I agree with a lot of the article, but a couple of idiots who pissed away the fruits of their education on too many vacations and fancy cars (obviously not any real investments, otherwise they could have refinanced their student debt) don't give a very good example.
Sadly I know _many_ people that make six figures and complain about things like student debt and credit card debt. One guy claimed he was lower middle class (he was making $110k at the time, with only a wife, who didn't work, to support). If $110k is lower middle class, then I must be in poverty.
It's like the idea that they can lower their living standard slightly to achieve financial goals just doesn't occur to some people. People that make good money and manage it poorly garner zero sympathy from me.
Then you say, "well then don't live in Manhattan", which is probably true-but-not-obvious, but also implies you're going to take a wage cut to work somewhere else. And not everyone is as geographically mobile as a 25 year old hacker.
You could also live on $110k manhattan if you are willing to live north of 111th st. A 2br 2bath up there ran $2100/month back during the bubble (less now).
(1) I'll spare you yet another hypothetical family budget monthly itemization.
(2) I'll concede that it is clearly possible to raise a family in New York on $110k/yr.
(3) I'll assert again that it is not comfortable to raise a family in New York on $110k/yr, nor does it appear to be easy.
There are obviously a lot of sacrifices you can make to make the budget work out, but in a family scenario, not all sacrifices are tenable.
I've also done the math and lived it. Commuting from jersey is better, but even manhattan (north of 111'th st) is quite livable.
Aggressively assume $2500/mo to rent a house (forget buying). Assume part-time child care @ $900, commute @ $400, lowball utilities @ $500 (I pay more than that in Chicago), food @ $1000, car insurance for one car @ $200, and dependent health care at $150.
At $110k/yr, you're now less than $1000/mo over break-even. Lose an alternator in the car, you're in the red. Fill 3 cavities, you're in the red. Fly to Tucson for a funeral, you're in the red.
Can you do it? Yes. But I'm not going to call it easy.
The apartments I'm talking about are close to the path, so forget the car (save $200). Path+subway every single day is $185/month (save $215), for a 23 min commute.
So using your numbers, you are $1000 over break-even. In reality, you are closer to $2500 over break-even. How is this uncomfortable?
http://newyork.craigslist.org/search/aap/jsy?query=jersey+ci...
At the other end of the spectrum, dry rice is 33¢ a pound, beans and corn are 50¢ a pound, vegetable oil is $1.29 a liter; multivitamins, water and gas are basically free. The standard corn/beans/rice diet costs about 10¢ per pound of cooked food, which is a meal for four people, 1% of what you were spending.
There are obviously meals we can spec here that cost nowhere close to $8/person. But:
* A plurality of families in America don't cook every night; that doesn't make them clueless crypto-rich people, it makes them normal. If you don't cook, your meal cost goes up.
* A couple contemplating a family life together could reasonably break up over the issue of feeding itself for 5-10 years off bulk dry rice, beans, and corn.
$1000 isn't $10/meal/person; it's $10/meal.
If a family is concerned about the corn/beans/rice diet, which costs like US$40/month according to my "other end of the spectrum" figures, then maybe they could splurge and add some oatmeal, some greens, some fruit and vegetables, milk, herbs and spices, spaghetti with sauce, peanut butter sandwiches, ramen, the occasional chicken. That could raise the price to US$100/month or even higher. But it isn't going to bring it close to US$1000/month.
US$2.50 of raw shoulder steak is therefore half a pound of steak; you'll be grossly obese and get gout by 35 if you eat that every meal. I don't know if that includes delivery, but it's on their delivery site. On the same site, boneless chicken breasts cost the same amount but drumsticks are a quarter of that, and that's before the discount for buying with your Albertson's Preferred Card, or buying on sale, or buying in bulk at Costco instead of Albertson's. I can't find any packages of chicken breasts there that cost $9.00 for a pound.
Where do you shop?
What can you do with chuck, kragen? You can, if you are among the 4% of people in the US with the means and expertise, grind it into hamburger or chili meat. You can, if you are among the 10% with a crock pot, make pot roast.
Otherwise, you can cube it and braise it for a stew, and that's about it. Most families can't do much with $20 worth of chuck.
A package of chicken breasts --- enough for 4 people (in my house, 3-4 breasts) is between 1.5 and 2 pounds.
I'm not sure your evidence is rebutting my argument.
- You can spend more than US$1000 a month feeding a family of four on 100% Safeway (or Albertsons) steak. I was wrong about that. It looks like your bill could go up to US$2000.
- I definitely don't know how to cook beef. In fact, I'm mostly vegetarian. I didn't move to Argentina for the steak. I'm surprised to learn that chuck steak is inedible without special equipment, except in a stew.
- Enough pre-deboned chicken breasts to feed four people for a meal also costs US$10, which is similarly US$1000 a month, if you eat something that pricey three meals a day.
I still want to know how you spend US$1000 a month on food without factoring in restaurants. Even approximately? I'm sure you're not eating a 100% meat diet, are you?
Let's say you get to keep 1/2 of the 60,000 per year over that for rent. That's easily 2,500 extra rent to cover living close to Manhattan / San Francisco over the national average and you probably don't need a car. The secret is to avoid Starbucks and other expensive things that are not part of the normal middle class lifestyle but seem so important to yuppies.
The big-ticket items I don't trust you're considering:
* Child care will cost between $1000-$2000/month.
* Commute will add $300-$500; parking $500-$900 (plus car payments --- $250-$400, plus car upkeep --- $100, plus gas, $150).
I know that people do live on $50k/yr, even near major metro areas. But I also know that 3 fillings at a dentist for my 7 year old cost over $1000, so I don't know how people do it on 50k/yr. I don't know, but I am pretty sure, that it isn't comfortable.
I currently live on $14k a year.
