Money

On Money and What’s “Average”

I’ve been mulling over this post for a few days. Writing about money is always tough and sensitive but it’s led to some of my favorite discussions on the blog. Originally this was just going to be linked in my Weekend Update but over the last week I’ve been obsessed with this chart! It came from this article, via CNBC, which is also worth a read. I’ve been sending it to friends, asking what they think, and it’s been interesting and led to a lot of discussions.

At first, I really wanted to judge. I mean, the title is basically one of those clickbaity ones – like, look at these people making half a million a year and complaining. Yeah! And then with a quick initial scan I was like…those are some big numbers. When I started to go deeper however, really think about what I myself spend per year – well, hmmm, some definitely seemed familiar. I thought I’d share some of my reactions (in hopes that you’ll share yours).

Childcare – To me this is a normal number if you have multiple kids and both parents work. Or even if a parent doesn’t work but there are multiple kids in full time preschool. A HIGH number for sure, I think our childcare bill is crazy and this is something I think a lot of people don’t think about/realize when they’re starting family planning.

Food – At first I thought this number was high but honestly it’s probably close to what we were ranking at before, right now we are lower but that’s because we are basically chained to the house all day and go to child friendly restaurants (which tend not to be Michelin starred). If we were going to date nights twice a month and drinking for all of them? I think it’s really easy to land at $2K per month.

Clothes – If you aren’t doing fancy bags or clothes or shoes then I thought this was pretty high! Like what is your definition of fancy, though? Just the “regular” brands at Nordstrom? Paying full price? At the same time this is less than one Hermes bag (certain bags) so yeah.

Anyway. I don’t know why I was so fascinated by the article – maybe because it inspired feelings on multiple sides, those of both wanting to judge and feeling defensive. Somewhere in the piece there’s a mention of lifestyle creep, and that’s definitely something that I’ve felt come up the last few years, though after kids that creep definitely changed for me, from travel and entertainment and luxury shopping to child related expenses. And kids are really tough and I can’t fault anyone for spending on childcare. Or at least I personally choose not to. One pet peeve about the article is how it frames that the couple is saving “nothing” though they are maxing out their 401ks, though of course they could be saving more. But I also think life is hard enough for parents with young kids…or maybe I’ve become a softie??

Reactions from friends? I polled about six people and they ranged from – these people should be publicly named and shamed! to – these people are saints and I couldn’t survive on double that, to – oh ha ha, how did you get a copy of our credit card statement?

So. I know you all are money savvy and have thoughts. I’d love to hear them!

You Might Also Like

16 Comments

  • Reply
    Helen
    April 1, 2019 at 9:11 am

    I read the same article and lots of people commented that 40% tax is crazy. Well, if you live in CA or NY, that’s about right. I made way less but have similar expenses, minus the student debts, car debts or the travel. Oh, and no one commented on the $18,000 donations to charity!! So quick to judge.

  • Reply
    KR
    April 1, 2019 at 10:29 am

    I don’t think the 40% tax rate is correct. That may their MARGINAL tax rate, but not their effective one. We are in a similar income band in California and our effective tax rate is 22% federal plus 7.8% state, and we paid off our house so we don’t deduct mortgage interest. If this person deducted the charitable contributions and mortgage expense, they could easily be saving that amount (approx $15k in tax savings at the effective federal rate of 22%, way more if you use their marginal rate and state deduction). $1000 a month for 2 kids sports and lessons? That sounds really high to me too, especially if they are already paying for childcare. While I don’t think this chart is that far off the mark for a family in the bay area, I do think this is an extreme case. What’s the point of having two incomes and working so hard if you are just on a hamster wheel and not saving anything to get out of that mess? Be frugal, have less expensive cars that get better gas mileage, spend less on eating out, not quite so much on charity in favor of building up savings, and focus on saving.

  • Reply
    C.Michol
    April 1, 2019 at 11:15 am

    While I would spend differently (three vacations a year, really? and that’s a LOT of money for the kids’ lessons) , I can see how they’re spending this much on a regular basis. (The childcare portion and the taxes seem particularly relatable if they’re living in CA or NY.) I guess the problem is that they think they’re “average.” The average American doesn’t have this much and not recognizing that these choices, while understandable, are choices they’re lucky to be able to make, is the problem.

  • Reply
    Xin
    April 1, 2019 at 11:18 am

    I was familiar with the blog post that is the source of this graphic (https://www.financialsamurai.com/scraping-by-on-500000-a-year-high-income-earners-struggling/) back in 2016 – I was surprised to see it suddenly go viral again recently. I’ve been thinking a lot about it because some of the details about the “real” couple that the blog entry purports to describe is basically my SO and I, and may of our colleagues and law school peers (two early-30s attorneys working and dwelling in NYC who, judging by their alleged salaries, most likely started in biglaw, and who apparently graduated with substantial student loans from law school). So I feel like I have a good sense of what real attorneys situated like that tend to spend, and what their lives look like from the outside. And ah, spoiler alert, most of us who are now inching into our early 30s don’t own a home, or cars, and only a few of our peers have even one very young child yet, so they probably wouldn’t be remotely close to “average”, even just among their direct peers, on those grounds.

