems high as well. We paid $15,000 a year total for 2 kids and had an au pair. That was a long time ago now but still this seems excessive to me.
I live in a coastal area, suburb of Philly and have 2 kids. Saved for college for both. Committed to funding 4 years for each one if they are reasonable. My first will start Penn State in the fall. I estimate the 4 year cost with increases to be around $165K. Yes, for a state school. So, saving for education is rough for the middle class. I made great sacrifices to do that. In the end, where I live I fully believe $200K can get the job done reasonably for a family of 4. However, our cost is not has high as San Fran or NYC so $300K may be necessary there.
This really illustrates how society has become a small amount of haves versus a large amount of have nots. I am in the haves category so I guess I should not complain. However, what we are seeing politically is an expression of have nots being extremely angry. I don’t think it is exclusive to the right or left. The next big shock may be from the left. Society needs to figure this out.
What is the median cost of a home in the suburb of Philly where you are? It’s $1.5M in SF.
Cost of childcare has risen over the past 18 years.
Finally, thoughts on choosing Penn State instead of U Penn?
Thanks
A LOT less than 1.5m, granted. My oldest is a decent student but not quite U of Penn material. My youngest may be headed that way. Straight A’s. We will see.
However, my oldest is also a hard worker who knows how to make money. My younger one is good with the books but struggles with jobs. So, each has their own strengths and weaknesses.
Can you elaborate on what “a lot less than $1.5M” is so I can run the numbers? It’s the best way to quantify instead of go through just opinion. I got so many folks saying my expense chart is unreasonable, but they can buy a similar house 3/3 for $500,000!
I’m thinking that by the time my son goes to college in 2036 or so, college will be obsolete. If it’s not a top 10 ranked college, I’m not sure if college is even worth it. Thoughts? I plan to teach him everything about business and various types of jobs due to our online business.
Related: How To Stop Worrying About Your Child’s Future In This Competitive World
$500,000 is probably a good figure for where I live. I also disagree with you on the “if it isn’t the top 10, it won’t be worth it”. Look at the last recession. The UE rate was 3x higher for non college grads than for college grads. Not that college is the end all and be all. I get that. I think college is important for certain fields. Trade schools for others or none at all if you are part of the .001% who can create without the need for education. I actually think college is more important today than ever before. However, it is too expensive for many reasons.
This article still applies:
https://www.usatoday.com/story/money/2017/01/12/pay-gap-between-college-grads-and-everyone-else-record/96493348/
I’m thinking about 18 years from now, not so much now.
It’s great your son is going to Penn State and he’ll probably have a great time. Congratulations!
I don’t even know if going to college 18 years from now to any school, even Harvard, is worthwhile b/c I’m questioning its use now in the post: What If You Go To Harvard and End Up A Nobody
Please elaborate why you think college is more important now than ever.
The charity is a bit low. I realize this is personal but charity should be around 2-3% of your take home. Some people give 10%. I don’t know how they do it but they do. I also see no provision for long term care. You not have it now but you should start saving for it now given the costs.
I have no children in a HCOL area. Our budget for 2 is around $76K (post tax) – I could imagine adding kids would easily bring that to $120K/yr.
One category I always see missing from people’s budgets are gifts. I currently budget $200/mo towards gifts (family, friends, birthday parties, holidays, weddings, etc)
When we had our first child in the expensive central California coastal city, I did the calculations for my wife working vs not. When her salary was added to mine as taxable income with Federal, California, Fica and loss of deductions with rising income, worthless health insurance contributions since we were already insured through my work, added childcare costs, added commuting costs then…
it turned out that my wife making over 100k per year was essentially working for 17 cents on the dollar– and for that benefit we would have seen our child raised by strangers.
Thanks, but no thanks. She quit work.
Who says taxes don’t affect incentives to work and thus a country’s prosperity? Anyone wonder why those European economies with the mandatory four week vacations, the flatter effort/reward curves, and the much more educated populations… have trendline growth rates that are less than half the world average — that is they are locked into deterministic trajectories to decline?
We did a similar calc, but one thing to consider is that usually leaving work is a one-way street. Being out of the workforce means losing relevance and it’s hard to get back in at the same level. It’s not fair, but it’s a reality.
I respect your decision, but people sometimes think of it as short-term (i.e. net after-tax earnings vs. childcare for the next few years) and don’t consider the consequences of giving up a 40-year career.
