Author Topic: Couple Relieved that $200K/year is enough  (Read 7630 times)

Telecaster

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Couple Relieved that $200K/year is enough
« on: September 19, 2016, 11:27:14 AM »
A hard hitting analysis of a couple's finances by the Seattle Times reveals some painful insights.  The good news is that with some minor adjustments they will be able to survive on $200K/year.  The couple was relieved to find out they would be okay.   


http://www.seattletimes.com/business/parenthood-tough-act-in-money-juggling/

RocketSurgeon

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Re: Couple Relieved that $200K/year is enough
« Reply #1 on: September 19, 2016, 11:33:46 AM »
Such hardship is difficult to countenance. Truly, the American Dream is dead. They should set up a Gofundme page.

Nick_Miller

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Re: Couple Relieved that $200K/year is enough
« Reply #2 on: September 19, 2016, 12:49:39 PM »
I actually think they are doing an awesome job! Real estate in that area is a beast and the childcare costs wont last forever.

thebrowze

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Re: Couple Relieved that $200K/year is enough
« Reply #3 on: September 19, 2016, 12:50:31 PM »
Not sure this is crazy anti-mustachian.  This couple is probably in their 30's, given the ages of their kids, and has a net worth close to $1mm.  They've obviously been saving like crazy (unless their savings came from gifts).  The home price appreciate in Seattle probably hasn't hurt, though.

If they earn $190k-ish, they probably have ~$125k-$135k left after taxes, or $10-11k per month.  They're spending $4k on daycare, $2300 on mortgage PITI (my estimate), and saving $630 per month just for college (doesn't say anything about other saving).  That leaves $3k-$4k left for everything else (including commuting to downtown and to Redmond), which is $36k per year on the low end, not exactly extravagant, even by MMM standards, especially in an HCOL area.  They have also made the generous decision to fully fund their kids college educations, although many can argue about the relative wisdom of doing so. but it's still taking a bite out of their available retirement savings.

It's those top two expenses that are seriously hurting them right now, but they've obviously made the decision to maintain their earning power by continuing their careers while their kids are young.  It's going to hurt for a few years, but after their kids start school they could be saving close to 50% of their take home without making any changes whatsoever, even staying in the Puget Sound region.

slugline

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Re: Couple Relieved that $200K/year is enough
« Reply #4 on: September 19, 2016, 01:10:22 PM »
The $4000+ per month on day care is eye-popping. In LCOL areas of the country I think that would be enough to hire a live-in caregiver.

trailrated

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Re: Couple Relieved that $200K/year is enough
« Reply #5 on: September 19, 2016, 01:37:03 PM »
The $4000+ per month on day care is eye-popping. In LCOL areas of the country I think that would be enough to hire a live-in caregiver.

Seriously holy fucking shit insane. I live in the Silicon Valley where costs are crazy and I thought $1800/month daycare was eye popping.

seattlecyclone

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Re: Couple Relieved that $200K/year is enough
« Reply #6 on: September 19, 2016, 02:04:59 PM »
The $4000+ per month on day care is eye-popping. In LCOL areas of the country I think that would be enough to hire a live-in caregiver.

That's at least twice what it costs to hire an au pair here in Seattle, but then you have to buy a house with an extra bedroom for them, which brings us right back to high real estate costs.

CanuckExpat

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Re: Couple Relieved that $200K/year is enough
« Reply #7 on: September 19, 2016, 02:14:09 PM »
The $4000+ per month on day care is eye-popping. In LCOL areas of the country I think that would be enough to hire a live-in caregiver.

That's at least twice what it costs to hire an au pair here in Seattle, but then you have to buy a house with an extra bedroom for them, which brings us right back to high real estate costs.

Because if you had an extra bedroom you could rent it out / Airbnb it out for more than you might save on childcare

The market ruthlessly getting rid of inefficiencies?

talltexan

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Re: Couple Relieved that $200K/year is enough
« Reply #8 on: September 19, 2016, 02:51:00 PM »
My wife and I are not dissimilar to this couple, earning about 90% of their income, but housing costs in charlotte are WAYYY cheaper.

