When the fiscal cliff went into effect in the beginning of 2013, the country declared a new baseline for a married couple by defining $250,000 of household income as being ‘rich’ or ‘wealthy’. Even though making $250,000 of household income for most families in America seems highly unattainable, talk to someone who lives in a top 20 major metropolitan market and you’ll find out a wildly different set of circumstances. Could it be that a family who makes $250,000 is actually struggling? Yes, Yes, and Yes. Let’s break down the numbers for family that has three children (this is a hypothetical scenario, but I’ve seen plenty that look just like this)
- Save For Retirement- If 10% comes off the top (you’ll need at least that to make a decent work optional scenario, but probably a heck of a lot more) that will equal $25,000. Now you are down to $225,000 assuming it goes into a pre-tax 401k plan.
- Health Insurance (Benefits)- The costs are getting higher and higher at work and even if your employer covers half the cost, it will be in the $500 a month range for health, dental, vision, etc. so there goes another $6,000. Assuming this is pre-tax as well now you are down to $219,000.
- Taxes– Let’s say you don’t have anything fancy in the way of deductions besides your normal stuff. Home mortgage, real estate taxes, basic charitable contributions, etc. For someone in the state of Georgia where state tax is 6% and federal tax with an effective rate in the 20% to 22% range. Total tax $52,000. If you add other taxes like city tax, ad valorem tax, etc. we could put it in the $55,000 range. Now you are down to $164,000.
- School Costs- This is such a variable cost because some families are all public and some are all private, but let’s assume just one of three of the kids attends a private school with an average cost of $20,000. Now we are down to $144,000. Even with public schools, between events, trips, and other school functions add another $2,000. Now you are down to $142,000
- Housing costs- At this level income, your average family will be in a home between $300,000 and $600,000, so let’s use a $450,000 home with a 30 year note at 5% interest rate. With real estate taxes, homeowners insurance, etc., you are going to be in the $3,000 a month range or $36,000 a year. Now you are down to $106,000. After you add in basic home improvements, utilities, and up keep of the home now you are down to $88,000.
- Groceries and Eating Out- Do you think people at this level eat organic produce? You can bank on it. Costs often get doubled up in this area because upper income families shop at multiple grocery stores with no real smart pattern and eat out erratically based upon family events and activities. This bill total will run in the $3,000 a month range. Check your credit card and bank statements if you don’t believe me. Now you are down $52,000.
- Clothing- Again, all over the place but tend to be on the more expensive side for higher income families. At $1,000 a month, Now you are down to $40,000.
- Car Payments- Most families at this level aren’t buying all cash and drive upper end luxury cars. Do you have a Lexus and a BMW in the driveway? At $1,100 a month now you are down to $27,000.
- Vacations— A real crippler for the $250,000 and struggling family because they believe they deserve these vacations. They won’t stay a Holiday Inn, and demand the upper end resorts – think Disney’s Animal Kingdom. At $12,000 a year, it’s a big line item between family obligations, spring break, and holidays. Now you are down to $15,000.
$250,000 and struggling? It can’t be! I haven’t added in line items like the cleaning person, the landscaper, birthdays, anniversaries, charitable contributions, other insurance, and much more. If you don’t make $250,000, it is easy to say buy a smaller house, drive a less expensive car, shop with coupons at one grocery store, etc. The emotions that come behind getting to this level spring another set of self-talk that make this ‘rich’ group believe they are wealthier than their pocketbooks can really afford. Here’s the newsflash. $250,000 doesn’t make you rich anymore. The day you convince yourself of that you’ll take a new fresh look on how you should be managing your finances . . . and then you’ll take the right path to start becoming rich. Call me and I’ll show you how to do it!!!!!
Most of the really wealthy people I know never show it in public. In fact, one of the wealthiest people I deal with made me take him to lunch at Applebee’s last time we went out and he could have chosen anywhere! Stop trying to impress others with big purchases and you’ll see your bank account start to fill up in a big way!
Written by: Ted Jenkin
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