Granted, I'm 25 and live in a college town in the midwest. My share of the rent is $255/mo (live with g/f). I spend $115/mo commuting. My car is paid for. My high deductible insurance is $60/mo. I spend about $220/mo on groceries and another couple hundred eating out and entertaining myself. Of course I have no children.
I'm in no way saying everyone should live like me, but I'm quite content living so cheaply. It's not because I have to (I make about $60k/yr) but the vast majority of it goes towards 'vacations' of 6 months or so between jobs (sometimes that involves traveling). I could easily afford a mortgage if I was willing to be tied down, but I'd rather not be. I tend to work for 6-12 months and then take that much time off. The rest of it goes towards my Roth IRA and savings.
In the end my list was: My girlfriend, my cat, a week of clothes, my computer, my magic cards, and a couple books.
All the rest of it is just stuff that takes up space.
Once you realize what really matters, you start to question purchases. For a while I thought I really wanted to start a DVD collection, but then I realized it wouldn't be something I'd save from a burning building, so what was the point in having it? Even if the cost of the DVD is only about what two movie tickets cost, at least you don't have to store the movie tickets.
By the way, my dentist charges less than $100 per filling. Does the nitrous oxide cost an extra $700? (Ah, I miss getting fillings as a kid.)
I think Costa Rica is a more popular dental tourism destination.
All due respect to Argentina --- I've got team members from Argentina -- but come on.
Plus you make a good point on why people should avoid junk food and exercise better hygiene, and teach they're children to do so as well (I know that's not always the case, but I bet studies show it is a huge majority of the time).
Some people just have weak teeth.
On a more serious note: It would be nice if some finance education was mandatory. Ex: there is no good reason for having any credit card debt and yet people still have tons. It shows that they don't know how to manage their income even if they have lots to go around.
They still have 7k a month to live on. I don't see the problem.
$2800 for loans.
$3500 for mortage and escrow.
$1300 for child care (both work).
$1000 for food and day-to-day living expenses.
$1000 for utilities, Internet, services and recurring expenses --- parking, commute, health care copay and (with most employers) dependent coverage, etc.
I get $9600. Survivable? Of course. You can clearly survive in America with a $2800/mo student loan burden offset by a $200k/yr income. But:
* It's not "comfortable"; for instance, they aren't putting away money to put their kid in college.
* It's not resilient; they're fucked as soon as one of them loses their job.
* It's not flexible; for instance, they might literally not be able to afford to have a second kid.
Now, they don't have kids, I get that. But the moral of the story was, their student loan debt load was so high they couldn't stay married. They're smart enough to make 200k/yr, they're smart enough to do this math.
It's doable, more than doable. I hate being judgmental or assuming more than I know from their situation but these people just reek of getting overextended and not being able to apply any discipline in their lives.
Then again, they're both law students and didn't read the fine print. Would you really trust a lawyer that did that? I wouldn't.
I still think it's ridiculous. I'm not going to go into a point by point rundown because it would take a lot of space and fork the argument several times, but basically I feel that if you ran these numbers by most Americans they would first laugh out loud, then get a little angry.
You seem to think access to top schools and a luxurious lifestyle are prerequisites for a marriage. Empirically, this is false.
That's looking at this situation WITH children. Once you take the children out, as was true with the original case, it gets even more ridiculous. They no longer have such a case for a mortgage and even if they do keep it, they can put away about 1500 a month by not feeding and babysitting a kid.
"One breath of scandal, and not only would the Giscard scheme collapse but his very career would be finished! And what would he do then? I’m already going broke on a million a year!
The appalling figures came popping up into his brain. Last year his income had been $980,000. But he had to pay out $21,000 a month for the $1.8 million loan he had to take out to buy the apartment…
Of the $560,000 remaining of his income last year, $44,400 was required for the apartment’s monthly maintenance fee… $18,000 for heat, utilities, insurance and repairs, $6,000 for lawn and hedge cutting, $8,000 for taxes. Entertaining at home and in restaurants had come to $37,000. This was a modest sum compared to what other people spent."
Another perspective:
UrbanBaby is an anonymous message board frequented by some typical New York UES/UWS mothers. Here they talk about not being afford private school on $400k/yr
DC = dear child, DH = dear husband
Again, they didn't die. They just broke up. And $2800/mo is a shitload of money, however you want to rationalize it.
My point was that they could comfortably go from 2,000/mo in interest down to under 1,600/month in three years. Interest is API / 12 per month so principle gives (1 + API / 1200) ^12 return per year. (1.01)^12 = 12.8% that's after taxes and powerful. They should also be making more money over time even as their debt is less of a problem and you feel good that debt is shrinking fast. Which should help the psychological situation.
Using 12% an extra 1000 down saves them 10$ in next month and every month after that it keeps compounding. At 1000$ per month over interest you pay down 12,700 in principle in one year (assuming you don't reduce your payment as interest drops). In 3 years they are saving 430$ / month, but assume they roll that savings into paying down principle in a ~9 years it's all payed off.
But, they don't need to wait that long, they just need to find the right cushion so they feel comfortable taking on more debt. Pay down 82k (saving 820/month) in 5 years and the world looks like a brighter place, your making more money, and buying a house might be a good idea. Don't want to wait that long, fine share a 1 bedroom, drive a used Honda civic etc and and all that debt just about GONE in 3 years.
Thank heavens I have no loans, just have to pay my wife's off....
Again, I don't see the problem.
* Commute distance, which will determine how often they actually see their children.
* Lease security; it is extremely traumatic to move a school-age child to a new school district, or even just a new school.
* School quality: the places with the best rental stock are not necessarily places with acceptable public school, or accessible child care.
Again: the article's claim isn't that a couple can't survive on 200k. It's that they couldn't stay married. I can see reasons why.