Can my family afford to live in the Bay Area?

[Heidi60]

Last year we purchased a three year old Honda Accord by refinancing our condo at a much better rate than what we had, resulting in a better car and lower mortgage payment. Good deal, but now just a few months on, our health care through Kaiser increased so much that any gains we made have been lost. That is just a very typical story for the average income person in this valley. Unless you are at the higher income levels, it is a constant struggle to save for retirement. We know some people who filed for bankruptcy and are now debt free, so perhaps we just don't play the game well. The bottom line to it is that you are the only one who can decide how to shuffle your priorities. I am glad for the time I have in California but also can't wait to leave as our personal needs have changed as we reach retirement. Being young and single here is a total kick but like others said, it is harder with kids to support and private schools are required.

[marcopolo666]

Standard money planning says calculate 33% of your income to be spent on housing (in a metropolitan area). 125K means that 41.6K per year on housing. That's $3460 a month. That's a hell of a lot more than a $400K living unit.

The original poster isn't thinking/calculating clearly.

[silverkris]

Originally Posted by Heidi60

Being young and single here is a total kick but like others said, it is harder with kids to support and private schools are required.

Let me qualify this. There are many fine public schools in the area but they're often in the most expensive neighborhoods, so you'll pay either way.

[easybay]

The original poster isn't thinking/calculating clearly.

I don't think you are either. Household budgets are calculated using after tax dollars - so estimating his tax rate at 30%, his $125,000 income is now at $87,500 - and 33% of that would be $2400 per month.

[mysticaltyger]

Originally Posted by fakeplastictrees

I don't know about this...I grew up in a well-to-do area in the East Bay. My parents weren't crazy rich and I had the crappiest car in the high school parking lot. My friends' parents aren't living beyond their means...they just make a ridiculous amount of money. Doctors, lawyers, engineers, etc make a lot of money...especially when you have both parents with jobs like that. My old neighbors across the street are retired and the husband's pension is over a million dollars a year. The Bay Area just has a lot of ridiculously rich people. It's kind of depressing when you're a teacher trying to get by. Definitely not having kids for awhile!

I have no doubts that a fair number of people with 2 BMWs, 2 kids in private school, with house in a great neigbhorhood, can afford to live that way...but my guess is a large minority and possibly a majority, can't afford to live that way (eg...their retirement & other savings are woefully inadequate, etc.).

For her book, The Difference, Jean Chatzky studied 5000 houseolds and she categorized 69% of Americans as either "paycheck to paycheck" or "going further in debt" (This was as of early 2008, before the economy really hit the skids). Although the paycheck to paycheck lifestyle becomes less prevalent as incomes go up, it's not as rare as many think. Chatzky said she found a fair number of folks who were "high income but paycheck to paycheck". Those folks exist here in the Bay Area, too.

Amazon.com: The Difference: How Anyone Can Prosper in Even The Toughest Times (9780307407146): Jean Chatzky: Books

[mysticaltyger]

Originally Posted by marcopolo666

Standard money planning says calculate 33% of your income to be spent on housing (in a metropolitan area). 125K means that 41.6K per year on housing. That's $3460 a month. That's a hell of a lot more than a $400K living unit.

The original poster isn't thinking/calculating clearly.

Yeah, that's the "standard money planning" that has gotten Americans in debt over their eyeballs. It keeps people living paycheck to paycheck and eventually puts them in debt because when the unexpected expenses come (and they always do), it ends up going on the credit card, perpetuating a vicious cycle of debt slavery.

[BayAreaHillbilly]

Originally Posted by mysticaltyger

Yeah, that's the "standard money planning" that has gotten Americans in debt over their eyeballs. It keeps people living paycheck to paycheck and eventually puts them in debt because when the unexpected expenses come (and they always do), it ends up going on the credit card, perpetuating a vicious cycle of debt slavery.

Love him or hate him, Dave Ramsey really tells it like it is on this score. He rides herd on motivating people to free themselves from debt slavery. As you note, the issue with being leveraged to the hilt is that an excursion in cash flow in the negative direction could be a fatal hit, fiscally speaking.

I notice lots of squawking by so called financial planners on the radio promoting the leveraged approach, claiming it frees money up for other investments (e.g. a house is a depreciating asset, a paid off mortgage is stupid, blah, blah, blah). Again, see above. Being leveraged beyond some small amount will absolutely increase risk exponentially.

[mysticaltyger]

Originally Posted by BayAreaHillbilly

Love him or hate him, Dave Ramsey really tells it like it is on this score. He rides herd on motivating people to free themselves from debt slavery. As you note, the issue with being leveraged to the hilt is that an excursion in cash flow in the negative direction could be a fatal hit, fiscally speaking.

Yep. I'm not terribly fond of Ramsey's religious overtones, but most of what he says makes perfect sense. Pretty much all the financial authors say similar things, although Ramsey is more anti-debt than most.

The most frustrating thing about financial stuff is the people most recceptive to the advice don't need to hear it and the people who need to hear it most won't listen.

[farble1670]

i can speak to the san jose area. i've lived here for around 15 years, "own" a condo, and am currently looking at houses.

$600k is a starter house in a good neighborhood, or on the edges of a good neighborhood anyway. $500k is a starter house in an average neighborhood, and $350k is a starter house in a bad neighborhood. by bad i mean crime and gangs. and these are old house that at best have lots of little problems.

this, and the housing market is supposedly in the pooper. the thing about this area is that the market for houses never really crashes. there's always someone with money around here.

it's really a no-win situation for the average person. for a slight upgrade in living space from my condo, i get saddled with crippling debt for what will be the rest of my life (i'm 40). that's if you can come up with cash for the downpayment on these things.

like a lot of others have said, you can get houses for cheaper if you move east. enjoy your commute is all i can say. sitting in a hot car breathing fumes is pretty much hell as far as i'm concerned.

i still don't know what i'm going to do.

[farble1670]

Originally Posted by OrangeSunset

How long of a commute are you willing to endure to take the job? There are places like Fremont, Castro Valley, and Tri-Valley (Dublin Pleasanton and Livermore) which are safe and have good schools, but it is a 30 to 50 minute commute.

one thing that people forget ... gone are the days when you get a job and work there for most of your life. the cultural in silicon valley is to keep jumping from job to job. in fact, people start thinking you are a slacker if you don't. that, and startups come and go around here.

buying a house near your current job is a mistake, because you probably won't have that job in 5 years. what was a 30-50m east bay commute is now 2 hours when you are forced to switch jobs / locations (or maybe you'll get closer, roll the dice).

i live around 25 miles from my employment, and i have a commute of anywhere from 35 mins at 6am to 1.5 hours if leave anywhere between 4.15pm and 6.30pm.

this is on the peninsula. if you are coming from east bay to the peninsula, you are talking bridges (and tolls) which just compounds the problem. the 30-50m range quoted above is really underestimating things.