A premise - working poor

[wincrasher]

After reading all these forum posts, I got to thinking, what is a real income needed for a family to live a basic, decent existence. So I formulated the following premise:

Consider a young couple with 2 young kids, not quite ready for school yet. Mom and Dad lived with their parents until they were ready to start their life together - they worked and saved a little, collected the things they needed to have a home.

So they started out with no debt, but they burned thru their savings setting up their home and all the medical that goes with squeezing out a couple of kids. Mom stays at home, Dad goes to work - just like back in the old days

So here is the budget:

Rent $800 - a small house, nothing fancy
Renters Insurance $15
Car Payment - $300 - used car ($9,000@11%, 36mo)
Car Insurance $100
Health Insurance $250
Life Insurance $50 (Term, Husband only $250K)
Phone $25
Cable $50 (basic)
Trash $30
Water $15
Electric/Gas $150
Newspaper $12
Internet/Broadband $30
Groceries/Supplies $400
Gasoline/Oil $140
Entertainment $50
Retirement (5%) $205
Savings (10%) $411
Taxes (27%) $1109 - Fed/State/SS

Total = $4107, which is $24/hr and $51,036

Purchases like clothing, new tires, contraceptives, etc would come out of savings, as needed.

This would be an existence where buying a home is probably not an option, nor is providing the full cost of a college education. Notice no credit card debt or other loans.

So here is my premise - considering small town living - that $24 an hour is a base case to live a suburban existance. You can be comfortable, but none of the extras.

Anything above, you can start to consider buying a house, a new car, sending the kids to college, new furniture, etc. Anything below requires sacrificing the basics. You could consider running the numbers including day care if mom were to go to work.

What do you all think? Remember, things like rent, region of the country, etc, vary. Some folks will think that getting the newspaper, broadband and cable are luxuries, maybe they are. I was surprised that these things required a plus $50k income and you'd still not really "get ahead". So I'd call a "living wage" $24 an hour - a life when you can get by without sacrifice without taking on excessive debt.

[irmanator]

wow holy cow i'd feel rich if i got that.

[disneysteve]

I think your numbers are flawed. The income you arrived at is right about the national median household income. That means HALF of all households earn less than that. Surely they aren't all struggling to get by (though some certainly are).

I think one thing you might not be accounting for is regional variations. There are places where you'd be living quite well on 50K and places where you would have trouble existing on 50K.

[wincrasher]

You are right Steve.

I do think that has alot to do with why people accumulate alot of debt. Very few add up all those little costs and realize how much the "american dream" lifestyle really costs. They don't have insurance and live unprotected - is that really a smart move?

Of course in many places, a little house may be out of the question. But on the other hand, some folks inherit an old house from their family.

I was seeking a kind of average, middle america type of number.

[zetta]

I suspect your tax estimate is far too high given the credits for the kids -- maybe someone here can run the numbers.

Other posters have often talked about getting a $1k or $5k car to start out.

Newspaper can definitely go -- read the news using the broadband connection. Which I get for only $20.

Rent is going to vary the most by region. Couple could start out renting a 2 bedroom apartment rather than renting a house.

Once the emergency fund is in place, we want the couple to be doing 15% to retirement, 5% to savings.

[wincrasher]

But I'm not saying struggling. I'm saying basically getting by with alittle savings.

[GREENBACK]

I believe the median income in my area is about 36k so I think that amount of income would work well here. Housing would certainly be less. You can a decent home here for 100k and get a McMansion here for 300k.

[wincrasher]

Great input from all.

I was thinking my numbers were too low.

I don't think you'd get much of a rental house for $800 a month that would be in a decent neighborhood. A one bedroom apt in my area goes for $1100.

I think my insurance numbers are low too - particularly the car insurance.

As I stated above, this is not an exercise in frugality. Surely lots can live on less by doing with less, or with credit card debt - that's a given.

This number being the national average was not by design. I would bet, though, that that average considers most households with 2 wage earners, not one.