Our monthly mortgage payment is in the three digits. But their $300,000+ of home equity is impressive (ours is maybe $80,000)

PathtoFIRE

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Re: Couple Relieved that $200K/year is enough
« Reply #9 on: September 19, 2016, 03:15:51 PM »
In the story, the parts about college savings caught my eye (other than the daycare that everyone else here also agrees sounds exorbitant). The story mentions $400k in investment accounts, and then says they are mostly retirement and college, but doesn't break out how much is allocated to each purpose. Then later we hear the analysis that 4-year public university is estimated to cost $400k in future dollars for their infant and 3yo, and that they aren't doing enough. Naturally some may place more or less emphasis on saving for college, but it really feels like there are huge assumptions built into that analysis: that cost increases will continue to outpace inflation for the next 20 years, that a full ride via mom and dad is a benefit to the children and a prudent goal, that college must be paid for through college savings programs and not from retirement funds. I personally was not comfortable with our own college savings for our children until it represented no more than 10% of our total assets (at one point it was closer to 20%), and while the story naturally glosses over exactly what advice the planner actually gave, the impression was a lower retirement savings (relative to their income and age) wasn't a big deal, but their trajectory for college savings was an emergency to address ASAP!

Rife

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Re: Couple Relieved that $200K/year is enough
« Reply #10 on: September 19, 2016, 09:19:39 PM »
We live in the Seattle area and make about the same amount. The childcare amount is very high, and I wonder if that is just a mistake. Our three year old at Kindercare can go from 6 am to 6 pm for about 1000 a month. We had a babysitter until she turned 3 (my wife worked evenings) so that saved us money when she was a baby. I do know some programs asked for more for extended hours and some are just pricier. It sounds like they have a pricey program by choice, but the story doesn't say.

I agree they sound like they are doing ok. They are not all the way to anti-mustachian. I also agree that it would be foolish to try to save 400k to a 529 given their situation.

bobechs

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Re: Couple Relieved that $200K/year is enough
« Reply #11 on: September 19, 2016, 09:52:41 PM »
Childcare expense of $48,000 a year?

Just as a reference point, it costs the U. S. government approx. $50,000 a year for the full expenses of a cadet at West Point.

That includes everything; tuition, books, chow, barracks, transportation, athletics, a bunch of silly hats, a gun that doesn't shoot, and in addition cadet pay of about $850 a month.

That's what they are spending on having someone take care of the kids for part of the day.

obstinate

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Re: Couple Relieved that $200K/year is enough
« Reply #12 on: September 19, 2016, 11:28:29 PM »
The $4000+ per month on day care is eye-popping. In LCOL areas of the country I think that would be enough to hire a live-in caregiver.

Seriously holy fucking shit insane. I live in the Silicon Valley where costs are crazy and I thought $1800/month daycare was eye popping.
Same. Our center is $1,600 a month. These folks are sending their kids to a designer daycare.

marty998

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Re: Couple Relieved that $200K/year is enough
« Reply #13 on: September 20, 2016, 03:40:09 AM »
Costs are high because staff to child ratios have come down a lot in the past few years. For example in Australia, centres must have 1 staff for every 4 children, and there is pressure from the various child and social service lobbies to reduce that to 1:3 in the case of very young infants.

When I was that age... my brother and I were put in long day care, and after school care where the ratio was closer to 1:7 or even 1:10.

If you have to pay your staff $25 an hour + overhead (super, payroll tax, workers comp etc) + pay some of the highest rents in the world because of our ridiculous property market, you can start to see why childcare is becoming so damn fucking expensive.

Especially now that some staff will be paid professional wages, due to the requirements of having Bachelor degrees in early learning.
« Last Edit: September 20, 2016, 03:42:25 AM by marty998 »

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Re: Couple Relieved that $200K/year is enough
« Reply #14 on: September 20, 2016, 06:52:24 AM »
Costs are high because staff to child ratios have come down a lot in the past few years. For example in Australia, centres must have 1 staff for every 4 children, and there is pressure from the various child and social service lobbies to reduce that to 1:3 in the case of very young infants.

