March 26, 2012

How to Not be "Poor" on $100,000 a Year

 In another of the long line of upper income people whining about being poor, downtrodden or failing to make ends meet I bring you :  First Person: How to Earn $100,000 and Still Feel Poor    I will give the author credit that their sob story is not nearly as bad as if it came from someone making $250,000 or $500,000 a year.  However I still fail to see how the majority of the country which manages to survive on less than $70,000 a year would have much sympathy for someone who makes considerably more money.

One of the worst parts of the article is when they ask : "Is six figures the new minimum wage?"  

No.   It is not.   Making $100,000 is nothing at all like making minimum wage in any way.  There is really no comparison whatsoever.    Minimum wage is $7.25 an hour.  That works out to $15,080 per year if you assume 40 hours a week for 52 weeks.     Making $100,000 a year is not at all similar in any way to making $15,080 a year.  To me this seems like someone asking if caviar is the new Velvetta cheese or if Mercedes-Benz is the new cross town bus ticket.

Lets examine the authors allegedly 'poor' life.

Here are the facts that I got out of their article:
1. Family income "recently topped" the $100,000 level
2. They live in Tampa Florida area
3. Expenses include:
utilities : $350 
car insurance : $300
internet, cable, phone $175
mortgage : $1222
car loan : $300
gasoline : $500
food : $1000
4. They have 2 sons in community college and they're spending $15,000 annually on books and tuition and one son covers $5000 of the costs.
5. They also say : "We bought a new car this past year so our son could earn money for college delivering pizzas."
6. Their house is underwater, which isn't uncommon nowadays especially in Florida.   They are paying extra towards the principal : To try to stay above water on our mortgage, we pay an extra $250 a month to the mortgage company."

Their take home income

First she says that their income recently topped $100,000.   From that I can assume they are only marginally above $100,000 level.    This doesn't tell us what their take home income is after taxes but we can guesstimate that.   A family of 4 with $100,000 gross income would have a federal income tax bill of approximately $10,650 with the minimum standard deduction and exemptions.  They would also have to pay about 5.65% currently towards social security / medicare or another $5650.  Their taxes would be about $16,300 per year.    That excludes any possible deductions or credits.  They live in Florida which has no state income taxes.   I could be wrong on this guesstimate but I'm probably not far off.   That leaves them $83,700 annually or $6975 per month after taxes.

Spending

The sum of the expenses they listed is $3,847 per month.   They also have college expenses of $15,000 or $1250 per month.   They put $250 extra towards their mortgage.   In total they document spending of $5,347 per month.

Income - Spending

The monthly income I figured at $6975 and their documented spending  is $5347.    The difference is $1628 per month.    Thats a pretty healthy amount.  Its feasible this money is eaten up by some retirement savings, health insurance premiums and miscellaneous undocumented spending.  

Problem areas

Looking at the areas that they spend money on I see three items right off that appear to be too high.

Food:  They are spending $1000 and she claims "our food budget just provides the basics for four people".
That is about 25% more than average spending per person.   The Consumer Expenditure Survey says that average household with 2.5 people spends $6129 annually on food.   That works out to $204 per person monthly and this family is spending $1000 for 4 people.   The average American household spends about 40% of its food budget on eating out so its not even especially frugal.   She does say she has two boys in college, so maybe those two boys eat a lot.   But I don't really see how someone could say that $1000 per month for 4 people "just provides the basics".   Thats over $8 per person daily.

College:  I'm not sure how they could be spending $15,000 a year on tuition and books for a community college in Florida.   I looked up community colleges in Tampa and the tuition rates seem closer to $3000 a year there for in state rates.  I know college textbooks are pricey but they aren't that expensive.   I think something is missing in this information or they are actually going to some sort of private junior college.  Either way they really should not be spending so much money on community college.  

New Car Purchase She says that they bought their son a new car so he could make money delivering pizzas.   That makes no sense to me.   You certainly do not need a new car to deliver pizzas.

I am not even going to go into their other expenditures like the $350 for utilities, $300 for insurance and $175 for their internet, cable, phone bills.   I think its quite likely they could cut those bills further if they wanted to.

If you are able to save money, pay for college out of pocket, eat well, have a reasonably nice home, drive new cars, and do the other things this family does then there is really no reason for them to 'feel poor'.

Nobody making $100,000 a year should be complaining about being poor.

 
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5 comments:

  1. Their food spending is in line with their income. One could (and you do) take issue with them describing it as "just the basics", but really, it's not like they're spending two or more times the average. 25% extra could be just a little bit higher quality, a few more convenience foods, slightly nicer restaurants. Nothing drastic.

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  2. SteveD, Agreed. Their food spending isn't anything extraordinary or excessive really compared to their income level.
    However food is certainly an area they could cut back on if they are having trouble with their finances. My main issue with the whole article is that their situation does not qualify as "poor" in my opinion. And if their spending on food is in line with the top quintile of households then that is not "just the basics" either. Actual "poor" people don't have the luxury of spending $8 per day on food.

    Jim

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  3. Hmm, $100,000 a year is a decent income, and it all falls down on how you manage and budget your expenses. If you are an Oniomania or a compulsive buyer, there is a big chance that you'll lose all your money at once. So manage the money, and everything will be fine. :)

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  4. This article was also covered on FMF: http://www.freemoneyfinance.com/2012/04/how-to-earn-100k-and-still-feel-poor.html

    Commenters there also wondered about the $175 on internet, cable and phone. I actually don't see why people think that's high. Our local cable provider's "Triple Play" is about $130 plus taxes once promotional pricing runs out. They presumably have cell phones for everyone in the family as well. If anything, I'm surprised their total bill for those services is only $175. I have only internet and share two fifths of a family cell plan with my siblings on the opposite coast, and our expenses are still $130 per month for what I consider "bare bones" connectivity to the world in this modern age.

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  5. SteveD : Yeah I don't think $175 for internet, cable and phone is high at all. It seems reasonable to me and might be below average. My wife and I actually spend about $300 total for our TV,internet,phones. We're not being frugal though and have lots of extras on our plans. But its something we like and can afford, so I don't think its a 'problem' and I'm not complaining about being 'poor'.

    I think the people commenting about it on FMF may have been suggesting it could be lowered based on the fact the family 'felt poor'. If you feel poor then its time to cut spending and giving up cable TV altogether is a good idea. If someone was actually struggling financially then cable should be a luxury. So if someone says "I'm struggling financially" then "drop your cable TV" is a good suggestion. Of course the family in question isn't struggling at all.

    OR.. the commenters thinking tis 'too high' may be particularly frugal and/or not value those services. People who don't watch much TV and have a $10/month pay-go cell phone would consider $175 a month to be high. There are a lot of personal finance bloggger and readers that are of that mentality. I think FMF himself has a cheapo cable plan and his work pays for his cell phone and his wife makes due with a pay-go cell. So their bills could be $100 all in.

    Jim

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