Budget Breakdown Of A Couple Earning 500k/year With 7k Left Over

[disneysteve]

I think this is a great illustration of the fact that it isn't how much you earn that matters, it's how much you spend.

It's also a good reminder of the important difference between gross and net income. If you walk around thinking, "We earn half a million dollars each year. We can afford XYZ" you're going to get in trouble because you're spendable income isn't 500K. It's 278K. While that's still a substantial amount, it is far less than 500K.

Obviously, we could pick apart their budget item by item as it has plenty to pick at but that's really not necessary here. Clearly they are spending beyond their means and their priorities are way out of whack. The very same thing is true of plenty of actual posters here who earn a fraction of this amount.

More money won't fix your spending problems.

[QuarterMillionMan]

I'll pay too. Monthly Expenses (before & after), not yearly expenses. I hope the format comes out here.



Haircuts $20 before $0 now, cut my own hair
Carwash $ 0 before $0 now, bucket water every Monday
Cell phone $80 before $30 now, no contract iphone
Eating out $200 before $40 now ($10 once a week)
Home cooking seldom before A lot now esp for work, saves big $$$
Landline $40 before $3 now, Magicjack
TV & internet $150 before $15/internet & $25 Spectrum TV choice
Mobile broadband $70 before $10 iphone hotspot
24 hour fitness $35 before $0 now, neighborhood jogs, home weights
Rent $500 before $675 now
Electricity/Gas Co. included in rent included in rent
Auto loan $325 before $0 now
Auto Insurance $ 70 before $100 now
LTC Insurance $100 before $100 now
Credit card #1 $400 avg before $500 avg now (balance paid off monthly)
(ie, discretionary, entertainment, etc)
Credit card #2 $500 avg before $600 avg now (balance paid off monthly)
(ie, gasoline, food, clothing, incidentals, etc)
401k contribution $150 before $2000 now
Roth IRA contribution $150 before $500 now
AAA switched to Goodsam $10/month ($100/yr) $5 ($60/year)
Safe deposit box $3/month $5/month

Medical, dental, RX, disability, life insur, chiropractic, custodial care, etc covered by work.

[Gailete]

Yowzah! That is a lot of money to spend. I agree with DS that they probably think that they are earning half a million a year, so let’s live like we are almost millionaires instead of making only a quarter of a million. Mr. Big Bucks used to tell anyone who would listen that he made $800/week. He did 2-3 weeks a year. The rest of the time he was around $300-400/week on good weeks. Sometimes with cash advances that he took (and he came home with an empty wallet) his check was only $200. Granted not like he was going around saying he made $500K/year but he would have liked to! But he spent money, more like charged things, as if he was making that $800 or maybe even $1K/week. It is too easy to think in terms of the whole amount you earn, not the take home.

Glad to see they are maxing out their 401K accounts, but something tells me that in the end for their lifestyle it won't be nearly enough to retire on. I have no problems with them donating $18000/year. If people in their income range can't fork over to charities, who can? Their income percentage of the charitable giving is 3.6% of the $500K, 3.88% of the $464K and 6.46 of the $278,400. I just checked our charitable contributions over the last 3 years as well as our income over that same period since our income fluctuates very much from year to year so that we, on average, make about 7% of their 'take-home' yet our charitable giving is at a higher percentage than theirs, but that is a lifestyle choice we make. We also don't take multiple vacation, drive a 12-year-old car, etc.

These folks are living high off the hog. I can't even conceive of having 3 & 5-year-old kids taking lessons that total $1000/month. Let them be kids for crying out loud. They are doing this to get their kids accepted into a prestigious private school? Why should it be harder to get a kid into elementary school than it will be to get them into college? I hope that they manage to tuck some money away to pay the very expensive private psychologist that their kids will eventually be needing if they keep pushing their little ones like this.

They are being very frivolous with much of their money and could be saving a lot more, yet they seem to find spending more satisfying than saving. Most of us here are the opposite. $10K for miscellaneous spending!!! Unbelievable is all I can say.

[disneysteve]

Glad to see they are maxing out their 401K accounts, but something tells me that in the end for their lifestyle it won't be nearly enough to retire on.

Definitely. That only works out to 7.2% of income being saved. We all know the standard advice is to save 15% so they are barely halfway there.

[Gailete]

Definitely. That only works out to 7.2% of income being saved. We all know the standard advice is to save 15% so they are barely halfway there.

And they aren't going to be happy with their lifestyle chopped to what for them will probably be the bare minimum in retirement if not even less. They may be assuming that the money will be there for extensive vacations and cruises but they will be lucky to be able to afford to go visit their grandchildren.

[GoodSteward]

Total debt. I paid them all off in Mar when I got my bonus and then ran them back up again to pay for the monthly deficit I ran. Good times...

I have friends who did this but only made sub 40k a year. They kept this up until it caught up and he could no longer pay off the credit cards. They had no savings and lived beyond their means (even though it wasn't high off the hog), so tax refund time was their way of buying actual needs (but apparently they "needed" a 2k washer dryer set, instead of fixing the 2k set they only had a few years). They would get 6-8k in refunds. Now, they are bordering on bankruptcy. His credit is shot, quit paying his credit cards a while back. He had money from a workers comp case that came to about 40-50k I think. He bought a used van (but still spent too much on it) and I don't know what he did with the rest but it was gone in months and he still owed debt. I dunno. If he would have left the credit cards alone at the start, I think he would be a lot better off.

I think this is a great illustration of the fact that it isn't how much you earn that matters, it's how much you spend.

It's also a good reminder of the important difference between gross and net income. If you walk around thinking, "We earn half a million dollars each year. We can afford XYZ" you're going to get in trouble because you're spendable income isn't 500K. It's 278K. While that's still a substantial amount, it is far less than 500K.

Obviously, we could pick apart their budget item by item as it has plenty to pick at but that's really not necessary here. Clearly they are spending beyond their means and their priorities are way out of whack. The very same thing is true of plenty of actual posters here who earn a fraction of this amount.

More money won't fix your spending problems.

True Story! My dad always says people spend what they make. That is the case nearly every time.

[LivingAlmostLarge]

The couple is maxing out 2 401k to the tune of $36k. I'm sorry they aren't poor and unable to make ends meet. Yes they aren't saving much and yes they have a lot of fat in the budget, but they have a lot of room for cuts.

Saving 7.6% is more than most even if on their income it doesn't seem like a lot. So my perspective if they weren't saving anything then they have a right to say they are scraping by.

Nor is taking $18k on 3 vacations scraping by. That's $0 if they were scraping. And kid lessons? Then it would be $0 as well. Daycare/nanny I get since you are both working and HCOLA it runs $2500/month childcare per kid nanny even more. So their number is low if anything.

Clothes would be $0 as well. But for their income it's not much. Food well depends maybe working so much they don't cook. So I can't say much. In the grand scheme of things the $2k/month on groceries or eating out is a drop in the buck. The cars cost more and nearly as much is the vacations.

It's all about priorities. There is nothing wrong with spending that much if you can afford it. And if you put everything into % it wouldn't look so distorted compared to the % of an average paycheck. The problem is you see only $500k and woah. Why aren't they saving? Instead of oh they are saving just 7.6% that seems more reasonable to people once they see percentages.