MarketWatch: ‘I’m paycheck to paycheck.’ I make $350K a year...

[Phenix]

https://www.marketwatch.com/picks/im-paycheck-to-paycheck-i-make-350k-a-year-but-have-88k-in-student-loans-170k-in-car-loans-and-a-mortgage-i-pay-4-500-a-month-on-do-i-need-professional-help-01664544530

I don't even know where to begin with this one. Smart enough to make $350k but asks if a 9% HELOC is a smart idea to consolidate their debt that is at a much lower interest rate.

[JLee]

Sometimes I think that I should be a financial advisor but the first thing I'd say is "don't pay for a financial advisor..."...but...stuff like this makes me revisit that thought.

[sonofsven]

Two auto loans totaling $170k @ 5% for two electric vehicles.
Wow.

[charis]

I have some couple friends who probably make close to 350k combined and are living this way.  They all have high-ish mortgage payments, two car loans, and a heloc or home equity loan.  The Parkinson’s Law principal has been quoted to me a couple of times, but not as a cautionary tale, more an an inevitability or explanation for why they are still having money struggles.  Such people want to confirm that they can't change things rather than doing the work to change things. 

[Phenix]

I have married friends who are both Doctors and probably have a combined income north of $500k and often make comments like, "I don't know how you do it on a single income with 3 kids." I just want to do a side by side comparison chart of why I'm financially comfortable and they're broke making 4x my household income. They are two of the smartest people I know and I can almost guarantee they still wouldn't see it.

[Taran Wanderer]

Came to MMM to post this but you beat me to it.

OMG this is ridiculous. Pants on fire debt and they’re whining about it. Sell the cars, pay off the student loans, and live within your means for a while. The columnist needed stronger facepunches.

[elysianfields]

This is why I don’t read Marketplace clickbait bullshit.  I mean holy fucking Jesus H. Christ in a chicken basket!  What a waste of money and other resources, and living paycheck to paycheck… *eyeroll*

[Morning Glory]

This is why I don’t read Marketplace clickbait bullshit.  I mean holy fucking Jesus H. Christ in a chicken basket!  What a waste of money and other resources, and living paycheck to paycheck… *eyeroll*

I occasionally get trapped in a waiting room with HGTV on and wonder what kinds of jobs the people have that they can be so ditzy and still earn enough to afford the type of house they are looking at. Meanwhile there are tons of jobs paying under 100k per year where a mistake or lapse of attention could kill someone.

[Sanitary Stache]

@Morning Glory Excellent observation!

Another messed up quirk of a greed based economy.  When self interest doesn't equate to reducing risk of death.

[bacchi]

This is why I don’t read Marketplace clickbait bullshit.  I mean holy fucking Jesus H. Christ in a chicken basket!  What a waste of money and other resources, and living paycheck to paycheck… *eyeroll*

I occasionally get trapped in a waiting room with HGTV on and wonder what kinds of jobs the people have that they can be so ditzy and still earn enough to afford the type of house they are looking at. Meanwhile there are tons of jobs paying under 100k per year where a mistake or lapse of attention could kill someone.

Husband: "I sell used 8-track tapes."
Wife: "And I hang potatoes in people's garages."

[Dave1442397]

This is why I don’t read Marketplace clickbait bullshit.  I mean holy fucking Jesus H. Christ in a chicken basket!  What a waste of money and other resources, and living paycheck to paycheck… *eyeroll*

I occasionally get trapped in a waiting room with HGTV on and wonder what kinds of jobs the people have that they can be so ditzy and still earn enough to afford the type of house they are looking at. Meanwhile there are tons of jobs paying under 100k per year where a mistake or lapse of attention could kill someone.

Husband: "I sell used 8-track tapes."
Wife: "And I hang potatoes in people's garages."

Hey, you never know... https://eyeondesign.aiga.org/we-spoke-with-the-last-person-standing-in-the-floppy-disk-business/

[snic]

This is why I don’t read Marketplace clickbait bullshit.  I mean holy fucking Jesus H. Christ in a chicken basket! 

Me neither, but at least I learned a new epithet!

