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Not saying I don't agree with your assessment, things are really bad. But I do wonder (from purely a metric standpoint), how we define "paycheck to paycheck."
Good point, and even the Forbes article linked by the OP does not define it clearly. One the one hand, it says that all income is going to paying living expenses, on the other hand, it says that high income earners run up their credit card bills then have the capacity to pay them off.
The ability to rapidly pay off credit card debt implies some amount of disposable income coming in.
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Does that count as paycheck to paycheck, or does that literally mean that if you miss one paycheck, that you're no longer able to pay any of your bills?
Based on your description of your finances, I don't think you would qualify as living paycheck to paycheck. You do not qualify as wealthy, because you cannot live off of your capital indefinitely, but you are not significantly harmed if you were to miss a paycheck or 3.
Maybe you qualify as middle class, which is another poorly defined term that is always good for starting a serious debate.
This is a somewhat unusual financial picture you've painted above and just reinforces what I suggested previously. A single, self-employed person living in an extremely high COL region like NY or California really needs to seek professional advice for reducing their taxable income.
What do you not get - the reality is that high taxes in some places are unavoidable. They can give away some of the money or put some in a 401K but that will greatly impact the dollars left without greatly impacting the percent of income left after taxes - less tax but much less income. With the current SALT limits, they will be limited what can be deducted otherwise.
These calls to tax the rich end up hitting some very hard, with little spendable income after taxes and other fixed expenses. At least the US taxes over 50% impact only a few currently - in some places, over 50% is the norm.
Good point, and even the Forbes article linked by the OP does not define it clearly. One the one hand, it says that all income is going to paying living expenses, on the other hand, it says that high income earners run up their credit card bills then have the capacity to pay them off.
The ability to rapidly pay off credit card debt implies some amount of disposable income coming in.
Based on your description of your finances, I don't think you would qualify as living paycheck to paycheck. You do not qualify as wealthy, because you cannot live off of your capital indefinitely, but you are not significantly harmed if you were to miss a paycheck or 3.
Maybe you qualify as middle class, which is another poorly defined term that is always good for starting a serious debate.
Is that a definition of wealthy? Just wondering because some self sufficient types in Alaska appear to live off the land and subsidize any additional spending through their Alaska free money fund thing… thus arguably able to live off their dividend
Is that a definition of wealthy? Just wondering because some self sufficient types in Alaska appear to live off the land and subsidize any additional spending through their Alaska free money fund thing… thus arguably able to live off their dividend
Net Worth and Cash Flow are two different things.
A person living in a home that is paid for doesn't need the cash flow for mortgage or rent. A sales manager told me that he liked for his salesmen to be in debt because it made them hustle. Americans put social pressure on each other to be economically stupid.
Put that $3000 computer on your credit card and make minimum payments. It will be worth $1000 in 3 years. Still owe more than it is worth, time to upgrade.
Then we spend the last 70 years listening to economists who say nothing about the depreciation of durable consumer goods. LOL
When did they suggest mandatory accounting/finance in the schools?
I've made one big ticket purchase since the pandemic began, which was my Ipad and keyboard. My car is paid off and my mortgage payment is less than $500/month (small home in the south). We are currently putting money away for Hawaii in 2023 or 2024, which we're budgeting for about $12k between the both of us.
The pandemic showed me that I can get by on far less material things. I sold all the stuff that I wasn't using on a regular basis in 2020. I have a couple of hobbies that keep me busy year round and my joy satisfied. I have more cash on hand than I ever had and am a lot more at peace. Being frugal isn't good for the overall economy, but for me, I was able to save a lot of money very quickly. Even quicker than I thought I could.
Once you dig into your own spending habits, you can cut out a lot of unnecessary stuff. I was able to pullback enough in spending to hire a housekeeper, since I absolutely hate sweeping and mopping. We can all stand to curb our spending a bit. Most people don't want too, because sticking to budget can be a little boring.
Yes, even in San Francisco or Seattle if $250k is not enough, they are making poor spending choices. We are in the Seattle area and not living paycheck-to-paycheck on less than that, with two car payments, mortgage and $8,000 property tax bill.
I would posit those 1/3 are most likely - even in the 90%+ range - to be residing in a HCOL area.
This "debate" and its sister debates in the frugal living forum are the financial porn of our times. People just love to judge others spending habits and too many love to preach about how others should spend their money. Why does it matter to so many people? If the high income earner doesn't have enough this paycheck do they go get a government grant to cover it? If they overspend for years and have to pay the piper eventually, does someone else magically get a commission on this?
