How a family spends away $500K per year

[monkeydelmagico]

They shouldn't be paying that much in taxes unless they really like donating to .gov. Not even close. Should be about $50k less before other deductions. That's how I know this is a made up list rather than someone's real life.

 

[Sho'Nuff]

1.5 million dollar house? Unless this person lives in San Francisco, they're spending too much on housing.

Scratch that... almost EVERYONE who lives in San Francisco spends too damn much on housing.

In NYC that 1.5 million probably equates to a decent 3 bedroom apartment.

 

[Sho'Nuff]

Yeah that's definitely not average. Seems like they're living the life. If I were in their shoes I would do the same. Enjoy the finer things and traveling the world with my family at a younger age than as an old person.

It is all relative. Take away the BMW's and the three vacations a year. Now their expenses look more in line with everyone elses - they are just paying a lot more because they live in NYC.

Also - consider their peers. They are both new york lawyers. They probably feel average because they are doing what their peers are doing.

That said, they need to ditch all the charity stuff and either save for retirement if the student loan debt is at a low enough interest rate, or pay down that debt.

 

[Sho'Nuff]

The ATOT consensus, where you are allowed to make a lot of money but you are not allowed to spend it, only save it, so that when you are old and crippled you can then go out and travel the world, only to realize you are too old to do all that shit.

I think the ATOT concensus is that one is allowed to live like a baller if that is within one's means. But when one is making an objectively large amount of money each year and being portrayed as "feeling average" because their spending is out of line with their income - that is when ATOT is going to kick them in their virtual nuts.

 

[Rumpltzer]

The Notorious B.I.G. had it right: "Mo Money Mo Problems". It seems that people always normalize their incomes to make themselves feel "average". I even see it in myself! If they'd take a step back, they'd probably appreciate what they have. They could probably cut their expenses by 10% without really feeling it. Maybe set a goal of cutting by 20% and then see if they really miss stuff.

Also, I have two Lexus (2014, 2015) with clean driving records in SoCal. It's $900 per 6 months with full coverage.

 

[dullard]

I think the ATOT concensus is that one is allowed to live like a baller if that is within one's means. But when one is making an objectively large amount of money each year and being portrayed as "feeling average" because their spending is out of line with their income - that is when ATOT is going to kick them in their virtual nuts.

Spend 85%, save 15%. That way you enjoy life now AND later. That is as close to the ATOT consensus as there is.

The problem here is two-fold:
(1) They claim they are average while spending more on unnecessary items than many people make in a full year. This is lifestyle creep. They don't even realize that what they are doing is extravagant.
(2) They claim that they aren't saving but they are putting away $36k/year in the 401k [with employer match, this is probably closer to $56k] and are paying down lots of debt meaning that their net worth is increasing by at least $100k/year. That is far from "only $7,300 left ... to go towards other savings goals... or retirement funds". Heck, if they include their 401k gains from the last year, they probably had their net worth going up at least $150k to $200k.

There is nothing wrong with them spending like they do. We need them to spend to keep the economy going. And since their net worth is skyrocketting, they aren't overspending.

 

[MtnMan]

It's certainly high, but I know people who pay that kind of money for their kids. It's crazy.

For kids that are still in day care, i.e. haven't started kindergarten yet? I still say BS

 

[MtnMan]

Minimum payments on $200k+ (each) of Law School or Med School loans, after a 30 year refi/consolidation.



I can definitely see $12k a year of sports, music lessons, and academics.

Sports can be crazy pricey if you're unfortunate enough to have a kid who is talented and wants to compete with others at their skill level. Music lessons and academic tutoring aren't exactly cheap, either. (Up to $40 per half hour session, depending on the instructor, x40 per year.)

Even Chess Club is going to cost a couple hundred bucks in fees, a copy of ChessMaster 3000 and after-school transportation costs.

For kids still in day care, i.e. birth to 4 or 5 ...... BS

 

[TwiceOver]

They shouldn't be paying that much in taxes unless they really like donating to .gov. Not even close. Should be about $50k less before other deductions. That's how I know this is a made up list rather than someone's real life.

