Author Topic: What's comfort? $108k/year in D.C. apparently...  (Read 8969 times)

nereo

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What's comfort? $108k/year in D.C. apparently...
« on: January 30, 2015, 10:23:21 AM »
It's amazing how many of these stories come out each week.
According to some fuzzy-math based on a previous study looking at the relationship of wealth and happiness, then extrapolated over a bunch of poorly defined factors...  It takes just over $108k to be "comfortable" living in Washington D.C.

http://www.washingtonpost.com/news/local/wp/2015/01/29/you-need-to-make-108092-a-year-to-live-comfortably-in-d-c-report-says/

odd - I lived in Washington DC for years and I never earned 1/2 of that amount.  I felt comfortable and happy.  I'm not doubting it's a high COL area, but sheesh...

Melchior

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Re: What's comfort? $108k/year in D.C. apparently...
« Reply #1 on: January 30, 2015, 10:38:26 AM »
I'm earning under the Happiness Threshold! That makes me feel marginally less happy.

briandougherty

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Re: What's comfort? $108k/year in D.C. apparently...
« Reply #2 on: January 30, 2015, 09:55:36 PM »
These articles are the same as all bad science reporting. "High income improves evaluation of life but not emotional well-being" was the original study. It's marginally interesting in the way  that any study which tells us about tendencies within society is interesting. The articles then go with a standard ecological fallacy to entice readers by applying it to them. It's not anti-mustachian as much as bad reporting.

amicableskeptic

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Re: What's comfort? $108k/year in D.C. apparently...
« Reply #3 on: January 31, 2015, 07:02:19 AM »
100% agree on the bad science reporting.  I remember reading that study before and when I realize this sham science article was claiming to be based on it I was outraged.  That study surveyed americans in all 50 states and found that people emotional well being stopped increasing once they made over 75k (note: there were still happy people making under 75k there was simply a lower percentage of them).  The key point is that 75k was the limit for happiness improvements, but this article flips this and claims that 75k is a threshhold amount and that you need to make to even be happy (or as they put it comfortable).  This is basically the exact opposite of what the study says which infuriates me, and adjusting the studies findings based on local cost of living data is also a complete sham because the study was performed nationally in areas with widely varying costs of livings.  It surveyed people from both rich and poor areas and found that making much above 75k didn't make you happier independent of the cost of living in your area.  The real culprit here is USA today who made the original article that this Washington Post article is referencing http://www.usatoday.com/story/money/personalfinance/2015/01/25/cheat-sheet-10-richest-cities/21394881/

All in all, it's a sad day for journalism when writers claim their work is supported by science when in fact the science says the exact opposite thing.

hdatontodo

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Re: What's comfort? $108k/year in D.C. apparently...
« Reply #4 on: January 31, 2015, 10:01:28 AM »
A relative's split level home in Northern VA, near the Vienna metro has gone from $175K in 1990 to about $700K now.

That would not be easy to buy now with a $100K salary.

There are a lot of houses in Montgomery Co, MD outside 495 that are in the $500K-900K range.

amicableskeptic

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Re: What's comfort? $108k/year in D.C. apparently...
« Reply #5 on: March 16, 2015, 10:13:13 AM »
How to buy a 700K house with 100K in income.

Step 1.  Live like a college student and keep your expenses under 20K/year.
Step 2.  Pay 20K/year in taxes http://www.richmondsavers.com/how-a-family-of-four-with-a-100000-yearly-income-pays-only-6400-in-federal-income-tax/
Step 3. Save the remaining 60K/year for 2.33 years to generate 140K in savings for 20% downpayment
Step 4. Buy 700K house with 20% downpayment

A 30 year fixed mortgage for 560K costs about 2,500 per month right now, VA property tax and insurance adds under 700 to that so the total yearly cost for the house would be (2500+700)*12=38,400 which is well under the 60K/year this hypothetical person was already saving.

This is a long way of saying it would be exceptionally easy to buy a 700K home in VA with a 100K salary if you were committed to it.  That being said I don't think it's that great of a goal to commit to.  It would probably be better to just keep saving 60K/year and reach FI much sooner. 

As for living for 20K/year in VA, that's totally possible too it just requires looking hard for a low rent spot in a shared house, biking to work and not blowing money on luxuries you don't need.  I know people down there right now doing exactly this (as well as lots more people spending money they don't have).

Hope this helps.

nereo

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Re: What's comfort? $108k/year in D.C. apparently...
« Reply #6 on: March 17, 2015, 11:49:32 AM »
How to buy a 700K house with 100K in income.

Step 1.  Live like a college student and keep your expenses under 20K/year.
Step 2.  Pay 20K/year in taxes http://www.richmondsavers.com/how-a-family-of-four-with-a-100000-yearly-income-pays-only-6400-in-federal-income-tax/
Step 3. Save the remaining 60K/year for 2.33 years to generate 140K in savings for 20% downpayment
Step 4. Buy 700K house with 20% downpayment
well we accomplished step 1 a few years ago while still living a rather comfortable and social life.  All I was missing is the $100k salary and the savings-rate to go with it.
Honestly, I laughed every time someone tried to say that you 'needed' $70k, $80k, $90k "just to get by" in the area.

bacchi

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Re: What's comfort? $108k/year in D.C. apparently...
« Reply #7 on: March 17, 2015, 02:00:13 PM »
A 30 year fixed mortgage for 560K costs about 2,500 per month right now, VA property tax and insurance adds under 700 to that so the total yearly cost for the house would be (2500+700)*12=38,400 which is well under the 60K/year this hypothetical person was already saving.