[Taran Wanderer]

I started thinking about the math…


Expenses
Student loan: $150k @ 7% = $1,741/month
Car loans:  $170k @ 5% = $3,208/month
Mortgage:  $4,500/month

Total:  $9,448/month

Income
$350k/year = 29,167/month

Assuming a 25% aggregate tax rate*, that leaves well over $20,000 per month to pay the bills, eat, cable, medical, clothing, etc. etc. Let’s be generous and assume that they spend $5,000 per month on expenses in addition to the big bills. That still leaves $5,000 or even up to $7,000 per month to put toward debt reduction. Clearly, the first action should be to sell at least one of the fancy electric cars, but let’s assume they don’t.

1.  Pay off student loan in year 1.
2.  Add that $21k per year to the monthly surplus and pay off one of the clown cars in year 2.
3.  Finish off the other clown car in year 3.

Forget speculative investments until they have their debt under control, a healthy emergency fund, and a healthy retirement start in low cost index funds.


* I’ve done the math on our aggregate tax rate multiple times over the years. After pre-tax savings, mortgage deductions, personal exemptions, kids, etc., our aggregate tax rate was around 17% when our income was under $100k, and it has since increased to about 25% with our income significantly higher. Yes, this includes fed, ss, Medicare, state, and property taxes (including property taxes on a rental property).

[Freedomin5]

But my biggest concern is that after taxes, 401(k) contributions, bills, savings and mortgage ($4,500), on paper I’m paycheck to paycheck.

This person is not living paycheck to paycheck. They’re counting 401k contributions and savings as “expenses”, and then saying, “Waaah…I have no money left over.” They’re basically using zero-sum budgeting.

[charis]

But my biggest concern is that after taxes, 401(k) contributions, bills, savings and mortgage ($4,500), on paper I’m paycheck to paycheck.

This person is not living paycheck to paycheck. They’re counting 401k contributions and savings as “expenses”, and then saying, “Waaah…I have no money left over.” They’re basically using zero-sum budgeting.

Definitely not, but if they are families like the ones I know, they are not maxing the 401k and the savings is a minimal amount for a small emergency fund.  This is obviously a self imposed "problem" where they "feel" like they don't have a lot of money even though they make rich people money.

[Freedomin5]

But my biggest concern is that after taxes, 401(k) contributions, bills, savings and mortgage ($4,500), on paper I’m paycheck to paycheck.

This person is not living paycheck to paycheck. They’re counting 401k contributions and savings as “expenses”, and then saying, “Waaah…I have no money left over.” They’re basically using zero-sum budgeting.

Definitely not, but if they are families like the ones I know, they are not maxing the 401k and the savings is a minimal amount for a small emergency fund.  This is obviously a self imposed "problem" where they "feel" like they don't have a lot of money even though they make rich people money.

Or they could be maxing out their 401k, and setting aside a certain amount in savings — we simply don’t know based on the info in the article. Though I suppose wanting to take out a 9% HELOC and defining their current situation as “paycheck to paycheck” suggests a certain lack of financial knowledge.

[EchoStache]

Ya, paycheck to paycheck implies no money available for retirement, saving, and investing.  But she IS doing those things so this is a stupid article, as EVERYONE who invests/saves all of their extra money every payday could say this. 

[Morning Glory]

Ya, paycheck to paycheck implies no money available for retirement, saving, and investing.  But she IS doing those things so this is a stupid article, as EVERYONE who invests/saves all of their extra money every payday could say this.

I know, right? My paychecks in my last few months of working were like $600 because I wanted to max my 457b.

[Metalcat]

I read these case more from the perspective that even a massive income isn't enough to feel "rich."

This was, for me, the most powerful part of the MMM message. You can earn massive incomes and spend almost all of it, and still feel just "middle class."

When I started making big money, I was quite shocked at how BAD the ratio of expense to luxury was. Like, luxury goods cost orders of magnitude more than their perfunctory counterparts, but the increase in benefit is just a fraction superior.

So, for example, an upgraded event ticket makes the experience twice as nice, so a 100% increase in luxury, but costs 5-10 times as much. A designer dress looks easily 80% better than a cheap dress, but costs 20-50 times as much. And so on and so forth.

