US

Families making $300,000-a-year are living paycheck to paycheck in big coastal cities, expert says

A family of four would need a combined income of $300,000 a year to live a ‘comfortably’ middle class life in big coastal cities like New York, San Francisco and Miami – which would include saving for retirement and owning a home. 

The six-figure salary is a far cry from the median US income of $67,521 a year, but it’s what two parents would need to afford a decent lifestyle in cities where home prices are far above average, according to the blog Financial Samurai

Average home prices are $1.5 million in San Francisco and $733,000 in New York City, according to Zillow – far above the current US median home price of $404,700.

‘I use $300,000 in this post because I also believe it is close to the ideal income for up to a family of four to experience maximum happiness,’ wrote finance expert Sam Dogen, who surveyed the costs of dozens of his readers living in expensive cities.

Dogen notes that goods and services have become drastically more expensive, with the consumer price index, which measures the average price of a basket of goods in urban areas, increasing by 68 percent since 1995. 

A three-person family needs a combined income of $300,000 a year to live a ‘comfortably’ middle class life in cities like San Francisco, where average home prices are $1.5 million

The budget also applies to New York (above); Seattle; Washington, DC; Denver and Vancouver

The budget also applies to New York (above); Seattle; Washington, DC; Denver and Vancouver

Dogen created two mock budgets, one for a household with one child and another for a home with two children.

The highest expense, perhaps unsurprisingly, is the mortgage, coming in at $46,900 based on $3,900 a month for a $900,000 mortgage for a ‘standard 1,750 sq ft, three bedroom, two bathroom home on a 2,500 sq ft lot.’

‘A middle class lifestyle should include owning your own median-priced home,’ Dogen wrote.

The second-highest cost is babysitting and childcare at $29,400, taking into account pre-school – 18,000 to $20,000 a year – and the average babysitting rate of $20 an hour in San Francisco.

Food, property taxes, and 529 education savings plans round out the other most expensive costs.

The budget above was compiled with a family of three in mind by Financial Samurai blogger Sam Dogen, a former banker at Credit Suisse and Goldman Sachs

The budget above was compiled with a family of three in mind by Financial Samurai blogger Sam Dogen, a former banker at Credit Suisse and Goldman Sachs 

The budget accounts for a $46,900-a-year payment for a $900,000 mortgage on a standard 1,750 sq ft three bedroom, two bathroom home

The budget accounts for a $46,900-a-year payment for a $900,000 mortgage on a standard 1,750 sq ft three bedroom, two bathroom home

Food - grocery shopping and weekly date nights - cost about $20K a year in the budget

Food – grocery shopping and weekly date nights – cost about $20K a year in the budget

Annual car payments totaling $4,700 are based on a single vehicle to fit the family. 

The budget does not include the costs of student loans, but it does include $4,200 in charity payments.  

At $300,000, a family isn’t saving much beyond 401k retirement plans and their 529 education savings plan, Dogen told the San Francisco Chronicle.

‘We’re in this perpetual grind in San Francisco, and it’s a city for people who are willing to hustle,’ he says. ‘At one point in the past, $300,000 was a lot of money. Now at this amount, you’re probably always going to end up working a long time and having a constant struggle to keep up.’

His budget includes $7,800 a year for vacation time. 

Median prices vary widely across the US - and Dogen encourages people looking to save money to leave expensive, coastal cities

Median prices vary widely across the US – and Dogen encourages people looking to save money to leave expensive, coastal cities

A revised $300,000-a-year budget for a family of four does with less leisure expenses and more childcare costs

A revised $300,000-a-year budget for a family of four does with less leisure expenses and more childcare costs

‘A middle class lifestyle includes vacationing several weeks a year. Some will say that spending three weeks of vacation is a luxury. However, I say spending three weeks of vacation is normal for two working parents who want to keep their sanity,’ Dogen writes.

He says that the combined salary of $300,000 is what a two-parent household needs in order to save for their child’s education, own a three-bedroom home, take three weeks of vacation and retire by a reasonable age.

Dogen is a graduate of the College of William & Mary and the University of California, Berkeley, where he earned a master’s in business administration. He spent 13 years working at Credit Suisse and Goldman Sachs before he left banking in 2012 by negotiating a severance package worth five years of living expenses, according to his blog’s bio. 

For his budget, he considered cities like San Francisco, New York, Boston, Los Angeles, San Diego, Seattle, Washington, DC, Boston, Miami, Denver, Vancouver and Toronto.

The budget was compiled by Dogen using reader feedback and was made with cities like Seattle, above, in mind. The median home price there is $874,877

The budget was compiled by Dogen using reader feedback and was made with cities like Seattle, above, in mind. The median home price there is $874,877

‘It’s not an extravagant lifestyle,’ Dogen said. ‘It’s a middle-class lifestyle if you consider a middle-class person should be able to afford a modest home, have at least one car, have a kid or two. There are no private jets in this budget.’

A revised $300,000 budget for a two-child home features more childcare and less leisure expenses.

He notes that the ‘ideal’ income for a family is actually closer to $340,000.

‘Any income over $340,100 is taxed at a 32 percent marginal income tax rate, or an 8 percent increase. This marginal federal income tax jump is large compared to the 2 percent jump from 22 to 24 percent [in the previous two tax brackets].’

In the end, Dogen recommends moving out of these expensive cities if the cost becomes too high to bear.  

‘If you feel the cost of living is too high, then consider moving to a lower cost area. In this new decade, it has become much more acceptable to work from home thanks to the pandemic,’ Dogen writes.

‘There’s a moving truck shortage in places like San Francisco because so many people are moving out of this expensive city and other expensive coastal cities.’


Source link

Related Articles

Back to top button