Step 5: Convince mortgage lender to give you a $560k loan on $100k income.

zephyr911

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Re: What's comfort? $108k/year in D.C. apparently...
« Reply #8 on: March 19, 2015, 09:59:47 AM »
A 30 year fixed mortgage for 560K costs about 2,500 per month right now, VA property tax and insurance adds under 700 to that so the total yearly cost for the house would be (2500+700)*12=38,400 which is well under the 60K/year this hypothetical person was already saving.

Step 5: Convince mortgage lender to give you a $560k loan on $100k income.
If you have no other debt payments, $2500/mo on 100k annual income is only a 30% DTI. The $3200 PITI quoted brings it up to more like 38%. Most mortgage programs top out at 40-50% depending on the other parameters. Some go as low as 35% but with 20% down and good credit that is rare, and even at 35%, you just save for a few more months and bring the loan amount down to reach that mark.
« Last Edit: March 19, 2015, 10:03:37 AM by zephyr911 »

LiveLean

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Re: What's comfort? $108k/year in D.C. apparently...
« Reply #9 on: March 20, 2015, 09:05:37 AM »
I grew up in Northern Virginia and the longtime family home my Dad sold in 1997 for $600,000 is worth nearly $2 million now. He has no regrets. He's very mustachian, as was my late mom, and rolled that $600K (he had no mortgage) into much more profitable investments.

One night in December of 1995, it took me 90 minutes to drive the 5 miles from the office (off the Metro lines) to my small apartment in modest sleet and freezing rain. I vowed to get the hell out of DC and moved to Florida two years later at age 28.

Life is too short to deal with traffic, cold weather inconvenience, and insane COL.

 

nereo

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Re: What's comfort? $108k/year in D.C. apparently...
« Reply #10 on: March 20, 2015, 09:34:09 AM »
I grew up in Northern Virginia and the longtime family home my Dad sold in 1997 for $600,000 is worth nearly $2 million now. He has no regrets. He's very mustachian, as was my late mom, and rolled that $600K (he had no mortgage) into much more profitable investments.

It wasn't a bad decision to sell from an economic standpoint either.  Over the same time period, the SP500 went up 277.5% with dividends reinvested*, meaning if he had taken the $600k from the sale of his home and put it entirely into an SP500 fund or ETF, he'd have $1.7M now or "nearly $2M now".
People rarely compute annualized returns when they talk about how much a home's value has increased over several decades.

*not adjusted for inflation.  But neither were the home values given for '97 and 2015.

MgoSam

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Re: What's comfort? $108k/year in D.C. apparently...
« Reply #11 on: March 20, 2015, 09:58:49 AM »
I grew up in Northern Virginia and the longtime family home my Dad sold in 1997 for $600,000 is worth nearly $2 million now. He has no regrets. He's very mustachian, as was my late mom, and rolled that $600K (he had no mortgage) into much more profitable investments.

It wasn't a bad decision to sell from an economic standpoint either.  Over the same time period, the SP500 went up 277.5% with dividends reinvested*, meaning if he had taken the $600k from the sale of his home and put it entirely into an SP500 fund or ETF, he'd have $1.7M now or "nearly $2M now".
People rarely compute annualized returns when they talk about how much a home's value has increased over several decades.

*not adjusted for inflation.  But neither were the home values given for '97 and 2015.

Not to mention holding onto the house would require maintenance and property taxes. If your family is still living there it would be worthwhile so long as it is enough home for your needs. My parents are living in the home they bought 22 years ago when me and my siblings are young, now it is the two of them living in a 6 bedroom, with 3 full bathrooms and two half bathrooms. I don't see them downgrading as all their friends live in the neighborhood, but someday I think they will be happier doing so as it is less of a burden to maintain.

nereo

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Re: What's comfort? $108k/year in D.C. apparently...
« Reply #12 on: March 20, 2015, 10:08:48 AM »
... My parents are living in the home they bought 22 years ago when me and my siblings are young, now it is the two of them living in a 6 bedroom, with 3 full bathrooms and two half bathrooms. I don't see them downgrading as all their friends live in the neighborhood, but someday I think they will be happier doing so as it is less of a burden to maintain.
sounds very similar to my own family.  Parents live in a 4 bedroom, 3 bath house which they bought in 1978 in what was then exurb/farmland in Fairfax Co. but is now entirely suburbia. They love the area, the house, the neighborhood and can comfortably afford to stay there, but without 4 kids at home the house is far more than they need.  It's worth a small fortune today (mainly because they've held onto it for 37 years).

Melchior

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Re: What's comfort? $108k/year in D.C. apparently...
« Reply #13 on: March 23, 2015, 02:51:26 PM »
Life is too short to deal with traffic, cold weather inconvenience, and insane COL.

Amen, well, about dealing with traffic anyway. I'm finally dropping my long commute and leaving NoVa for NYC next week, probably to end up in Astoria like some others on these forums.

I don't think I'll miss that nightmare commute.