When I was that age... my brother and I were put in long day care, and after school care where the ratio was closer to 1:7 or even 1:10.

If you have to pay your staff $25 an hour + overhead (super, payroll tax, workers comp etc) + pay some of the highest rents in the world because of our ridiculous property market, you can start to see why childcare is becoming so damn fucking expensive.

Especially now that some staff will be paid professional wages, due to the requirements of having Bachelor degrees in early learning.

They're seriously requiring a 4-year degree to literally wipe asses, hand out junk food snacks, and keep the kids from biting each other?

deadlymonkey

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Re: Couple Relieved that $200K/year is enough
« Reply #15 on: September 20, 2016, 08:00:30 AM »
If you are dropping that much money on childcare, you could hire a full time nanny, or at the very least get an aupair.  Low cost childcare for the week, just got to feed them and they will most likely help teach your kids a foreign language.  We would love to hire an aupair if only for the cultural exchange, but it is not in the budget and we don't have an extra bedroom.

sirdoug007

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Re: Couple Relieved that $200K/year is enough
« Reply #16 on: September 20, 2016, 08:06:06 AM »
I talked with a coworker who is a good friend at our home office in the D.C. area who just had a second child and was stunned when he said daycare for the two of them would cost over $45k/year!  It's been bothering me ever since. I don't have any kids yet but this level of expense basically blows up the savings necessary for FIRE.

It seems like a really tough decision. Perversely it gets worse when you and your partner both make good money.  It would be a much easier decision if one person made $50k vs both making close to $100k.  I also just have a strong aversion to the concept that you should hire out the care and raising of your children so you can maintain corporate success.

I'm glad we have enough of a stache and low enough spending that we could easily go to one income and still make FIRE by 45.


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fattest_foot

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Re: Couple Relieved that $200K/year is enough
« Reply #17 on: September 20, 2016, 09:11:10 AM »
That daycare must be cleaning up. Since we can assume this isn't a single worker taking care of just their two children, you're talking at least probably $100-200k (or even $400k if it's a 1:10, which seems entirely feasible) per childcare worker. I don't care how much overhead you're figuring into this, that's insane.

Apparently I might be in the wrong business.

MgoSam

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Re: Couple Relieved that $200K/year is enough
« Reply #18 on: September 20, 2016, 09:21:59 AM »
Apparently I might be in the wrong business.

I have several cousins and uncles that own daycare facilities. They all seem to be doing very well for themselves.

mm1970

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Re: Couple Relieved that $200K/year is enough
« Reply #19 on: September 20, 2016, 09:26:02 AM »
The $4000+ per month on day care is eye-popping. In LCOL areas of the country I think that would be enough to hire a live-in caregiver.

That's at least twice what it costs to hire an au pair here in Seattle, but then you have to buy a house with an extra bedroom for them, which brings us right back to high real estate costs.

Because if you had an extra bedroom you could rent it out / Airbnb it out for more than you might save on childcare

The market ruthlessly getting rid of inefficiencies?
I have to wonder a bit about the daycare thing.  I live in So Cal.  Daycare is expensive here.  Not "Boston" expensive.  Maybe a little less than Silicon Valley Expensive.

So is it REALLY that expensive?  Is it Ivy League Preschool Syndrome?  Or is it "workaholic" syndrome?

A few thoughts:
I used to live in DC.  The northeast is very type-A hard charging. I fit right in.
Then I moved to CA when my husband started grad school.  Not even just CA, Santa Barbara.  It's pretty laid back here.  It took a long time for me to dial back my type-A-ness, and people here still say "you are dialed back??"
My friends in Silicon Valley have higher child care costs.  But mostly because of the lifestyle they choose.  They have chosen nanny for when the kids were little, and then after school.  The nanny costs in Silicon Valley are pretty much the same as here: $20-25 an hour for 2 kids. 

