Author Topic: Couple earns 450k / year and can't make ends meet  (Read 5192 times)

morning owl

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Couple earns 450k / year and can't make ends meet
« on: January 17, 2015, 10:05:18 AM »
http://www.theglobeandmail.com/globe-investor/personal-finance/mortgages/debt-doubts-cast-a-shadow-for-this-professional-couple-with-five-kids/article22496585/

Oh, where to begin...

There are so many doozies here.

"He earns $200,000 a year working one day a week in a medical clinic. But his real love is teaching, which he does one day a week at a university; this earns him $100,000 a year."

Looking at their expenditures of over $30k PER MONTH, the experts say the following:

"Eric and Ilsa’s expenses are likely the highest they will be and they have not yet seen the long-term benefit of their education and the income it will generate for the rest of their lives, Mr. MacKenzie says. So, with five young children and a nanny, they’re feeling strapped for cash."

"Eric and Ilsa are fortunate because their parents are willing to put a home equity line of credit on their own home to extend them the $1-million they need to build, and to finance their annual deficit, the planner notes."

"Monthly net income: $25,000

Assets: Cash in bank $6,000; his RRSP $180,000; residential building lot $1.1-million. Total: $1,286,000

Liabilities: Mortgage $800,000 at 2.6 per cent"

Discuss.

gecko10x

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Re: Couple earns 450k / year and can't make ends meet
« Reply #1 on: January 17, 2015, 10:19:24 AM »
That can't possibly be real!

MakingSenseofCents

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Re: Couple earns 450k / year and can't make ends meet
« Reply #2 on: January 17, 2015, 10:27:23 AM »
I agree, that just can't be real. So sad. Sounds like neither work very much, if they want to keep up with their spending then someone needs to be working more. If not that, then they have a TON of expenses that they can cut.
Working on pursuing my passion and working when/if I went to. Paid off my student loans by the age of 24 and left my day job to pursue full-time freelancing. Sold my house in 2015 and have been full-time traveling via RV since.

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morning owl

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Re: Couple earns 450k / year and can't make ends meet
« Reply #3 on: January 17, 2015, 10:33:36 AM »
It really doesn't seem real, but I can't imagine this national newspaper not vetting their case studies. What also strikes me as particularly crazy is that the 'financial advisor' doesn't suggest cutting expenses. Of course, the husband could work 3 days per week instead of just 2 and they'd be fine, but wow, why does it go unquestioned that they spend this much cash, all while they're living rent free with their parents!?

And their savings are pretty pathetic in relation to their salaries... with no pension or life insurance...

Hey It's Moe

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Re: Couple earns 450k / year and can't make ends meet
« Reply #4 on: January 17, 2015, 10:56:56 AM »
I don't think I've ever WTF'd so hard.

caliq

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Re: Couple earns 450k / year and can't make ends meet
« Reply #5 on: January 17, 2015, 11:25:33 AM »
They're spending 6k a month on professional associations?!?! WTF.....

Davids

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Re: Couple earns 450k / year and can't make ends meet
« Reply #6 on: January 17, 2015, 12:43:50 PM »
I am sure this is real. We hear stories about athletes who have squandered hundreds of millions of dollars, I am sure this is a real story. They think they have to spend so much because they make so much.

Indexer

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Re: Couple earns 450k / year and can't make ends meet
« Reply #7 on: January 17, 2015, 01:05:16 PM »
If you skip reading the article and go straight to the finances... their spending is crazy BUT they are actually in decent shape compared to most non-mustachians.

Almost 500k positive net worth.  180k put aside for retirement, and adding 3k a month to that.  Only debt is a 2.6% mortgage.  This puts them ahead of 90% of the population... yes its only because of their income, but positive is better than negative.

The mortgage situation is exaggerated.  These guys could afford a mortgage.  They are probably doing the heloc for a lower interest rate.  Its probably a favor from the parents to help them get a lower rate, and not so much a hand out to support their lifestyle. 

It also looks like the only reason they are running a current deficit is because she isn't working.  If you add her income back in they look like they are running a surplus again.  Plus 3k a month of their current spending is really retirement contributions which will add to the net cash flow.

It looks like the article took advantage of the lower current income, high spending, and the parents doing them a favor to make it look like its the end of the world for personal finances.  In reality they are being reckless with the spending, but they aren't really digging themselves in a hole like the article portrays.

My big question... if he is basically retired why on earth did they hire a nanny?

EDIT:  If they were smart and mustachian they would probably be FI very quick given that income, and the fact that they already have a $486k net worth.
« Last Edit: January 17, 2015, 01:13:36 PM by Indexer »

SaintM

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Re: Couple earns 450k / year and can't make ends meet
« Reply #8 on: January 17, 2015, 03:34:09 PM »
Smh. We make roughly the same, roughly evenly split between my job, my wife's job, and passive income, yet spend way less. We probably spend a lot more than most people on this site, but it is well within our means and could be downsized easily if we had to.

capital

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Re: Couple earns 450k / year and can't make ends meet
« Reply #9 on: January 17, 2015, 07:16:21 PM »
Even in a crazy housing market like Vancouver, I don't see why one would need to send children to private school in a neighborhood with $1M lots.

Likewise, it's cute to call a $1M house on a $1M lot modest.

rob in cal

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Re: Couple earns 450k / year and can't make ends meet
« Reply #10 on: January 17, 2015, 09:33:19 PM »
So, if he worked five days a week he would be making one million a year?  Could that be true?

MrsPete

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Re: Couple earns 450k / year and can't make ends meet
« Reply #11 on: January 18, 2015, 01:38:41 PM »
This doesn't seem real -- but who could make this stuff up? 

If they're living rent-free, what's the mortgage cost?  Is it on the lot they've bought to build their dream home? 

If she's on maternity leave, why are they paying a full-time nanny? 

I'm not sure I disbelieve the huge money for the professional associations.  I've heard somewhere that doctors (and as a dentist, I figure she'd fall into the same category) can spend as much as 50% of their earnings on malpractice insurance.  But IF that's true, he's wasting insurance by working only one day a week. 

2K/month on groceries
2K/month on travel
190/month on garden -- and they live with family?
800/month on transportation -- I'm guessing that's 2 car payments

Yet these seem low: 
90/month for unidentitfied insurance
50/month for health insurance

And they have only 6K in the bank -- that's just a little over a week's salary for them.  They are living seriously close to the financial edge.

What idiots.  The writer nailed it in the first sentence:  Eric and Ilsa put lifestyle ahead of financial concerns and it's put them in a bit of a bind.


MoneyCat

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Re: Couple earns 450k / year and can't make ends meet
« Reply #12 on: January 18, 2015, 02:02:32 PM »
If I made $450,000 a year, I'd be able to retire in two years.  These people are effing clowns.

Abe

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Re: Couple earns 450k / year and can't make ends meet
« Reply #13 on: January 19, 2015, 06:02:48 AM »
Malpractice rates are much higher in the US compared to Canada. Surgeons' rates are significantly higher than medical physicians'. Malpractice for a general surgeon in Illinois (one of the most litigious states) is around $40,000 / year if purchasing individual liability (less if in a group. If working for a hospital, this is usually covered by the hospital). Average income is around $300k/yr. That is a worst-case scenario. Neurosurgeons and orthopedic surgeons who do spine have higher malpractice costs but proportionately higher incomes.

Bottom line - I can't even imagine what this guy is spending $6k / month on for professional fees.