This. According to the 2016 rates, they are over paying by a tremendous amount.

Also, $400/child/week in daycare? There's a difference between "a place that cares for your kids" and "THE place that everyone else goes to that cares for your kids".

LOL $1000 worth of "something always comes up" every month?

What I see is poor planning and whining about their income because of it.

 

[rh71]

For kids that are still in day care, i.e. haven't started kindergarten yet? I still say BS

We went to a cheaper daycare (age 3-4 before Kindergarten) because we have twins and had to pay both at the same time. These people also have 2 kids in daycare presumably at the same time. I remember seeing it as a 2nd mortgage and around $2k-2500/mo. (again, cheaper daycare in the burbs, not NYC). $30k a year for us. $42k for the couple in this thread is not impossible.

There's an article out there about daycare costing more than college in some states. NY is one of them. Dare I say, thankfully we only have college left.

For kids still in day care, i.e. birth to 4 or 5 ...... BS

It does get confusing because there's also daycare after age 5... more like before & after-school care for 3-4 hours/day and many people have nannys categorized as daycare. I don't know the cost but that could be why sports costs are presented at the same time as daycare. If I didn't work at home, we'd need after-school care for sure. Our boys are 9 and pay $3k/child for travel hockey. Then there's all the clinics and other intramurals like soccer... and this is just sports.

Regardless, I still feel like these people are doing everything they can NOT to save. Because they don't feel they have to.

 

[ponyo]

We went to a cheaper daycare (age 3-4 before Kindergarten) because we have twins and had to pay both at the same time. These people also have 2 kids in daycare presumably at the same time. I remember seeing it as a 2nd mortgage and around $2k-2500/mo. (again, cheaper daycare in the burbs, not NYC). $30k a year for us. $42k for the couple in this thread is not impossible.

There's an article out there about daycare costing more than college in some states. NY is one of them. Thankfully we only have college left.

My relatives and friends had kids in daycare so I know how expensive it is. They paid $1,600 a month per kid. That's $19,200 a year. My one friend had 3 kids in daycare for short period. They decided to get a nanny because it was cheaper. Now those 3 kids are in grade school. But parents are still paying because they go to private school. $18k a year for each kid for private elementary school. $54k a year for 3 kids. They get slight discount for having 3 kids at the school but it's not much. I always tease them it's why they don't have a Ferrari. BTW, this is for Atlanta. I'm sure it's more expensive in NYC.

 

[[DHT]Osiris]

My relatives and friends had kids in daycare so I know how expensive it is. They paid $1,600 a month per kid. That's $19,200 a year. My one friend had 3 kids in daycare for short period. They decided to get a nanny because it was cheaper. Now those 3 kids are in grade school. But parents are still paying because they go to private school. $18k a year for each kid for private elementary school. $54k a year for 3 kids. They get slight discount for having 3 kids at the school but it's not much. I always tease them it's why they don't have a Ferrari. BTW, this is for Atlanta. I'm sure it's more expensive in NYC.

Brother/sister in law are in a similar boat, 3 kids, shifted from like a 3-series-a-year worth of babysitting to the same cost for private school, I think they're now back in Normal People School(tm) though after making the rounds.

P.S. they bring in north of 130k/yr and are in horrible debt. In south carolina (not a city). GF and I lived in the same place (I worked in the same office as him) at under 60k/yr just fine.

 

[dainthomas]

no thats real and actually in some places thats cheap

You could donate 1% of that to some charity for poor kids in Guatemala and they'll even send you letters and pictures and crap. That's more interaction than most people get from their kids, especially when they turn into worthless teenagers.

 

[Sho'Nuff]

Spend 85%, save 15%. That way you enjoy life now AND later. That is as close to the ATOT consensus as there is.