The advantage to a nanny: less commuting.  It's MUCH less stressful to just go home at the end of the day (so I hear).  Of course if they are your full time nanny, then you are also paying SS taxes, so the cost will go up.
(Around here there are people who do the au pair thing.  We only have a 2BR house, so that was out for us.)

Right now my 4 year old is in preschool.  Prior to that, he was in a home daycare.  (My older son followed the same path.)  This preschool was recommended by friends. I  admit that in round 2, I didn't look at any others.  I just picked this one because I didn't have time to deal with it. It's quite different than our older son's preschool (which is no longer running).  Big kid's preschool was at the elementary school and was a mix of kids.  This one is pretty much upper middle class white kids.  It's actually not horribly overpriced for the area ($1200/ month).  It's middle of the road.  You can find full time preschools for $900-1000, but they are going to be mostly religious preschools.  There are *many* preschools that are well regarded for $1400/month +.

So, if you read the article, their kids are in daycare 10 hours a day.  10 hours.  I don't want to judge, but I will.  I cannot imagine maintaining my *own* level of sanity with 10 hours a day.  The average child in daycare is in daycare 30 hours a week.  In my experience here, that is accomplished a myriad of ways: shifting schedules (we do this), working from home, part time work.  My friends in Silicon Valley asked me how we did it without a nanny - well, one of us works 7:30-4:30 and the other works 9 to 6.  On special days (sports, dr appts, whatever), we leave earlier/ go in later.  And it's pretty much accepted here.  Even though neither of them works a job where they need to be somewhere for a specific time, it's less accepted to do that.  If necessary, they can, but not as a regular thing.

So for the Seattle couple, is that the case?  Is the area, or are the jobs, those that are less accepting?  Honestly, I'm very good at my job, and not particularly highly paid.  So, I just pretty much demanded the flexibility from the start.  If I don't, it will never become "normal".

(And again on the daycare bill, I've found that a good quality home daycare is cheaper than a center.  The slight disadvantage is that there are occasional cancellations if the caregiver is sick.  But that is rare.  In my 2 kids total of 8 years, maybe a total of 10 days.  Half for sick, and half for being evacuated due to wildfire.)

mm1970

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Re: Couple Relieved that $200K/year is enough
« Reply #20 on: September 20, 2016, 09:31:40 AM »
Costs are high because staff to child ratios have come down a lot in the past few years. For example in Australia, centres must have 1 staff for every 4 children, and there is pressure from the various child and social service lobbies to reduce that to 1:3 in the case of very young infants.

When I was that age... my brother and I were put in long day care, and after school care where the ratio was closer to 1:7 or even 1:10.

If you have to pay your staff $25 an hour + overhead (super, payroll tax, workers comp etc) + pay some of the highest rents in the world because of our ridiculous property market, you can start to see why childcare is becoming so damn fucking expensive.

Especially now that some staff will be paid professional wages, due to the requirements of having Bachelor degrees in early learning.

They're seriously requiring a 4-year degree to literally wipe asses, hand out junk food snacks, and keep the kids from biting each other?
It depends on the center, yet.  I think the ones around here vary, but most:
- require a certain # of hours of early childhood education classes
- require CPR certification
- require you to be pursuing a degree in ECE (at least an associates)

Then of course, you are paying:
- rent
- salary, benefits, SS taxes
- insurance

You also need backup people for vacations and sick time.  (One kid gets the stomach flu, then a teacher gets in, then you need a sub)

It also depends on the type of school.  The types of things the kids learn will be different for a 4 year old, compared to a 2 year old.

My home childcare provider was charging $320 a week.  She had up to 6 kids there.  If she were fully staffed, that is *almost* $100,000 a year.  But she is self employed, and has to cover her own rent, insurance, social security taxes.  And she's a professional with a degree and 20 years of experience.  Her ability to charge that is very much based on location.  When she was living in Arizona, she could only charge half that, because that's what the market could bear.

thebrowze

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Re: Couple Relieved that $200K/year is enough
« Reply #21 on: September 20, 2016, 11:17:05 AM »
...
It depends on the center, yet.  I think the ones around here vary, but most:
- require a certain # of hours of early childhood education classes
- require CPR certification
- require you to be pursuing a degree in ECE (at least an associates)

Then of course, you are paying:
- rent
- salary, benefits, SS taxes
- insurance

You also need backup people for vacations and sick time.  (One kid gets the stomach flu, then a teacher gets in, then you need a sub)
...