Seems a lot of it stems from people who have suffered through having to put themselves on a budget wanting to get some kudos on their ability to stick to it. Good for you, now tell me why others should care? It's your budget, you live with the consequences of it. Don't go looking for others to commend you for it. And if you can't make ends meet don't come to others and act like you deserve to spend more than you can and it's the universe working against you.
Just more signs of the times, too few people these days don't know how to mind their own business. Political nonsense seems to have driven more and more of this as well.
I am there with you. Not just that, but this country is on a seemingly endless downward spiral of judgement on limited information and mean-spirited "Serves you right!," "Thank God, I'm not you!" thinking (which, I think, accounts for the endless popularity of so-called "reality shows" as well). It also gives certain individuals lots of opportunity to tell others how much they earn or are worth (or both). Again, as you said above, "Who cares?" And further, "Good for you! What can that information possibly do to add to my life as a complete, digital stranger?" Thanks for posting this.
it could be those that entered the housing market recently overpaying and overextending by a lot or are recent renters who had to take a lease at some ridiculous prices. If you're entering the housing market now I could see how you're going to be stripped dry because home values and rents have skyrocketed to eye popping levels... I know markets where rents have gone up by 30-40% and home values have doubled or tripled in just a few years.
Logic should have told those people price increases like this are unsustainable, inflated, and must fall back to the mean. It does in most asset classes.
People are predictable.and if they can take a loss they will on a depreciating asset.
I've seen some ugly homes listed for sale and finally we are seeing price reductions. There was one I noticed today was listed for $550,000 and now decreased to $465,000. Not everyone will pay any price for junk (on a semi-busy street, blt in 70s, old style).
Better to pay $800-$1000 more per month for a year or two than lose tens of thousands in value.
Childcare and housing costs eat up a ton of money.
For instance, I live in the Boston area. Since I was not lucky enough to buy 5 years ago - or even 2 years ago - an average starter home an hour from work is at least $500,000 - and realistically, probably more like $600,000. Let's say you're a 2 income family (because, let's face it, most families would need 2 incomes to afford even a starter 3 bed/1 bath house). For argument's sake, let's say one person works from home and one person needs to commute into Boston. From one of the areas where you can buy a starter home for as cheap as $500,000 a month, you'd be looking at $350ish a month in commuter rail costs and an additional $100 in parking at the commuter rail station. You could also drive in, but monthly parking passes for lots in the city are around $450 a month plus the cost of commuting.
Now let's say you have kids. Daycare for one infant in my area (and I'm not particularly close to Boston) starts at $2500 a month if you can find a daycare that will take a 3 month old. For older kids, you can get in around $2000, or maybe a bit lower.
So monthly expenses just for the basics:
Housing: $3500 (10% on a $500K starter home with no HOA)
Utilities: $500 (averaging out heat - and oil heat can be PRICEY- and electricity, internet, water)
Commuting: $450 (just parking & train pass, not counting gas, insurance, tolls, car payments, or maintenance)
Daycare for 2: $4000 (this is on the low end)
Total: $8450
So that's already more than 100K a year before even touching things like car payments, gas, food, toiletries, household goods, diapers (if needed), medical costs, clothing, laundry, home maintenance, student loan repayment, pet costs, etc. It also doesn't include savings, and I suspect many high income earners take money out for savings (at least retirement) before seeing it so that might be something that is also factored into the feeling of living paycheck to paycheck.
And if you have two car payments - even modest payments, two sets of car insurance, and 2 sets of student loan payments, you could be looking at $2-3K just for that. Throw in one more child and the associated daycare and other costs, and it becomes much tighter. There's a reason why my doctor, who I loved dearly, quit being a PCP to stay at home with 3 kids. Granted, she could not have done that with her loans if her husband wasn't a plastic surgeon.
Now, there still should be a lot of wiggle room left over at that salary level, but my guess is that people are overspending on homes because they're trying to get into good school districts or shorten the commute. If I wanted to be within half an hour of work and buy a single family 3 bed/1.5 bath house today, I'd be looking at least at 3/4 of a million to a million dollars. That's not some glamorous home, but something basic and relatively small.
I've said before that I couldn't afford both rent on my 1 bedroom apartment that was an hour from my previous work (now an hour and a half each way) and daycare for 1 infant on a 100K salary. I would have less than $1000 left over a month for savings, food, clothing, laundry, utilities, commuting/car, and medical costs and, for me, that wouldn't be enough. And I don't even have any debt - no car payment, no student loans!
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