[zetta]

I see two big assumptions here -- 1) what constitutes a decent neighborhood, and 2) there is one wage earner who only works 40 hr/wk.

I've heard many lower-income two-income families arrange their schedules to avoid daycare by working jobs with different shifts. For instance, Mom is a waitress with evening/weekend hours, while Dad works a 7am-3pm shift elsewhere. So between the two they might work 60-80 hr/wk. This brings the wage needed for your estimate down to $12-$17/hr.

[wincrasher]

That is true Zetta, but the total income needed doesn't change - probably go up alittle for the extra expenses of 2 people working even if you don't need daycare.

I'd call a decent neighborhood one in which you are fine with your little kids playing in the yard (with your supervision of course) without fear of crime or violence. You don't worry about home invasion, your car getting stolen,etc.

[jIM_Ohio]

So here is the budget:

Rent $800 - a small house, nothing fancy I could rent for half this or even $250 if I did it right (roomates)

Renters Insurance $15

Car Payment - $300 - used car ($9,000@11%, 36mo) Pay cash for car, saves this/ $4800 post tax and $5500 pre tax from the income.

Car Insurance $100 remove collison and lower this- saves maybe $100-$300
Health Insurance $250
Life Insurance $50 (Term, Husband only $250K)
Phone $25

Cable $50 (basic) Direct TV has 200 channels for $10 less. Saves $120

Trash $30
Water $15
Electric/Gas $150

Newspaper $12 drop this from budget, saves $144

Internet/Broadband $30

Groceries/Supplies $400 My grocery Bill is half this now and I make twice as much as the income below.

Gasoline/Oil $140
Entertainment $50

Retirement (5%) $205 why is this so low as a percentage? In addition was this taken out pre-tax? Pre-tax would save $370 from below income.

Savings (10%) $411 short term savings higher than retirement?

Taxes (27%) $1109 - Fed/State/SS SS+medicare is 7.45%. Most people will not pay 20% fed+state taxes. I make twice the income and pay about a third of that as a percentage.

Total = $4107, which is $24/hr and $51,036

See my replies in red above. I think I knocked about 2k-4k from the annual income.

[kork13]

As demonstrated above, I've found (the hard way.... multiple times) that hypothetical scenarios are kinda hard to run very well on these boards.... there are too many variables, and it's just so easy to punch holes in just about every possible premise that could be presented....

[wincrasher]

Jim,

This is not a how low can you go excercise. Why would a young family want to have roomates? Could they rent a crack-house for less? Yep. Maybe a trailer home out by the highway! I don't think people dream about those options. I think they dream about a cute little house with a picket fence in a nice, friendly neighborhood.

In the initial post I said they don't have much in savings, so buying a car outright doesn't work - a $9000 car is probably an average 5 year old Honda or Toyota - as a dependable primary car for a family is not excessive.

I think retirement amount is OK - if you were in your early twenties, 5% would be enough to build a retirement that maintains your lifestyle, not improves it. Most people don't make that contribution at all when they are starting a family.

Notice there are no extras - no xbox, dvd's, books, cd's, toys, a cute kitty etc. These are all things people buy - an probably would out of savings. So I thought 10% would be pretty generous, but not outrageous.

You may be right on taxes - they don't have much in deductions - but they might get credits for the kids. They definately would have got a stimulus check.

[wincrasher]

Kork,

You are right - lots of variables. But it's a fun exercise.

I think that the point is the american dream that we've all been conditioned to aspire to has a higher price tag than most think.

[zetta]

Again, you have to lower your assumption that to have a decent existance you have to live in a house with a white picket fence! This is a young family just starting out -- my parents lived in a trailer home in a college town, and then rented a basement apartment when I was born, and they were able to save and move up as my dad's income increased.

I know of a trailer community just 10 minutes from me from that would meet your other requirements -- safe to play in the yard, low crime neighborhood -- where the kids go to a decent school (the same mine will go to), and I'm in a $500k home in a HCOL area. Yes, there is some highway noise there, but there are white picket fence houses (probably in the $200k range) nearby that live with the same noise.