In California there is another consideration: mandatory vaccinations.  I'm willing to pay a premium to make sure my children too young to receive all their shots are not exposed to the child of a family who "knows better" than the pediatrician.  Home day cares often won't even ask, let alone require proof of vaccination.  All the centers we interviewed required doctor's records.

talltexan

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Re: Couple Relieved that $200K/year is enough
« Reply #22 on: September 20, 2016, 11:27:21 AM »
I should add that we are not judging this couple just based on annual spending of $200k, but we are also judging some fairly
ambitious savings goals (not ambitious by MMM standards). There's substantial case for moving the line between college and
retirement savings in either direction.

mm1970

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Re: Couple Relieved that $200K/year is enough
« Reply #23 on: September 20, 2016, 01:06:26 PM »
...
It depends on the center, yet.  I think the ones around here vary, but most:
- require a certain # of hours of early childhood education classes
- require CPR certification
- require you to be pursuing a degree in ECE (at least an associates)

Then of course, you are paying:
- rent
- salary, benefits, SS taxes
- insurance

You also need backup people for vacations and sick time.  (One kid gets the stomach flu, then a teacher gets in, then you need a sub)
...

In California there is another consideration: mandatory vaccinations.  I'm willing to pay a premium to make sure my children too young to receive all their shots are not exposed to the child of a family who "knows better" than the pediatrician.  Home day cares often won't even ask, let alone require proof of vaccination.  All the centers we interviewed required doctor's records.
That too, though our home daycares required vaccinations, and required proof. (in California)

JLee

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Re: Couple Relieved that $200K/year is enough
« Reply #24 on: September 20, 2016, 01:12:36 PM »
That daycare must be cleaning up. Since we can assume this isn't a single worker taking care of just their two children, you're talking at least probably $100-200k (or even $400k if it's a 1:10, which seems entirely feasible) per childcare worker. I don't care how much overhead you're figuring into this, that's insane.

Apparently I might be in the wrong business.

http://apps.leg.wa.gov/WAC/default.aspx?cite=170-295-2090

1:4 for 1-11mo.

Telecaster

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Re: Couple Relieved that $200K/year is enough
« Reply #25 on: September 20, 2016, 01:30:03 PM »
I'm actually judging the Seattle Times for such a dumb article.  If you are making $200,000, even in a HCOL area, you should be fine.  If you're not fine, you're doing something really wrong.

The couple is fine.  They have no debt, $150,000 in savings, and $400,000 in investments, and all before age 40.   It also seems they have either been paying down their mortgage, or put down a substantial amount of money because they only owe $300,000 on their $600,000 house.  That's not MMM level savings, but certainly better than most people.    They are in good shape, hence a poor choice for a case study because they don't have many problems.

Not exactly hard hitting journalism. 



NESailor

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Re: Couple Relieved that $200K/year is enough
« Reply #26 on: September 20, 2016, 01:38:58 PM »
I have a few cents to add on the daycare cost topic.

Someone mentioned mandatory ratios driving up costs - that is absolutely the case.  I live in the Northeast and the ratio here for infants is 1:4.  1:5 for toddlers.  I have one of each and pay about $1500/month for the two of them in a LCOL area (for reference, my 1700 sqft fixer upper on 2+ acres with lake rights cost 120K five years ago).  This is quite pricey for our area but fortunately not for my family.  I often wonder how the center can even make money.  They basically collect $3K / infant teacher/month.  They also feed the kids, pay rent, insurance, utilities, supplies...for 36K in annual revenue per employee?  These are not easy jobs - try staying home with your toddler all day, then add 3-4 more to the mix :).