I kept finding that the premium for luxury was pretty regularly not worth the insane premium for it, and when I did splurge for it, it just felt like a shinier version of middle class.

It's easy when you make a ton of money to feel like you *should* be able to afford a substantially higher quality of life, but you actually can't. It's just all the same shit, only marginally nicer, and orders of magnitude more expensive. I have friends spending over a quarter million a year whose lives just aren't materially that different from mine.

So when I see these cases, I really empathize with them. They feel they were promised that if they generated way more money than most that they should be able to live a materially superior quality of life, and it's just not true, but it's a hard reality to swallow because then they're left facing a huge existential question: "what's the fucking point?"

None of that is an excuse for their irresponsible behaviour, but when I read these things it really helps reaffirm my belief that it's actually really hard to spend your way to a superior quality of life.

[Sanitary Stache]

I read these case more from the perspective that even a massive income isn't enough to feel "rich."

This was, for me, the most powerful part of the MMM message. You can earn massive incomes and spend almost all of it, and still feel just "middle class."

When I started making big money, I was quite shocked at how BAD the ratio of expense to luxury was. Like, luxury goods cost orders of magnitude more than their perfunctory counterparts, but the increase in benefit is just a fraction superior.

So, for example, an upgraded event ticket makes the experience twice as nice, so a 100% increase in luxury, but costs 5-10 times as much. A designer dress looks easily 80% better than a cheap dress, but costs 20-50 times as much. And so on and so forth.

I kept finding that the premium for luxury was pretty regularly not worth the insane premium for it, and when I did splurge for it, it just felt like a shinier version of middle class.

It's easy when you make a ton of money to feel like you *should* be able to afford a substantially higher quality of life, but you actually can't. It's just all the same shit, only marginally nicer, and orders of magnitude more expensive. I have friends spending over a quarter million a year whose lives just aren't materially that different from mine.

So when I see these cases, I really empathize with them. They feel they were promised that if they generated way more money than most that they should be able to live a materially superior quality of life, and it's just not true, but it's a hard reality to swallow because then they're left facing a huge existential question: "what's the fucking point?"

None of that is an excuse for their irresponsible behaviour, but when I read these things it really helps reaffirm my belief that it's actually really hard to spend your way to a superior quality of life.

This speaks to what I was thinking about this case earlier this morning.

The idea that this person was "...presented with a real estate investment opportunity.." struck me as a few things - pretentious, ignorant, naive - but I think your perspective helps to define my thoughts.  The idea that this person achieved wealth to the point where they are now presented with lucrative investment opportunities.  like the ability to access that little bit extra luxury, high income gives this person ways to risk money not available to those with less means - at least that is what i imagine this person thinking.

I thought that was part of the perspective of this case any way.

[charis]

This was, for me, the most powerful part of the MMM message. You can earn massive incomes and spend almost all of it, and still feel just "middle class."

This is so true.  In my primary circle of friends, I have surmised that most spend generally spend 3-4x more annually than my family does.  Yet I genuinely feel richer in my daily life and they complained about having tight finances all the time.   That's why I don't understand why people complain about the stash side of FIRE and not being able to enjoy their lives now while saving for retirement.  I would be very happy (not to mention lucky) if my lifestyle was like this in retirement.

[Metalcat]

This was, for me, the most powerful part of the MMM message. You can earn massive incomes and spend almost all of it, and still feel just "middle class."

This is so true.  In my primary circle of friends, I have surmised that most spend generally spend 3-4x more annually than my family does.  Yet I genuinely feel richer in my daily life and they complained about having tight finances all the time.   That's why I don't understand why people complain about the stash side of FIRE and not being able to enjoy their lives now while saving for retirement.  I would be very happy (not to mention lucky) if my lifestyle was like this in retirement.

DH and I were actually discussing this recently.

He was saying that he was so happy that we're simple people who enjoy a simple lifestyle. I actually laughed and said that the only metric by which you could call our lifestyle "simple" is in how little we spend on consumer goods and experiences.

Just because it doesn't cost us much to go explore some of the most beautiful locations in the world, or eat gourmet food, or engage with rich art and entertainment doesn't make our lifestyle simple.

