On Money and What’s “Average”

KR

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.

Xin

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!

CC

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.

Anonymous

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.

Hayley

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