Another thing nobody mentioned is the socialization aspect.  Our toddler went to daycare at the age of 8 weeks.  Some of our friends stayed home, some sent their kids to home daycares.  We may have gotten very lucky (sample size is 1, after all) but our daughter is visibly ahead of the other kids in terms of development.  She can cut out shapes, count to 20, speak in full sentences, copy drawing simple shapes etc.  At age 2.5.  We give a lot of credit to the professionals at our daycare.  The lead teachers all have degrees and spend time playing developmental games as opposed to just keeping the kids from biting each other all day.  Of course she also has older friends who run around pretending to shoot things so she picks up on those things as well...  There's definitely pros and cons to this.  We feel that the cost was worth it and fortunately it was not a giant part of our budget.

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Re: Couple Relieved that $200K/year is enough
« Reply #27 on: September 20, 2016, 04:01:33 PM »
Both home daycares my kid has been to required proof of vaccinations. I am in California.

obstinate

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Re: Couple Relieved that $200K/year is enough
« Reply #28 on: September 20, 2016, 07:50:41 PM »
The organization that licenses our home daycare center mandates vaccinations. No exceptions. Our caretaker has demanded proof of my son's vaccinations every six months.

GetItRight

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Re: Couple Relieved that $200K/year is enough
« Reply #29 on: September 20, 2016, 08:35:15 PM »
I guess I don't get it. Even subtracting childcare they're over $150k, which should be quite well off by any standard. If you decide to have kids you go into it knowing you sacrifice one income or pay to outsource the parenting. Not rocket science or unexpected. I guess after the government steals their cut it looks worse but still well into six figures? I don't see the problem.

bigalsmith101

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Re: Couple Relieved that $200K/year is enough
« Reply #30 on: September 20, 2016, 10:30:06 PM »
I guess I don't get it. Even subtracting childcare they're over $150k, which should be quite well off by any standard. If you decide to have kids you go into it knowing you sacrifice one income or pay to outsource the parenting. Not rocket science or unexpected. I guess after the government steals their cut it looks worse but still well into six figures? I don't see the problem.

Lets play a different scenario. One that is quite reasonable to assume could exist in Seattle.

Currently this family lives in Issaquah, about a 20 mile, one way commute to work in the Renton or Seattle area. Let's imagine they earn $120k after tax, which is quite reasonable. ~$10000/mo.

If they lived within 5 miles distance of their jobs (biking distance?), they would easily be into their home for $800k due to the market in that area (not $600k as suggested in the article). Hell, it could easily edge closer to $1mm depending on the neighborhood. If they had a 20% down payment on $800k, they'd be paying around $4000/mo on a $640k mortgage.

Tack on the regular $1500/mo per kid that high end day cares charge, and add in 25% for the 2 extra hours over a standard 8 hour day, and you can approach $3750/mo for the two children.

Mortgage at $4k + Daycare at $3750 =$7750/mo so far.

Seattle utilities aren't cheap. Add in a few hundred bucks because their house is from the 70's and not super efficient. $300/mo.
Add in food. They aren't buying from the discount grocer most likely. They'll be at $600/mo easy for their family of 4.
They still have at least one car still, cause you know, you need them. Gas/insurance/maintenance at $400/mo
They aren't homebodies, so they do things in their limited weekend free time that costs money. $300/mo
Cellphones!?!?! They are tech workers who need fancy shit. $150/mo.

This is the tip of the iceberg that constitutes the things people spend money on regularly, and we're already at $1750 for every day living. Add $1750 to the $7750 and we find ourselves at $9500/mo. $500/mo left to blow on other dumb stuff.

I personally know at least two married couples that earn this kind of income that both have two children who are both in fancy day cares, who both own two cars they make payments on, etc, blah blah blah, and they are both on the 60yr/old+ retirement program. 'Cause, you know, that's totally normal!



talltexan

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Re: Couple Relieved that $200K/year is enough
« Reply #31 on: September 22, 2016, 12:54:56 PM »
Your example starts from the crazy position of spending 40% of income on your mortgage payment. Yes, that's what housing costs in THAT area, but that's where people can downshift significantly to ease their financial strain. Buy less house or move, or figure out a way to boost that (already generous) income by 60%.