I think it's weird that we label inexpensive experiences as "simple pleasures" because to me, cooking a delicious meal, going for a bike ride, and having a picnic in a new, beautiful spot, seeing new wildlife I don't often see, is infinitely less "simple" and way less boring than just plopping my ass down in yet another restaurant and going through the exact same motions as I do at every other restaurant.

I spent 40 minutes yesterday watching a blue heron bathe itself in the river. I practically assaulted a passerby to force her to come watch with me, and she immediately dropped a work call to join me because she too recognized how valuable the experience was. 

Spending money to consume shit is simple. It's a basic bitch as it gets. Nothing wrong with being a basic bitch, I'm as basic as they come in a lot of ways, but I refuse to conflate cost with something being more interesting or satisfying.

[Miss Piggy]

I spent 40 minutes yesterday watching a blue heron bathe itself in the river. I practically assaulted a passerby to force her to come watch with me, and she immediately dropped a work call to join me because she too recognized how valuable the experience was. 

This comment really makes me smile. We have blue herons that hang out near our house, and I could watch them all day, every day. They are simply majestic when they fly. And when they're not flying, watching them hunt for fish in the lake is fascinating.

At this moment, there are also three lake turtles in my yard sunning themselves. That's another thing I could watch all day long! I really want to share the moment with someone, but I'm home alone, and texting a photo to another person would just feel like bragging to me. Other people brag about their Teslas...I brag about having turtles in my yard. To each their own, I suppose!

I'm with you, Malcat. This is the kind of stuff that makes life good for me.

[kite]

Having auto debt for 2 vehicles that is almost half their annual income so far out there, I can’t relate. The last vehicle I bought had a purchase price of less than 10% of my annual income.  I thought I was being extravagant because it was only 1 year old.
What are people typically spending on vehicles?  Is there a formula for purchase price versus income/net-worth?

[EchoStache]

Your forgetting that the typical American consumer decision making process for whether to buy something or not is as follows:

Can I get approved for financing?  If yes, = buy. 

[charis]

Yeah, these type of people aren't looking at total price, they are just looking at the monthly payment and maybe the interest rate.  We paid cash for our last car 4 years ago, 5% of annual salary. It was 4 years old.

[Phenix]

Having auto debt for 2 vehicles that is almost half their annual income so far out there, I can’t relate. The last vehicle I bought had a purchase price of less than 10% of my annual income.  I thought I was being extravagant because it was only 1 year old.
What are people typically spending on vehicles?  Is there a formula for purchase price versus income/net-worth?

This is one area I can get onboard with Dave Ramsey. He recommends having no more than 50% of your annual income in things with motors. So if your annual income is $100k, you should have no more than $50k worth of cars, trucks, boats, motorcycles, etc.

[charis]

Having auto debt for 2 vehicles that is almost half their annual income so far out there, I can’t relate. The last vehicle I bought had a purchase price of less than 10% of my annual income.  I thought I was being extravagant because it was only 1 year old.
What are people typically spending on vehicles?  Is there a formula for purchase price versus income/net-worth?

This is one area I can get onboard with Dave Ramsey. He recommends having no more than 50% of your annual income in things with motors. So if your annual income is $100k, you should have no more than $50k worth of cars, trucks, boats, motorcycles, etc.

I don't understand why the value of these items are being tied to one's annual income in this recommendation.

[patchyfacialhair]

Having auto debt for 2 vehicles that is almost half their annual income so far out there, I can’t relate. The last vehicle I bought had a purchase price of less than 10% of my annual income.  I thought I was being extravagant because it was only 1 year old.
What are people typically spending on vehicles?  Is there a formula for purchase price versus income/net-worth?

This is one area I can get onboard with Dave Ramsey. He recommends having no more than 50% of your annual income in things with motors. So if your annual income is $100k, you should have no more than $50k worth of cars, trucks, boats, motorcycles, etc.

I don't understand why the value of these items are being tied to one's annual income in this recommendation.

Things with motors depreciate...and appealing to the lowest common denominator makes for generally good advice.

So by giving a number any number...especially a round number, it's a way for people to keep their spending in check.

[Phenix]

Having auto debt for 2 vehicles that is almost half their annual income so far out there, I can’t relate. The last vehicle I bought had a purchase price of less than 10% of my annual income.  I thought I was being extravagant because it was only 1 year old.
What are people typically spending on vehicles?  Is there a formula for purchase price versus income/net-worth?

