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I live in a high COL area and even I couldn't understand this myself until someone pointed out the cost of childcare to me. So many people were doing pretty good so they decided to have a kid or two then watched their rent and everything else shoot up far more than anyone could anticipate over the last few years while their incomes didn't. Many people did plan and budget and make choices they thought were sound, they just didn't account for the events of the last couple years.
That’s $8,300 a month, before taxes. The actual net pay is several thousand dollars below that. Still a good salary, but lets not make it sound like they’re actually bringing home $8,300.
Exactly. Subtract at least 1/3 of that for federal and state income tax plus payroll tax.
Of course $100k in NYC or California isn't the same as $100k in flyover country but even so, if you can't make it on $100k a year you're spending too much money and/or you've taken on too much debt (and yes, house debt counts!).
Exactly. Never ever buy a home that costs more than 2-3 times your annual income.
Take out a 30 year loan if you must, but make sure the mortgage has no prepayment penalty and pay more towards the principal whenever you can.
Buying cars works the same way. Sometimes you can get a better deal if you finance up front because the dealer gets kickbacks for steering buyers to preferred lenders, but again make sure there's no prepayment penalty and pay off the loan as soon as you can.
I live in a high COL area and even I couldn't understand this myself until someone pointed out the cost of childcare to me. So many people were doing pretty good so they decided to have a kid or two then watched their rent and everything else shoot up far more than anyone could anticipate over the last few years while their incomes didn't. Many people did plan and budget and make choices they thought were sound, they just didn't account for the events of the last couple years.
Ceece,
You do realize that some areas had their rents drop during the pandemic?
2020 figures for some select cities
San Francisco down 27%
New York down 21%
Seattle down 20%
Boston down 19%
Washington DC down 14%
Arlington down 14%
Chicago down 12%
Looking at the start of 2020, and using San Francisco, the average rent was $3680. If that rent went down by 27%, it dropped to $2686.
The current average is $3244. So in this case, the headline would read....rents increase by 20% in just 2 years in San Francisco! And you'll get lots of Henny Pennys losing their minds. In reality, it's hasn't completely rebounded from the previous highs. Many of the cities on the list above would be in that situation.
If someone lost a job, of course that would impact things regardless of the current situation. But aside that, I'm not buying your comment about "rent and everything else". That analysis falls flat on many high COL areas when you take into consideration the time frame of these last 2 1/2 to 3 years. You can't tell me many people planned and budgeted and made choices they thought were sound if the rents aren't as high as they were at the end of 2019.
Obviously there are areas where this wouldn't apply (Portland and Austin for example). But let's not pretend that this is the case everywhere (those are some pretty major metroplexes above).
You might also look at the same analysis with inflation (not all that much over the same time span....1.2%, 4.8%, and 7%).
Exactly. Never ever buy a home that costs more than 2-3 times your annual income.
Take out a 30 year loan if you must, but make sure the mortgage has no prepayment penalty and pay more towards the principal whenever you can.
Buying cars works the same way. Sometimes you can get a better deal if you finance up front because the dealer gets kickbacks for steering buyers to preferred lenders, but again make sure there's no prepayment penalty and pay off the loan as soon as you can.
Houses: 100% agree with you, but there is no way that can be happening in most cases- which makes me nervous we are headed for a house dump when people lose a job or have repairs/replacements they cannot afford.
I don’t know how people sleep at night without a year’s living expenses in liquid savings, but most don’t care.
We know of family and friends who are buying $400,000 -475,000 houses here in the Midwest on $80,000- 100,000 salaries.
Houses: 100% agree with you, but there is no way that can be happening in most cases- which makes me nervous we are headed for a house dump when people lose a job or have repairs/replacements they cannot afford.
I don’t know how people sleep at night without a year’s living expenses in liquid savings, but most don’t care.
We know of family and friends who are buying $400,000 -475,000 houses here in the Midwest on $80,000- 100,000 salaries.
They're buying more than they can afford. And after the 2008 mortgage meltdown, why in the hell are lenders even green-lighting such loans? I'll tell you why... The loan originators don't hold onto the loans. Most mortgages are sold to Fannie and Freddie. Now it's the taxpayers' problem again when mortgage loans default.
In 2020, F&F bought 62% of all mortgages sold on the secondary market. That's up from the 39% leading up to the 2008 mortgage meltdown.
I'd venture a guess that many of the folks making $100k+ and living paycheck to paycheck couldn't tell you where all that money is going.
When your income is lower the necessity to live on a budget is more present. You have to know where every penny is going and follow it strictly. If you don't you are going to wind up bankrupt, homeless, or both.
Mid to high income people can get into trouble by feeling like they make enough to "not have to worry about money". But things add up quickly. I make $100k, I can afford the nicer car. I can afford 7 different streaming services. The newest iPhone. Going out to eat 4 times a week. Ordering $25-50 items on Amazon 4 times a week. And so on. Next thing you know you're still making $100k but freaking out because your car broke down and you will have to max out your credit card to get it fixed.
No one knows, with certainty, how bad inflation will be or for how long.
Some are optimistic it is short- lived while others pessimistic.
Every indication is that it will go up...a lot. Fertilizer is in short supply, gas prices continue to increase which drives up the cost of everything. There is no indication hinting at anything that will cause it to decrease any time soon.
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