The problem here is two-fold:
(1) They claim they are average while spending more on unnecessary items than many people make in a full year. This is lifestyle creep. They don't even realize that what they are doing is extravagant.
(2) They claim that they aren't saving but they are putting away $36k/year in the 401k [with employer match, this is probably closer to $56k] and are paying down lots of debt meaning that their net worth is increasing by at least $100k/year. That is far from "only $7,300 left ... to go towards other savings goals... or retirement funds". Heck, if they include their 401k gains from the last year, they probably had their net worth going up at least $150k to $200k.

There is nothing wrong with them spending like they do. We need them to spend to keep the economy going. And since their net worth is skyrocketting, they aren't overspending.

The 85/15 rule works up to a certain level of income. But once you exceed a certain amount IMO opinion it really should be spend 80%, save 20%, or spend 75%, save 25% - else one risks a big lifestyle shock when one retires - particularly if one is carrying large amounts of debt (as this couple is).

I agree with you re: the value of paying down their debt. I would just be a LOT more aggressive about it - particularly as charitable giving does nothing for net worth and should always come second to getting oneself out of debt. At the very least - charitable giving should not be an appreciable amount of one's income when one is carrying what appears to be almost $2M in debt ($1.5M mortgage, likely $300K in law school student loans, and probably around $100k in car loans).

 

[Sho'Nuff]

Also, $400/child/week in daycare? There's a difference between "a place that cares for your kids" and "THE place that everyone else goes to that cares for your kids".

Daycare is freakishly expensive. For example, my wife and I pay $300 a week to have our daughter in full time daycare at a school that is run by the city. Its clean and reasonably comfortable, but nowhere near "the" place to have your kids taken care of. And that is for a 5 year old in a small city in New Hampshire. Contrary to what many believe, it costs more to have an infant in daycare than a toddler. So - $400/week for childcare in NYC is not at all implausible.

Babysitting has also gotten terribly expensive. Its almost impossible to find a sitter who will work for less than $12/hour in my area (for one child). Which is why my wife and I do "kid exchanges" with two other couples. Once a month we take watch the other couples' kids at our place, letting them go out for a night. Each of them do the same for us. So each couple gets to go out twice a month with no babysitting cost.

There is a reason why the Trump administration has proposed a bill to help americans deal with the cost of Daycare.

 

[MrSquished]

In NYC that 1.5 million probably equates to a decent 3 bedroom apartment.

In the nicer parts of Jersey City 1.5 million will get you exactly that, a nice 3 bedroom. In Manhattan or Brooklyn I can even imagine what that would cost.

 

[dullard]

The 85/15 rule works up to a certain level of income. But once you exceed a certain amount IMO opinion it really should be spend 80%, save 20%, or spend 75%, save 25% - else one risks a big lifestyle shock when one retires - particularly if one is carrying large amounts of debt (as this couple is).

The save 15% part takes care of that shock, assuming typical returns on their investments and typical retirement ages. 15% is the balance point where there is no significant difference between pre-retirement and post-retirement disposable income.

Lets assume they are professionals that start work at age 25 (a bit later than most people do) and work until their full retirement age of 67. That is 42 years of saving. Lets assume their income and savings go up at the same rate as inflation so that we don't have to worry about inflation. Lets assume that they save 15% of their income each year. Lets assume they get a 6% return on investments. Lets assume that they do the fairly conservative suggestion of withdrawing 4% of their total investments when they retire. Also, since this is hard to estimate, assume tax rates are the same.

In that case, in terms of multiples of income the future value is:
Future value = (0.15 * income) * ((1+0.06)^42 - 1) / 0.06 = 26.39 * income
Withdrawing 4% of their investments means that they get to spend 0.04 * (26.39 * income) = 1.056 * Income.

They get to spend in retirement just about exactly what they spend pre-retirement.

 

[[DHT]Osiris]

The save 15% part takes care of that shock, assuming typical returns on their investments and typical retirement ages. 15% is the balance point where there is no significant difference between pre-retirement and post-retirement disposable income.

Lets assume they are professionals that start work at age 25 (a bit later than most people do) and work until their full retirement age of 67. That is 42 years of saving. Lets assume their income and savings go up at the same rate as inflation so that we don't have to worry about inflation. Lets assume that they save 15% of their income each year. Lets assume they get a 6% return on investments. Lets assume that they do the fairly conservative suggestion of withdrawing 4% of their total investments when they retire. Also, since this is hard to estimate, assume tax rates are the same.

