Reply to <$100,000 and don't feel poor

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[quote=Anonymous][quote=Anonymous]Here is how you can be poor with a high income:

1) three kids in private school
2) 2 million dollar house
3) 2 luxury cars

Those items:  45K/yr, private (4000/mo); Mortgage: 16000/mo (8 x my house...), and 2K/month car.

22,000/month. 264k /year....with 400K, that would leave 20K for everything else (after taxes).
[/quote]

Not even close. It's DC, so let's assume you and your spouse are junior partners at a law firm or lobbying shop (meaning you're technically self-employed and pay both sides of FICA and all your own benefits) but that you're both self-made and didn't inherit any money. You need an income of at least $500k/year to afford an 80% mortgage on a $2M home. After tax income (federal, FICA, and DC) is about $330k. The 401k max is $17,500 each and health insurance is about $20k.  So that leaves $275k in take home or a little less than $23k/month take home.

10% in savings - $2300/month
Mortgage - $11k/month ($8k plus $2k property taxes plus $1k insurance).  
Utilities - $500
Groceries - $500
Private school - $6250/month or $75k/year Only the church-sponsored religious schools cost $15k in DC. 
Car payment - $0 since you paid cash.
Vacation - $10k for 2 weeks of vacation for a family of 5

That leaves a grand total of $1100 left over to cover clothes, philanthropy, dinner out, and everything else you want. You need a HELOC to cover cash flow to pay estimated taxes sicne you put $400k down on the house. The house is a mess but you can't really afford to hire a cleaning lady. And your $2M house in Cleveland Park or Chevy Chase is really not that big or impressive looking compared to many of your neighbors, let alone the McMansions in McLean or Potomac. You pay attention to your spending because it matters that you stay on budget. If either of your careers run into trouble, everything falls apart and so it is completely understandable that you feel on financial tenterhooks, maybe even "poor".

But of course you aren't anywhere close to poor. If you didn't send the kids to private school, you'd have a lot more money. You also have a pretty solid cushion of savings if you keep the 10% going and in time that savings will start to get pretty big and throw off substantial income, as will the 401k. And your income is going to keep climbing. A 3% raise means $10k in additional after tax disposable income.

People make their own choices and they get anxious about those choices. It's not that hard to offer a little empathy and perspective to someone.[/quote]

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