This is an interesting post. I am from Sydney, Australia and can somewhat relate to this article given Sydney is one of the most expensive cities to live. But the major problem i see with this article is that the expense column has a lot of “good to have’s” vs. necessary expenses. Surely, someone who is on the path to financial freedom thinks and acts differently compared to someone running the rat race and trying to keep up with their peer group.
$300K is a decent amount of money anywhere in the world. I agree it is not enough to be classified as wealthy or rich in SF (or in Sydney) but its enough to give you the ammunition to continue on the path of FIRE whilst leaving a decent lifestyle at the same time.
omg – that sold place in outer sunset is near ABC Bakery – my favorite Chinese restaurant on Noreiga St! Love those sweet buns! mmm
Wow $25K for food,or $1K per month per person including baby. I’m just trying to stay under $400/mth per person (including dining out) in a high cost of living west coast city.
Dining out is killing you.
I’m looking at this month’s budget, we’ll be about $160/person for groceries. That’s buying decent food, we don’t eat ramen. Our restaurant budget I have cut to virtually nothing, so it’s not really covering for a smaller grocery bill. Eating out for me was the easiest way to trim fat off the top.
+1 re dining out as budget killer.
We are a dual income, Outer Sunset San Francisco family of 4 (the kids are under 5). Sam’s numbers are spot on. Childcare costs are killer, yes. And yes, we are exhausted. We started pressure cooking using a multi function device and it is a game changer. Solid frozen meat on the table in 30. Rice in 15, steel cut oats in 9. Our food costs have come down drastically by going out/taking out much less. Both time and money saved.
We got one of those recently, but freezer to plate I think I can get frozen chicken breasts done in 25 ;) It’s a great tool. Truly amazing to turn a frozen hunk of meet into soft food that quickly.
Often we’ll have either meat or some beans thrown together with rice and frozen vegetables. It costs almost nothing, and it doesn’t take a meaningful amount of time, so time is no excuse. So far this March our restaurant bill, which includes 100% eating out and even vending machines and coffee drive thru, is right at about $145 for 5 people. I’m proud of that and think we can stay within our $200 I budgeted for it. $800 for groceries, at least $50 of which is frozen blueberries (not kidding).
Eating out = budget killer
Trips to Target = budget killer
I buy 10 lb. boxes of blueberries at $22 each straight from the farm (no spray) and freeze enough for a year. It saves money and the blue berries taste much better than store bought and you never get a moldy one. Same for all the other summer fruit. Takes a couple of minutes in the evening to get a box into the freezer. You eat local summer fruit all year round.
I can make a tray of roasted chicken thighs (or pork chops or steak) with vegetables in 30 minutes tops (less for fish). For flavour, add any one or more of garlic, lemon, olive oil, ginger, salt pepper, fresh or dried herbs/spices. Preparation time 5 minutes. If I forget to thaw meat, I microwave for a minute.
I make coffee at home but that’s a big cost item for me even though I buy Kirkland espresso beans.
My blues cost me $3.40 lb frozen :( I don’t have the room to store them all, though. My freezer is full of venison :D
Giles, not much game in the city that you can hunt (although lots of deer, eagles, coyotes, the odd cougar, and other wildlife in and near the city). Although there is a bird sanctuary where some hunting of migratory birds is allowed. I am not up on hunting regulations but people that hunt deer or moose usually go “upcountry” once a year. My hometown on the prairies, people can easily hunt close to home, and when I visit, I enjoy BIL’s bounty. I have read that Canadians eat the highest proportion of wild foods (fish, clams, game, berries, mushrooms) of any country. Although many Canadians never eat any. Some people in my area (right in the heart of the city) forage in the parks for nettles, dandelions greens, fiddleheads, etc. Vancouver is actually pretty wild with sea and mountains and forest right around and in the city.
I am jealous of the venison. I grew up eating game (venison, all sorts of birds) and don’t get it often nowadays. I need second freezer for meat. Small one to tuck into a corner somewhere. Blueberries + venison = pemmican, the traditional food of natives on the prairies. You can’t trade money for that lifestyle.
Not a lot of wild game to hunt in these high density coastal cities.
Absolutely. It’s a recurring cost that people don’t think about with all the other high priority items but I’m cognizantly trying to manage this line. It can be a big challenge in a city with lots of yummy diverse choices tho. Easier to cook at home in remote towns with less temptations.
