Making $300,000 a yea sounds like a lot of money. $300,000 is a top 10% income. But unfortunately, $300,000 will provide you a very middle class lifestyle because earning $300,000 usually means living in an expensive area of the country or world.
For example, making $300,000 a year is a relatively common household income for couples living in places like San Francisco, New York, LA, San Diego, and Seattle.
Here are some examples of household combinations that make $300,000 a year or more:
* A Bay Area Rapid Transit janitor made $234,000 + $36,000 in benefits in 2016
* A Bay Area Rapid Transit elevator technician made $235,814 + $48,429 in benefits in 2016
* Starting salaries for 22 year old employees at Facebook, Google, and Apple range from ($85,000 – $120,000) + ($30,000 – $60,000) in annual equity grants.
* 30 year old first year Associate in banking earns $150,000 in base salary + ($0 – $120,000) in bonus
* A 26 year old first year law associate at a firm like Cravath make $180,000 base + $20,000 sign on bonus. By the end of their 6th year they are making over $300,000
* A 29 year old Director of Marketing at a startup makes between $120,000 – $180,000
* A personal finance blogger with 500,000 pageviews earns between $150,000 – $600,000
* A 42 year old college professor at Berkeley makes $235,000 on average 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 $55,000 a year plus her $250,000 a year VP of Marketing wife
* A 56 year old high school athletic director making $120,000 a year plus his $200,000 a year management consultant wife
As you can see from the examples, it is very easy to reach $300,000 a year if you both went to college and land decent jobs in expensive cities like San Francisco, Seattle, New York, Los Angeles, Washington DC, and Boston. Half of America’s population lives on the coasts.
A Middle Class Lifestyle On $300,000
Now let’s look at how easily the money gets spent if you have just one child. This is a real budget I put together based on a couple’s expenses sent to me. I also cross-referenced every line item with my own family’s expenses since we have one kid.
As you can see from the budget, there’s not that much cash flow left ($4,500) a year for emergencies. Yes, the couple is saving $37,000 a year in their respective 401(k) plans and is paying down principal on their home. But it’s not like they’re balling out and living the high life.
They are comfortable, and will turn out fine. But with their savings rate (<15% of gross), they will likely have to work for at least 20 more years. 20+ years of work is fine if you like your job, but most people don’t. They get sick and tired of it all and want to do something else.
Psychologically, earning $300,000 feels great because it puts the household in the top 10% of household income earners. They need to get to $470,000 to be in the top 1% in 2021. They know that if they could just find some way to live in a lower cost area, they’d be just fine.
When you make $300,000 a year, you are surrounded by folks who make a similar amount, if not more. Some will even come from super wealthy families who will hook them up with everything in the world. Ironically, having rich friends will often times make you feel poorer.
Paying Taxes On A $300,000 Income
The biggest bummer about making $300,000 a year or more is having to pay around $100,000 in total income taxes. If you are a W2 employee, there’s really no other way around paying ay such a high tax amount.
Conversely, if you can earn $300,000 a year in investment income, you’ll likely pay an effective tax rate of 10% less. My personal goal is to shoot for $300,000 in passive investment income to support my family of four so both my wife and I don’t have to work.
The good thing about making $300,000 a year is that Joe Biden won’t be raising your taxes. Joe Biden plans to raise the highest marginal income tax rate from 37% to 39.7% for households making over $400,000 a year.
At the end of the day, making $300,000 a year feels good. But it feels better if you can make $300,000 in a low-cost area of the country or through investment income.
The Keys To A Better Life
The key solutions to a better life are to save more aggressively, track your finances diligently using the best free financial tools, and move to a lower cost area of the country or world.
I’m serious about tracking your finances online. I’ve used Personal Capital’s free tools since 2012 and have seen my net worth and my financial peace of mind skyrocket since because I have control over my wealth.
We are seeing this with the migration out of expensive coastal cities like SF to way more affordable places like Austin, Houston, and Raleigh. There is no reason to be stuck living in a city where you have to pay a whopping $4,300 a month for a regular two bedroom apartment when you can get a mansion for the same monthly cost.
The global pandemic has encouraged the permanent trend of working from home. Therefore, you want to invest in heartland real estate. Valuations are cheaper and net rental yields are higher.
It makes sense, since technology allows us to be untethered from an office while the cost of living has truly become untenable in many coastal cities. I’ve invested $810,000 in real estate crowdfunding to take advantage.
When you can earn rental yields 4-5X greater without having to maintain the property thanks to real estate crowdfunding, I’m all over it. My SF rental property I sold in 2017 had a 2.4% rental yield. Once I sold, I reinvested the proceeds in commercial property in places like Texas with 10% – 13% rental yields.
Earn your big bucks and get out of the grind! You won’t regret enjoying life when you look back.
Invest On The Best Platforms
With real estate crowdfunding, you don’t need to risk $100,000 or more to invest in commercial real estate. Instead, you can invest for much lower amounts such as $5,000 and be better diversified. The best real estate crowdfunding platforms today are:
1) CrowdStreet is based in Portland and connects accredited investors with a broad range of debt and equity commercial real estate investments. CrowdStreet is great because they focus primarily on 18-hour cities (secondary cities) with lower valuations, higher net rental yields, and potentially higher growth.
2) Fundrise, founded in 2012 and available for accredited investors and non-accredited investors. I’ve worked with Fundrise since the beginning, and they’ve consistently impressed me with their innovation. They are pioneers of the eREIT product. Most recently, they were the first ones to launch an Opportunity Fund in the real estate crowdfunding space to take advantage of new tax laws.
Both of these platforms are the oldest and largest real estate crowdfunding platforms today. They have the best marketplaces and the strongest underwriting of deals. Sign up and take a look around as it’s free.
As always, do your own due diligence and only investment in what you understand. I’ve personally got $810,000 invested across 18 different commercial real estate projects around the country. My current internal rate of return is about 12% since 2016.
Real estate crowdfunding (30% of total passive income) is a key way I plan to make $300,00 in passive investment income every year from 2021 on out.
About the Author: Sam started Financial Samurai in 2009 as a way to make sense of the financial crisis. He proceeded to spend the next 13 years after attending The College of William & Mary and UC Berkeley for b-school working at Goldman Sachs and Credit Suisse. He owns properties in San Francisco, Lake Tahoe, and Honolulu and has a total of $810,000 invested in real estate crowdfunding.
In 2012, Sam was able to retire at the age of 34 largely due to his investments that now generate roughly $300,000 a year in passive income. He spends time playing tennis, hanging out with family, consulting for leading fintech companies and writing online to help others achieve financial freedom.