I'm writing this post really for the younger patrons here, as you think about your financial future (particularly in the US) and what fun adult life will bring; and to numerically describe the desperation so many people feel as the middle class falls further and further. So let me paint you a picture, and to be clear this picture is not my situation; I've made all this up to illustrate a point, but I am using very real, representative financial numbers for taxes, housing, COL, etc:
Here is a realistic budget of a young family (2 working adults, 2 young kids). Both adults have very good (but as you will see, far from good enough) jobs in a high cost of living state but in a low/moderate cost of living region therein.
| Total Gross Income ($100k each) | $200,000/yr |
|---|---|
| 401K (15% contribution, each) | $30,000/yr |
| Health Insurance | $4000/yr |
| Taxable Income | $166,000/yr |
| Federal Taxes | $21,000/yr |
| HCOL State Taxes (~5.5%) | $8,600/yr |
| Social Security | $12,400/yr |
| Medicare | $2,900/yr |
| Net Income | $121,000/yr ($10,100 per month) |
Ok, so this lucky family has just over $10k per month. Let's see how that monthly income would get spent under average (and current) market conditions for this family trying to live a middle-class life.
| Mortgage ($400k, 30YR 7%, 20% down) | $2,100 |
|---|---|
| Land/School Taxes + Insurance | $1,250 |
| Utilities/Internet/Cell phones/etc | $600 |
| Vehicle 1 ($40k, 4YR 6%) | $900 |
| Vehicle 2 ($40k, 4YR 6%) | $900 |
| Gas and Insurance | $600 |
| Food | $1,200 |
| Childcare | $2,000 |
| Total Expenses | $9,550 |
| Remaining/Unbudgeted | $550 |
Let that sink in… I've just described two, hard-working, maybe even well-educated, adults who were lucky enough to land jobs paying well above median wage, and what do they have to show for it? An average house, two average vehicles, and 500 dollars a month.
And look at what's not in this budget:
- no student loan payments
- no college savings for the kids
- no vacation or travel money of any kind
That remaining $500 per month is supposed to cover all other misc. expenses, plus go towards any kind of safety net to cover any kind of 'rainy day' expenses like a home repair, car repair, or medical bill? Give me a break.
Yes they get to save for the future (for now), yes they have a house, yes they have a vehicle, but c'mon those are table stakes for what should be a normal, average life. This family is one unlucky event away from sinking.
And you know that as soon as that childcare expense leaves the books, that money is going to be spread out into college savings, maybe an annual 1 week vacation, and building up that much needed safety net this family dreams of having.
So to recap: probably study for years, definitely work your ass off, and hopefully get lucky….. and maybe, just maybe, you and your spouse can have the kind of life just a little worse than your grandpap provided from his high school diploma 50 years ago. Wow, what a deal.
I guess my point here is that even when I draw up this aspirational fantasy family (a family that no one would pity and a family in which many of us wish we were a part) there still isn't relief in the way you might imagine, just a more comfortable precariousness to the slow descent of not being able to get ahead. And if this is what $200k/yr looks like, what do you think that says about the rest of us…