This is one area I can get onboard with Dave Ramsey. He recommends having no more than 50% of your annual income in things with motors. So if your annual income is $100k, you should have no more than $50k worth of cars, trucks, boats, motorcycles, etc.

I don't understand why the value of these items are being tied to one's annual income in this recommendation.

Things with motors depreciate...and appealing to the lowest common denominator makes for generally good advice.

So by giving a number any number...especially a round number, it's a way for people to keep their spending in check.

Exactly this. Thank you for putting it much more elegantly than I could. When it comes to personal finance, people get analysis paralysis. Giving hard rules of thumb, like Dave Ramsey's 7 Baby Steps, are not optimal but it gets people to actually do something instead of twiddling their thumbs.

[Metalcat]

Having auto debt for 2 vehicles that is almost half their annual income so far out there, I can’t relate. The last vehicle I bought had a purchase price of less than 10% of my annual income.  I thought I was being extravagant because it was only 1 year old.
What are people typically spending on vehicles?  Is there a formula for purchase price versus income/net-worth?

This is one area I can get onboard with Dave Ramsey. He recommends having no more than 50% of your annual income in things with motors. So if your annual income is $100k, you should have no more than $50k worth of cars, trucks, boats, motorcycles, etc.

I don't understand why the value of these items are being tied to one's annual income in this recommendation.

Things with motors depreciate...and appealing to the lowest common denominator makes for generally good advice.

So by giving a number any number...especially a round number, it's a way for people to keep their spending in check.

Exactly this. Thank you for putting it much more elegantly than I could. When it comes to personal finance, people get analysis paralysis. Giving hard rules of thumb, like Dave Ramsey's 7 Baby Steps, are not optimal but it gets people to actually do something instead of twiddling their thumbs.

Yeah, DR isn't about rules that are right, he's all about rules that aren't wrong and are easy for anyone to follow.

Actually understanding shit and analyzing it for your own personal, unique circumstances is hard y'all!

[kite]

The DR guidance is vague.
I get that he has to be broadly generic because some of his audience has such limited choices. But 50% is still high, particularly for high earners who also have a significant mortgage.
The cost per day for automobiles for this couple is $133/day.  That’s 170,000 @ 5% for an average of $4000/month assuming a 48 month loan.
The mortgage on the house is only $25/day more than the cars.  An astronomical sum for a depreciating asset used for only a fraction of the time.

[Phenix]

The DR guidance is vague.
I get that he has to be broadly generic because some of his audience has such limited choices. But 50% is still high, particularly for high earners who also have a significant mortgage.
The cost per day for automobiles for this couple is $133/day.  That’s 170,000 @ 5% for an average of $4000/month assuming a 48 month loan.
The mortgage on the house is only $25/day more than the cars.  An astronomical sum for a depreciating asset used for only a fraction of the time.

I would be shocked if the people in this story took out a car loan any shorter than 6 years. I don't know how long car loan terms are now, but I know when we bought our van a few years back, the salesman was talking about a 7 year loan option if we decided to buy new instead of used. That just seems like a horribly risky deal for the bank (which I'm sure they offset by charging a higher interest rate).

[JLee]

The DR guidance is vague.
I get that he has to be broadly generic because some of his audience has such limited choices. But 50% is still high, particularly for high earners who also have a significant mortgage.
The cost per day for automobiles for this couple is $133/day.  That’s 170,000 @ 5% for an average of $4000/month assuming a 48 month loan.
The mortgage on the house is only $25/day more than the cars.  An astronomical sum for a depreciating asset used for only a fraction of the time.

I would be shocked if the people in this story took out a car loan any shorter than 6 years. I don't know how long car loan terms are now, but I know when we bought our van a few years back, the salesman was talking about a 7 year loan option if we decided to buy new instead of used. That just seems like a horribly risky deal for the bank (which I'm sure they offset by charging a higher interest rate).

7 years is not uncommon - even now after all the rate hikes, Parsons has 3.79% for 84 months for EVs, a 0.3% disadvantage over a 48 month term.