I hear a lot of high earners in the bay use Blue Apron and that seems really expensive.
Slow cooker is fantastic to come home to for gourmet soup and hot food in the winters, but what do u do for summers? Can’t just feed the family salad and fruits every day right? Sushi gets expensive regularly. Fresh fruit can’t last week. Frozen smoothies alone isn’t filling enough for kids. Hot dogs aren’t too healthy.
It’s interesting how people from the Midwest and people without kids hate this post and hate this budget. Why can’t they understand that life is different with kids and in higher cost areas of the country? I don’t think people on the coast hate the people who live in the heartland.
In the heartland, with $300k, people can live like the wealthy and in a huge mansion. It’s just hard for some of them to understand that $300k in the coast are just comfortable middle class. Housing and childcare are the biggest expenses in the coast. $2500 per month is the cheapest daycare I can find in the Boston area. $1M only can get you a 1700 square foot townhouse. $250 in HOA fees, Groceries for fresh foods are $700 for 2 adults and a toddler. Car insurance is about $125 for 1 car etc….Sam’s numbers are pretty close and spot on. He actually forget, gift giving is also a bug Expense category.
The cash flow line item at the end is for miscellaneous, Which includes gift giving.
A great demonstration of why geographic arbitrage works. No way I’d stay someplace like that long term. Too hard to build wealth.
Always fun to look at other people’s budgets, even if they’re hypothetical. Some of my expenses are higher and some are lower but back when we had a mortgage that was about what we were spending. We didn’t (and don’t) pretend it’s a middle class lifestyle though. The median household income in this country is $55K. What they can afford is a middle class lifestyle. Assuming they have to pay taxes and save, that would suggest that spending more than 3X+ that amount is far from middle class, no matter what is put as the title of the blog post.
I’ve lived on $20K, I’ve lived on $50K, I’ve lived on $120K, I’ve lived on $200K and I’ve lived on $1M+. You can do a lot on $300K, even in a big city.
A lot of people have mentioned geographic arbitrage, but I’m not convinced that’s the answer for many families making $300k+.
For a doctor, software programmer, Youtube content creator, or someone like Sam, sure. But for the vast majority of us working in corporate America, or for the government, I’m not so sure it’s feasible. Remember, the majority of these families will be dual-income (way more earners making $150k than $300k). That means both spouses have to be able to either find a job in podunk, Arkansas, or work remotely.
In my case I do work remotely (and have for years), but my wife is absolutely unable to, and never will be. So we’re stuck on the coast in a hyper HCOL area.
Sure, there are the lucky people making decent salaries as Target or 3M executives in Minneapolis, FedEx execs in Memphis, or P&G execs in Cincinnati. But the vast majority of jobs paying $150k+ are going to be located in HCOL areas (which is how those areas got so expensive in the first place). I’m just not so convinced they’re all that portable. I know a lot of people who have asked their NYC firms if they could relocate to Burlington, Vermont to be closer to the family, and got a big fat no in response…
Agree. Most jobs cannot be done remotely.
I still don’t understand why people live in these coastal cities. I kind of get California because of the weather, but paying all that money to live near NYC I do not get. My house is worth $240k right now. It’s just over 10 years old, 2700+ square feet of living space on a good sized lot in a spectacular school system, and close to the city.
Or, I could get some 40 year old 1600 square foot house in poor shape outside of manhattan for $800k and spent an hour commuting each way to work? No thanks.
As a life long resident of SF and still living in the city, a $300K income sounds about right for being middle class around these parts. In terms of expenses, we do not spend as much as what you put on here Sam. For food, spending over $25K seems a bit too much even for a family of four living in SF. We are a family of three and fortunately we don’t spend even half that amount and thats with groceries and going out to eat combined.
For entertainment, over $7K(around $600 a month)seems too high as well. I think splurging to watch a sporting event or broadway play is fine but it shouldn’t cost that much unless you do it constantly.
Child expenses at $6K($500 a month) can be reduced by providing more books than toys. Babies can get attached to a book as early as 12 months based on my experience. Plus you can get borrow children’s books from the library in which they can get free entertainment with the weekly baby rhythm time they provide.
All the other expenses you have seems pretty spot on. Your right about childcare expenses, their is no way to get around it unless you have family close by that is willing to take care of the kid(s).