US household income breakdowns, article I found interesting

[bigdaddybus]

Great post! I agree that suggesting 250K and 68K are somehow comparable is ridiculous.

Remember, the median income in this country is about 50K so lots and lots of people live on 68K or less - more than half of Americans in fact. How do they do it? They buy used cars. They don't have 200 cable channels. Their kids go to public school. They shop at thrift shops, clip coupons, buy store brand groceries, and may only take a family vacation once every 3 or 4 years. They cook most meals at home, eating out only for special occasions. They mow their own lawn, clean their own house, babysit each other's kids. They probably have cell phones but with limited plans or pay as you go plans. There are very few things that are truly needs - food, shelter, clothing. Beyond that, most of what people have come to call a necessity (cell phone, internet, car, etc.) is really a luxury. It's great if you can afford them but if you can't, you don't.

So true.

My wife and I have both been guilty of considering luxury items necessitys after the newness wears off, or often beforehand. Its not something I am proud of.

When we made half the median income I remember thinking....If we could just make 40K, everything would be so much easier. Then it became the next milestone, then the next, and on and on.....
We finally got out of that mentality last year and its been great

[Blessed]

Barclay I do not believe you can compare 250k to 68k. Yes there is a huge tax difference I am sure. After we put out $27500 in retirement yearly there is not much as taxable. You can't really compare the college costs in all cases easily. With around 500k( a big chunk liquid as we are ready to pay cash for a rental), a paid off home and a college fund I do not believe there will be any grants coming our way. We are not special and anyone with our income can do this given time.

We are the type of family DisneySteve is describing. Not hard. I don't think credit card debt has a thing to do with income.

Manage your money well, living under your means and always save something and you can do well on many different income levels. Anyone remember the janitor who never made over $30k that left 2 million????

[disneysteve]

I remember thinking....If we could just make 40K, everything would be so much easier.

So many people fall into that trap - if we just made more, our problems would be gone. It never works because most people don't have an income problem, they have a spending problem. As their income rises, they upgrade their lifestyle to match it.

We've been guilty of this ourselves and it is something my wife and I have been talking about a lot just recently since she left her job a few weeks ago. We're trying to rein in something that we had gotten a little sloppy about. Eating out was a big one. We were averaging about $300/month eating out, most of it unnecessary. And a while ago I trimmed our cable package and replaced our rented modem with one I bought on ebay. I'm in the process of getting a new life insurance policy to trim that expense.

[MonkeyMama]

Two things:

1 - I just want to clarify I was more comparing $70k-ish incomes to $130k-ish incomes. I have young kids, and that is my frame reference. These incomes can easily buy the same lifestyle during daycare years. Heck, I still make significantly less money than last we both worked, but take home more income, because our taxes have decreased that substantially.

But mostly, just wanted to be clear I was not comparing $250k to $68k, personally.

2 - My family actually comes from a very poor background, so I think it's relative. I personally could find nothing to complain about a $68k income, and that is with raising two kids in California. But, lord knows that we also know how to stretch a dollar, because of that kind of background.

[Blessed]

Barclay, I went to the IRS site to see what $2500 tax credit exists. I see that it is an expansion on the Hope Credits program, created throught the American Recovery and Reinvestment Act. With two kids in college, you are probably keeping up with these things, but some people of fairly high income may be eligible for the tuition tax credits. Per the IRS,

The American Opportunity Tax Credit modifies the existing Hope Credit. The AOTC makes the Hope Credit available to a broader range of taxpayers, including many with higher incomes and those who owe no tax. It also adds required course materials to the list of qualifying expenses and allows the credit to be claimed for four post-secondary education years instead of two. Many of those eligible will qualify for the maximum annual credit of $2,500 per student.

The full credit is available to individuals whose modified adjusted gross income is $80,000 or less, or $160,000 or less for married couples filing a joint return. The credit is phased out for taxpayers with incomes above these levels. These income limits are higher than under the existing Hope and Lifetime Learning Credits.

http://www.irs.gov/uac/American-Opportunity-Tax-Credit

I also want to mention that what you choose to spend on your children's tuition IS from disposable income as most people understand the term.

As regards savings at lower incomes, my own situation is that in the last several years before retirement, we were putting 13% into a pension fund (this is NOT counting the employer contribution) then we were putting an additional 15% into 403-B, plus taxable savings. So a total of 28% was going to savings. Our income has usually been close to the median national income, though in our highest years it was about $63,000. Now, we have less than the median reported in the 360blog. Actually even out of our pension income we are still saving 14%, but some of it will no longer be long term savings, but will be used for things like replacing major appliances as they break down.

If you are curious as to how we do it, stick around and keep reading here. There is plenty said about nitty gritty ways to save pennies. Yes, pennies because at much lower incomes you have to do that.

Oh, and do you know that some people, low ncome or not pay 10% in sales taxes alone? I know my family in Tennessee does. I'm not sure if they have ever exempted food and medicine from that amount of tax either. When I lived there, the sales tax applied to everything.

Where I live we pay about 8% on non-food items, about 6% on food, 1% city income tax, 6% state income, a real estate tax that I think is just shy of average, and of course all the car related state and local fees and taxes. Oops, there is a personal property tax as well. Everyone pays the same for water as there are no meters. I consider us fortunate to have had federal income tax of about 8.2% in our highest year.

I kind of thought, Barclay, that you were thinking your top 2% income is not really effectively very different from that of a family which qualifies for Pell grants. I think it would be quite different.

People at $68K of income can live well and save if all goes well (health, ability to find stable or consistent work, no legal troubles, etc) and they have control over themselves. We've been able to do it on less, and doubtless others have as well. It does require restraint, thoughtfulness, planning, and a certain amount of inner dignity.

