With the Bush tax cuts nearing expiration and President Obama threatening to veto any bill that extends lower tax rates for the wealthiest among us, folks on both ends of the political spectrum debate over what constitutes rich.
President Obama believes individuals and married couples who earn annual incomes over $200K and $250K, respectively, are rich. If we were to look solely at income, I’d agree those figures represent a lot of dough—even in high cost of living, metropolitan areas. (Whether high income earners currently pay less than their “fair share” of taxes isn’t a discussion I’m interested in having on this forum.)
According to the U.S. Bureau of Labor Statistics, the average annual household income approached $64K in 2011. Of the top ten most expensive places to live in the U.S., Washington, D.C. boasted the highest median household income of about $81K per year. So those in the $250K a year crowd earn three times as much as others in the metro DC area.
A couple of years ago, The Fiscal Times published a detailed article, Down and Out on $250K a Year, that did an excellent job of showing how upper class families in high cost of living areas can easily find themselves in the red.
You may not have enough disposable income to take baths in melted chocolate or use $100 bills as tobacco rolling papers, but you certainly shouldn’t struggle to make ends meet.
If your family barely scrapes by on $250K a year, I wanna help you out.
Clean your own house. Mow your own lawn. Simple enough, right?
Don’t save for your child’s college education. You’re under no obligation to pay for all, or any, of your adult children’s post-secondary education. Raise them to be self-sufficient individuals, and they’ll possess the knowledge to obtain the desires of their hearts.
If you insist on setting aside money for your offspring’s college attendance, consider saving just enough to cover a portion, not all, of the costs for a 4-year degree: two years at a community college and two years at an in-state, public university.
You could steer your child toward an institution that offers a more generous financial aid package.
Encourage your child to work a year or two after high school and/or work through college.
If the option is available, your high school student could obtain college credit hours through Advance Placement (AP) and Dual Enrollment courses before setting foot on campus. Although the exception, I knew a few kids who entered my university with half or a full year’s worth of college credits.
Buy a reliable, low-priced, fuel-efficient vehicle. I don’t understand why our hypothetical, $250K a year couple owns two cars with debt on them. If you want to cut transportation costs, drive an automobile for the length of its useful life. Or use public transit.
Modern vehicles can easily survive 200K miles. At 15K miles a year, that’s 13 years. Cut down the annual mileage to 10K, and you can drive that sucker for 20 years.
Skip or delay home ownership. Although housing is a necessity, owning a home is not. In expensive cities, you may not see the financial benefit of home ownership for a decade.
It’s not enough to simply consider the difference between the price to buy and the price to rent the same house, but what you consider suitable as a renter and what’s acceptable as a home owner.
For instance, I live in a one-bedroom, one-bathroom apartment. There’s no way I’d buy a 1/1 condo. I’d shoot for a 3/2 townhouse or single-family home that’s large enough to accomodate a growing family. Not surprisingly, buying a 3/2 single-family home in my zip code would more than double my housing related expenses.
High income couples could live modestly, invest their savings, move to a low cost of living area later, and pay cash for a house.
Have 0 to 2 children. Unfortunately, if you live in a dual income household with kids, day care expenses in high cost of living areas can devour you. Fortunately, public schools foot a portion of the bill after your child reaches five years old.
Without kids, you don’t have to worry about day care, college, extra housing costs, health care, none of that. If you yearn to fill your house with little ones, never mind me, but I’m just sayin’ kids are gonna cost ya.
Buy clothes that don’t require dry cleaning. Alternatively, machine wash ‘dry clean only’ clothes. Wash them in cold water with a gentle laundry detergent (or no detergent) and let air dry. Nix wrinkles with a steamer.
Get rid of the dog. Okay, fine, keep the dog, but don’t take on any more . . . unless you’re willing to cut some other luxury. The American Society for the Prevention of Cruelty to Animals estimates that ONE medium sized dog costs a minimum of $1,580 per year.
Pack a lunch for work or reduce lunch meals out to a max of twice per week. Who needs to eat out every single day?
If your family’s household income was at least $250K a year, would I consider you rich?
Not to me. But then again, I define financial wealth not by net income, but by net worth.
Image courtesy of David Castillo Dominici at FreeDigitalPhotos.net
250k a year LOL. How about 50k< a year or less like most Americans.
The 16 Trillion dollar national debt is only the tip of the iceberg. Unfunded SS, Medicare, and local, state and Federal pension liabilities are 62 Trillion dollars! The American people WILL experience: reduced entitlements, higher taxes, higher inflation, and higher interest rates. Everyone will learn to live on less – a lot less.
I bring to this comment an Australian perspective. Our government considers households that earn more than $150k/year to be well off. Households in this zone do well to make us believe that they are no, though. Why are they not well off? Liabilities outnumber income. However, as you cite in this post; “rich people’s” liabilities are different and more unnecessary than “poor people’s”. Does one need a $750k mortgage? Does one need two late model cars? Does one need to put their kids through elite private schooling? Does one need 5 flat screen TVs and all the gadgets? Consumerism has put them in their predicament.
You know, I think these tips work great for peple making less than $250K. It’s funny how people make more and more money and then start thinking that they “need’ these crazy things. Get out and mow your own lawn, people! Lol, well said.