    There’s quite a lot of details that didn’t seem right to me, or like there’s so much rounding up or down that the picture must be inaccurate in some substantial way: The tax rate, like KR mentioned, is one. (My effective tax rate for 2018 is 31.6%, including federal, state, and NYC city taxes, and given my seniority level in a biglaw-ish job, I’m in the general ballpark of what one half of this couple allegedly makes.) I’m also… extremely surprised that two biglaw-ish attorneys would have two children by their early 30s, between law school and the earlier associate years, it’s just hard to find a good time. I don’t know why two attorneys living and working in NYC would ever own two cars, no matter how splurge-y they wanted to be or not, there’s almost no way it makes sense for both of them to drive to work. The main issue though is that I find the student loans piece… unrealistic. A real couple in their shoes would have a lot more to say about their plans for the student loans (have they been refinanced? what’s the interest rate? are they on income-based repayment of some kind, is that why there’s a 10-20 year term? when exactly do they expect to be done paying? etc. etc.) because it’s an important part of their finances. That is, if they even still had student loans to pay off at all. I actually feel like the kind of couple that maxes out their 401(k)s would be done with their student loans entirely by their early 30s, or super-close to done, close enough that it bears mentioning. Also, er, given where the biglaw salary scale was in 2015, when I think the source blog entry was first posted, two biglaw-ish attorneys of their seniority level (most likely around 4-5 years into their careers) could easily be making… more than 500k/year in total compensation.

    The food and clothing expenses I could easily see. I’m certainly capable of spending half of each number on myself, as part of a DINK couple, though I’d consider my clothes a little fancy!

    • Reply
      ella
      April 2, 2019 at 6:39 am

      Agree with this. I got married at 30 and had my kids at 32 and 35; the Mr. and I were both associates at big law firms during that time (we’re now partners) and we owned our apartment in Manhattan and a small beach house (which we still have and love 12 years later). We had one car and we had a full-time nanny and sent the kids to private preschool (and now private K-12). We had no help from parents and I put myself through law school; I paid off my student loans before we were married; and we managed to save plenty while we were in our 30s while maxing our 401ks. So I don’t think this picture makes sense.

  • Reply
    Anna
    April 1, 2019 at 12:20 pm

    Many pointed out where the calculations are off and in the high side (tax rate, kids lessons) I wanted to mention a few things that can easily go higher. Tuition for two kids can easily go above 50,000 if both are in day care/preschool. Also 5k for maintenance on a 1.5m home is low for me. The more realistic figure is probably in the 10k – 30k range. With both parents working, house hold help (cleaning, laundry etc) can easily add up as well to 5k -10k.

    • Reply
      heather
      April 2, 2019 at 11:27 am

      Yep, this was my reaction too. What does it say that my reaction was curiosity about their “low” property taxes and home maintenance budget… Also, private school (beginning in Pre-K 3’s or 4’s at many places in NYC!!!) is >$50K PER CHILD. Not saying this makes the subject couple “average” by any reasonable standard, but it takes an effort to stay focused on the real world if you’re surrounded by people who spend at these levels.

      • Reply
        Anonymous
        April 2, 2019 at 12:15 pm

        Also looking at the life insurance, $2,500 for $3M term, is half of what we pay per year. LoL. The numbers provided are indeed at the low end. We also pay a lot more for food. Clothes is questionable, but then again, they may have small children and their clothes do add up.

        The 40% tax rate seems correct for NY. Cost of living there is high.

    • Reply
      Anonymous
      April 2, 2019 at 12:47 pm

      12K on childrens’ lessons (not tuition btw), a 1.5 million home, 3 vacations a year, luxury vehicle, and still feels “average” because you’re not saving a whole lot after paying for all those fancy things. O.K.

  • Reply
    CC
    April 1, 2019 at 12:53 pm

    I think the whole feeling average thing is too “keeping up with the Jones” for me. I don’t think we should judge people on how they spend their hard-earned money as we all have different beliefs and are free to choose how we want to live as long as we’re not hurting others BUT the whole, feeling average thing is bothersome to me. It requires one to compare ourselves to others which is stupid and it also suggests that being average is wrong. How others live shouldn’t affect how we live as we all have different needs, goals, and priorities. So feeling or being average shouldn’t matter because that is based upon measuring happiness and life satisfaction on how we rank against other people. I truly believe in Live and Let Live. We have so little time on this earth. Choose the life you want without the need to compare to others and you will be more likely to find contentment.