[JoeP]

So many people fall into that trap - if we just made more, our problems would be gone. It never works because most people don't have an income problem, they have a spending problem. As their income rises, they upgrade their lifestyle to match it.

And sometimes that lifestyle upgrade exceeds their income rise because they do not track their spending!

[Barclay]

Wow. I didn't think my posts would be taken so offensively. I certainly didn't mean them that way.

I did not mean to imply that somehow a family making $68k couldn't possibly make it...I was just saying that it seems it would be pretty difficult. Upon further analysis, I was saying that okay...they pay less in taxes, they don't save as much for retirement, they don't pay as much in tuition, so yea, it's definitely doable.

I also don't spend money on a lot of luxuries. Yes, I own 6 vehicles. No, they are not all $60k vehicles. Yes, I put a significant portion into savings for retirement. But, I also thrift shop, buy used cars, bought a short sale home and fixed it up, do my own yard work, clean my own home and eat almost all of my meals at home. That was sort of my point. If we live so frugally on our income and the average household is $68k, how do they do it?

And times are quite different. I grew up very poor and was homeless at 16. I got full tuition scholarships but had to take out student loans for food and rent. Student loans were okay then, because almost everyone graduated and got a job immediately. Today, students don't have recruiters at their graduations fighting over them for jobs. Now, students have to really struggle to find jobs and they don't pay as well.

[disneysteve]

If we live so frugally on our income and the average household is $68k, how do they do it?

I think the definition of frugal is different when you earn 50K vs. when you earn 250K.
I also think the definition of a luxury is different.

[Blessed]

Wow. I didn't think my posts would be taken so offensively. I certainly didn't mean them that way.

I did not mean to imply that somehow a family making $68k couldn't possibly make it...I was just saying that it seems it would be pretty difficult. Upon further analysis, I was saying that okay...they pay less in taxes, they don't save as much for retirement, they don't pay as much in tuition, so yea, it's definitely doable.

I also don't spend money on a lot of luxuries. Yes, I own 6 vehicles. No, they are not all $60k vehicles. Yes, I put a significant portion into savings for retirement. But, I also thrift shop, buy used cars, bought a short sale home and fixed it up, do my own yard work, clean my own home and eat almost all of my meals at home. That was sort of my point. If we live so frugally on our income and the average household is $68k, how do they do it?

And times are quite different. I grew up very poor and was homeless at 16. I got full tuition scholarships but had to take out student loans for food and rent. Student loans were okay then, because almost everyone graduated and got a job immediately. Today, students don't have recruiters at their graduations fighting over them for jobs. Now, students have to really struggle to find jobs and they don't pay as well.

I have some one dear to me that makes over the $500k mark yearly. We have had quite a few conversations about budgeting. The same bills just more zero's. At the time we had a house payment around $700 . They had a $7000 payment. Just another 0 but
fit with their income. The bigger home adds more o's to utilities etc.

[Barclay]

Fair enough. Some people definitely spend more money as they earn more. I know people who live within their means and many far below their means at all income levels.

[disneysteve]

Fair enough. Some people definitely spend more money as they earn more. I know people who live within their means and many far below their means at all income levels.

I think what many of us struggle with is differing priorities. We've watched friends of ours who we went to high school with do extremely well and now earn probably 5-7 times as much as us. Along the way, they've steadily upgraded their lives - house, cars, furniture, jewelry, etc. All pure wants, not needs. They aren't spendthrifts and save and invest for the future, but I just don't see myself ever spending that kind of money even if I had it. If my income doubled or tripled, I'd mostly maintain my lifestyle, sock away money into investments, and retire early, but I realize that isn't everyone's priority in life. It's just hard to look at them spending as much to landscape their patio as I earn in 6 months and see it as a good use of funds. But to them, it was and they have the money to do it, so who am I to complain.

[JoeP]

Wow. I didn't think my posts would be taken so offensively. I certainly didn't mean them that way.

I did not mean to imply that somehow a family making $68k couldn't possibly make it...I was just saying that it seems it would be pretty difficult. Upon further analysis, I was saying that okay...they pay less in taxes, they don't save as much for retirement, they don't pay as much in tuition, so yea, it's definitely doable.

When you make less money, you have less to spend, and your expenditures and lifestyle adapt to match. There is nothing difficult about living in a modest home in a lower tax area, or vacationing once every 2 years, or owning just 2 cars, or using coupons, or having prepaid cell phones, or using an antenna instead of a pay TV service.

A household sitting on a 6 figure salary, with a lifestyle to match, will obviously say it is hard to give up what they have become accustomed to and move down to $68k.

[Barclay]

I think what many of us struggle with is differing priorities. We've watched friends of ours who we went to high school with do extremely well and now earn probably 5-7 times as much as us. Along the way, they've steadily upgraded their lives - house, cars, furniture, jewelry, etc. All pure wants, not needs. They aren't spendthrifts and save and invest for the future, but I just don't see myself ever spending that kind of money even if I had it. If my income doubled or tripled, I'd mostly maintain my lifestyle, sock away money into investments, and retire early, but I realize that isn't everyone's priority in life. It's just hard to look at them spending as much to landscape their patio as I earn in 6 months and see it as a good use of funds. But to them, it was and they have the money to do it, so who am I to complain.

precisely.

We judge others based on our own priorities. I don't understand spending thousands on a one week long vacation every year. I don't understand having a 4000 sq foot home for a family of three. I don't understand expensive clothes - AT ALL. I'm saving for retirement so that I can quit work at 45 or so. Most people do not understand that. Neither of us are wrong. We are just different.

[snafu]

Very interesting discussion that brought forward different priorities and emphasis. Personally, I enjoy the challenge of living on less.