In that case, in terms of multiples of income the future value is:
Future value = (0.15 * income) * ((1+0.06)^42 - 1) / 0.06 = 26.39 * income
Withdrawing 4% of their investments means that they get to spend 0.04 * (26.39 * income) = 1.056 * Income.

They get to spend in retirement just about exactly what they spend pre-retirement.

Now take all that and flush it down the shitter, because most people are throwing all their 'extra' money on debt from 25-38, at this point it branches between those who have kids (now panic mode to save for their college) and those that don't (now get to save frantically because they're 15 years behind their 'peers').

 

[dullard]

Now take all that and flush it down the shitter, because most people are throwing all their 'extra' money on debt from 25-38, at this point it branches between those who have kids (now panic mode to save for their college) and those that don't (now get to save frantically because they're 15 years behind their 'peers').

Spending a decade investing in paying off your debt is mathematically similar to spending a decade investing. The only difference is the returns. For example, paying down mortgage debt right now is probably going to return ~4% instead of ~6% to ~10% in the stock market.

The problem is when people at that age have debt and AREN'T paying it down or worse, pay down the debt and go on a spending spree when the debt is low rather than continuing to invest that money.

This particular couple's debt is probably falling quite a lot each year. Not so much in the beginning and more so at the end due to the way debt payments work, but still it should be falling quite a bit. Assuming a 30-year mortgage, their mortgage debt goes down an average of $50k/year. Assuming $300k in student loans over 15 years, their student loan debt goes down an average of $20k/year. That is $70k of investing right there. Add in their $36k in 401k investing, any company match, car loan reductions, and whatever they choose to do with their extra $7k/year. They are essentially investing well over $100k/year if you add it all up. But, they shouldn't go out and get a new BMW as soon as their current loan is paid off or they lose the benefit of paying down debt (that is another $9600/year that can go to investments).

 

[[DHT]Osiris]

Spending a decade investing in paying off your debt is mathematically similar to spending a decade investing. The only difference is the returns. For example, paying down mortgage debt right now is probably going to return ~4% instead of ~6% to ~10% in the stock market.

The problem is when people at that age have debt and AREN'T paying it down or worse, pay down the debt and go on a spending spree when the debt is low rather than continuing to invest that money.

It's both problems, I was raised in a household that sat under a mountain of debt, so what got ingrained in my was 'pay of all debt!' regardless of interest rates or returns. I started my adult life abhorring all forms of debt, and as such have spent a large amount of time paying it off.

Second is definitely the latter. I know a lot of people that, upon gaining additional income (via a raise or via debt going away), more things fill the vacuum. Not smart things like "I'll pay off my mortgage faster", dumb things like "I'll buy a third car, I probably need a Subaru WRX to tinker with".

 

[EPCrew]

Childcare for two at 42 k is fricking criminal.

I'm in NYC and paying over $1800/month for part time (3 days per week) daycare. Can't wait to pocket that dough when kindergarten starts in September.

 

[MagnusTheBrewer]

I'm in NYC and paying over $1800/month for part time (3 days per week) daycare. Can't wait to pocket that dough when kindergarten starts in September.

Is it worth it just to live in NYC or, would it make more sense to live somewhere with a smaller salary and much lower childcare/cost of living?

 

[dave_the_nerd]

Is it worth it just to live in NYC or, would it make more sense to live somewhere with a smaller salary and much lower childcare/cost of living?

NYC is the center of the universe and the greatest city on earth. So yes.

 

[MagnusTheBrewer]

NYC is the center of the universe and the greatest city on earth. So yes.

I'm sure some people think so but, I wonder how many let inertia decide how they'll live. Personally, having lived in both large cities and bfe, I'd choose small town usa every time.

 

[Pulsar]

$9,600 a year in clothes? WTF? Do these people buy a new wardrobe every couple months?'

Shit. I figured it out. Trident made that list.