  • Reply
    Michelle
    April 1, 2019 at 3:30 pm

    How anyone chooses to earn their hard earned money is at their own discretion. If the couple feels average, it is how they feel. Sure, they could cut down in certain areas so they can feel richer but at the end of the day, it’s their choice. I do want to highlight that cost of living in the Bay Area is high. At one point, we were spending $60K in childcare (3 kids under 3) and our double income is no where near theirs. It wasn’t any fancy daycare – just Kindercare and sure a nanny might be more affordable but it is our choice to send the kids to a structured day care centre with proper license and controls and we do not believe in home based day care. Again, personal choice. What works for one may not work for others.
    Extra curricular lessons for kids do add up if you have 3 kids. Swimming, piano, gymnastics, dancing, art, band etc., I am not being a tiger mom and foisting these activities on the kids but they want to and since we can afford it, let’s do it. Not complaining. just stating the facts.
    Kids outgrow their clothes and clothes quickly. I don’t have to justify to anyone how I choose to dress my kids. Whether I buy clothes from Target or Mini Boden, Catimini or Oilily, does it matter? I only get to buy them cute clothes this age. Once they are in their teens, it’s all over, haha!
    I believe you only live once and if you work hard for your money and spend within your means, whether it means fancy cars or 3 vacations a year, what does it matter to others?

  • Reply
    Anonymous
    April 1, 2019 at 3:52 pm

    I agree with this comment. Although charity in itself gives you a bit of a tax break – provided you give itemized proof if the IRS audits -which is why rich people do it every year. But I don’t think donations count anymore with Trumps’ new tax bill for the average. That said, the people in this article are certainly not average.

    Assuming the children are attending a Montessori school, the costs are on par. Piano lessons are $95 a month on average for one child. 5 extracurricular activities and 2 kids…yes, it adds close to $12k a yeae.

    It is quite sad and normal for high income earners like these to be at a loss when the recession hits with that much savings left pee month. That said, depending on where and when they purchased their house, they would be able to recoup some money. For example, if they purchased their $1.5M home in 2009, and their home is now worth $2M they essentially have $500,000 in savings or equity after 10 years provided they buy another home worth $1.5M elsewhere…which is why most of the rich spend a fortune on home and why some retired people sell their homes with high equity and live in senior community centers to enjoy the rest of their retirement.

  • Reply
    Revanche @ A Gai Shan Life
    April 1, 2019 at 9:04 pm

    Honestly since this originated from a very clickbait PF blogger who’s less than a reliable narrator, I attributed at least half the numbers to fiction, including the tax rate. I took issue with calling them “average” because it’s only that if you’re talking about a thin slice of the wealthier population and it matters what you call yourself because if you truly believed that THIS is average in America, I think you’re likely to miss a whole lot of misfortune and imbalances in society that could use a helping hand and allies.

    Living in the Bay Area, I would personally make different choices with our money if we were at that income level, certainly, but I also would never claim to be average or a representative sample of anything. We are truly blessed to be where we are, who we are, with what we have, challenges and all, and I never want to lose sight of that. I have only to look to my first cousins who didn’t escape our communist homeland to see I could be living in squalor / poverty / an abusive marriage because that’s most common for people who started out in our station / class of life back there.

  • Reply
    Hayley
    April 2, 2019 at 11:58 am

    Recently I was poring over various demographic characteristics, including household income, of various counties across the US. It is striking how sky-high is the average income of certain tracts of NYC, and how high is the average household income of the top 5% ($877K! the Bay Area numbers are staggering too). So I can see how it’s easy to lose perspective.

    https://statisticalatlas.com/county/New-York/New-York-County/Household-Income

  • Reply
    Anne
    April 2, 2019 at 6:46 pm

    From what I see around me, what makes couples (in their 30s with kids) in this income bracket (400k – 600k) feel average is the fact that they really don’t have a lot to save after taking care of their children. Couples in this bracket are usually both working professionals with good education. They benefit from and strongly believe in the merit good education and therefore providing the best educational opportunities they can for their children: private day care/preschool (though are there other options?), private K-12, or/and expensive houses in good school district, expensive activity/extracurricular lessons fees, camps, enrichment programs, etc. They are pretty much chained to their jobs, which are often stressful. More often than not, they feel slaves to their children and jobs. They also often worry about the loss of a job, which is financially disastrous. I think ‘Average’ here really means happiness level and not spending level. And I am amazed that they manage to feel averagely happy. Anyway, I might sound loathsome here. Just a perspective.

    • Reply
      Katherine
      April 5, 2019 at 9:35 am

      You don’t sound loathsome at all! I think very insightful.

    Leave a Reply

    <

    /html>