Reply to 40% of people making 500K/year are living paycheck to paycheck

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[quote=Anonymous][quote=Anonymous]Totally agree, i think 500k is the new middle class

[twitter]https://x.com/fintechfrank/status/2048544546053648608?s=20[/twitter][/quote]

What this chart actually shows that 300k is a threshold income at which point people start spending in ways that cannot always be backed up by their incomes. People under 300k are still budgeting, presumably making housing, education, and disposable income choices that still enable them to save and invest plenty. But at 300k, people start to let loose a bit and that is what creates the "paycheck to paycheck" feeling.

I will take just one line item to show what I'm talking about: private school tuition. Consider two families:

Family 1
295k HHI
SFH with mortgage
Public school
Maxing out savings/investment options as much as they can

Family 2
305 HHI
SFH with mortgage
Private school for two kids to the tune of 60k/yr
No longer maxing out savings/investment options because of money going to private school

Family 2 makes 10k more than Family 1 but feels 50k poorer, plus the money going to private tuition carries an opportunity cost since this is technically a disposable sum (they don't have to do private, public schools are available -- it's a choice) so were they not sending kids to private school they could be investing that money in a way that would get them real financial returns.

Private school, like many choices made for kids, also is an optional choice that becomes very hard to back out of because once your kids have acclimated to a school, made friends, etc., it is very painful to change things up (and no one wants to pull their kids from private because they can't afford it). Private school is also one of those expenses that often carries hidden uncharges -- the pressure to donate to the school fund, the expectation that kids will do more expensive ECs, the keeping-up-with-the-joneses that often comes as a cultural tax on that lifestyle choice.

That's why those people feel like they are living "paycheck to paycheck" on that income. They aren't, it's just they've backed themselves into a corner with a totally optional spending choice that they now don't feel they can easily escape. And it will last a decade or more. Dumb![/quote]

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