In order to comfortably raise a family in an expensive coastal city like San Francisco or New York, you’ve probably got to make around $300,000 a year. Thanks to elevated inflation post pandemic, the middle-class lifestyle is getting harder to obtain due to rising costs of gasoline, food, housing, travel, tuition, and healthcare.
You can certainly raise a family earning less. Statistically, most do. However, 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 ~$76,000 in 2023, it’s not an outrageous sum of money. Once you pay taxes and look at the realistic income statement I’ve put together for this article you’ll see the income is reasonable.
After all, the cost of living is quite different across the United States. Almost half of the United States population lives in expensive coastal cities.
A Middle Class Lifestyle Is All We Really Want
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’ve also cross-checked the expenses with over a dozen other households who make around $300,000 a year.
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. At the same time, you’re still earning enough to live a comfortable lifestyle anywhere in the world. A middle-class lifestyle is all we really want.
About 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. If you don’t live on the coasts, you might live in a city like Denver or Austin, where the cost of living is rising rapidly as well.
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 to $300,000.
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. To no surprise, many of these $300,000+ household income earners live in more expensive areas around the country.
- 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 $150,000 – $180,000. 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 (One Child)
Please study the middle class lifestyle budget chart of a $300,000 earning household 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 when I had only one kid. All figures are pretty spot on. Today, with two children, I’m thinking $350,000 a year might be more apt.
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. The maximum 401(k) contribution is now $22,500 in 2023. Not bad.
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 $24,000 standard deduction for married couples to keep things simple. The standard deduction for married couples increases to $25,900 for 2022 or $12,950 per individual.
For 2023, 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 $160,200 of wages plus 1.45% 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.
High Effective Tax Rate With A $300,000 Income
They have a marginal federal income tax rate of 24% and a marginal California income tax rate of 9%. Most of their income also faces 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. Therefore, hopefully folks who earn less can give them some slack. The effective tax rate could be 1-4% lower with some adjustments.
The family also 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.
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. Come high school, the cost will increase to $45,000 – $55,000 a year. I coached varsity tennis at a boy’s private high school for three years. 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.
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.
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.
Now if we look at home prices in 2022+, prices are still elevated in big cities. I’ve been keeping track of a number of home sales during the pandemic, and I’m impressed.
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.
In 2023, this Golden Gate Heights home is likely worth over $2,200,000. Further, mortgage rates are still low. Homeowners can now refinance to a lower rates and save money as a result.
I recommend checking out mortgage rates online. 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.
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.
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.
Another important concept to think about is treating investments as expenses. Investment expenses include retirement savings and 529 plans. After all, spending money to take care of your retirement or your children’s education is an expense. Just like spending money on insurance to protect your family is an expense.
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, they growth wealth with 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. They will have 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.
A Middle Class Lifestyle On $300,000 A Year With Two Children
To be comprehensive, here is another budget I put together for a $300,000 household with two children. I’ve updated the 401(k) contribution amounts to $45,000 given the higher 401(k) contribution limits for 2023. Further, you’ll see more childcare expenses and fewer leisure expenses.
One both kids turn five or six, they can both go to public grade school. If they do, that will be a $3,200 a month after-tax savings right there. Kids truly are expensive. But if you can get through the first six years and not be tempted by private grade school, they become more affordable.
With inflation so strong, families may now need to earn $350,000 a year in a big city to live a middle-class lifestyle!
Earn Just A Little More
After analyzing all the numbers above, the ideal household income to raise a family is around a MAGI of $364,200 (after deductions). Any income over $364,200 is taxed at a 32% marginal income tax rate, or an 8% increase. This marginal federal income tax jump is large compared to the 2% jump from 22% to 24%.
Below is a chart that shows the marginal income tax rates and the long-term capital gains tax rates for 2023 for married couples, filing jointly. Know the tax brackets every year to earn the most tax-efficient income possible!
Based on 2023 tax brackets, for individuals, a Modified Adjusted Gross Income of $182,100 is likely ideal, from a tax optimization and lifestyle situation.
For married couples, the best income to earn is around $364,200. This way, both incomes faces at most a 24% marginal federal income tax rate. Every year, hopefully, the income thresholds for various tax rates will go up to at least account for inflation.
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 Empower (previously Personal Capital) in order to continuously optimize their net worth.
If you still don’t believe $300,000 for a family with two kids is required to live a middle class lifestyle, take a look at this chart below.
For San Mateo County, which is equally as expensive as San Francisco County, a family of 4 with a $146,350 is consider low income. With rising home prices, it simply takes a lot more income for families to live comfortable lifestyles in big cities.
There are some families scraping by on $500,000 a year in expensive cities. Good financial planning is a must!
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. 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.
Invest In Real Estate strategically
Take advantage of long-term trends and invest in heartland real estate. Technology and work from home have made relocating to lower-cost areas of the country permanently feasible for millions of people
The best way to invest in heartland real estate is 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. Fundrise offers diversified eREITs, which is likely most appropriate for most investors looking for real estate exposure.
CrowdStreet offers individual commercial real estate deals, mostly in 18-hour cities, where you can build your own select portfolio. 18-hour cities are very enticing due to lower valuations and higher cap rates. Both platforms are free to sign up and explore.
Personally, I’ve invested $810,000 in real estate crowdfunding to diversify my holdings and earn income 100% passively. Investing in private real estate is one of my favorite passive income investments today.
Thanks to technology, there’s no need to grind so hard in expensive cities. 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!
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With the bull market in everything post-pandemic, costs are likely going to continue to rise. Therefore, earning a household income of $300,000 to live a middle-class lifestyle is not far-fetched at all.
Politicians need the middle class to stay in power. And President Biden has said he won’t raise taxes for anyone making under $400,000. Therefore, President Biden would certainly agree that $300,000 for a family of four is a middle-class income.
For more nuances personal finance content, join 55,000+ others and sign up for my free weekly newsletter. I’ve been helping folks achieve financial freedom sooner since 2009.
Alessio Shostak says
Hi Sam, My single mother is a Western European diplomat/FSO, and even though I led a very privileged life in Australia, Switzerland and Italy (something like this), it’s only now while entering the workforce for the first time (in London big 4 audit, though hopefully ER soon) that I’ve realised just how much work its going to take to get my lifestyle back! This is the first resource I’ve ever found that would articulate what I would expect to be ‘normal’ so articulately! It’s been so hard to pin it down given the uniqueness of my upbringing, but thank you for making this post and bringing it to light.
Financial Samurai says
You are welcome and good luck! Consider subscribing to my free weekly newsletter so you never miss a thing.
Great chart. My takes comes down to can you do your HCOL job from a LCOL area? I don’t know if you reside in HCOL California Sam, or if you are writing you blog from a LCOL area. Point is my team leader in his early 40s makes your $300,000, claims to be a millionaire before 30 and yet is bothered to death non cessant complaining about paying his ex-wife $3000 a month alimony and a child support. He pays 3000 monthly, so $36000 yearly in alimony and child support. How a millionaire puts so much energy being bothered by paying $3000 a month I cannot understand.
Here’s how he solved it. He sold his Porsche, moved out of Cali, WFH instead of the office and everything was solved. He lives in an enormous place in a LCOL area and drives a beater car compared to a $135,000 Porsche.
Financial Samurai says
Sounds good to me! I’m based in San Francisco and worked in Manhattan beforehand.