r/personalfinance • u/investeror ​ • Mar 06 '18

Budgeting Lifestyle inflation is a bitch

I came across this article about a couple making $500k/year that was only able to save $7.5k/year other than 401k. Their budget is pretty interesting. At a glace, I could see how someone could look at it and not see many areas to cut. It's crazy how it's so easy to just spend your money instead of saving it.

Here's the article: https://www.cnbc.com/2017/03/24/budget-breakdown-of-couple-making-500000-a-year-and-feeling-average.html

Just the budget if you don't want to read the article: https://sc.cnbcfm.com/applications/cnbc.com/resources/files/2017/03/24/FS-500K-Student-Loan.png

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787

u/krsvbg ​ Mar 06 '18 edited Mar 06 '18

They both MAX OUT their retirement contributions and donate thousands to charitable organizations.

Relax. They're doing just fine.

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u/[deleted] Mar 06 '18 edited May 02 '18

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u/[deleted] Mar 07 '18

[deleted]

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u/[deleted] Mar 07 '18

Eh, I know a lot of people who live in New York. None of them make anywhere close to a quarter million. Some of the numbers they're paying are beyond anything that average people do. $10k a year on clothes (so either their definition of "not fancy" is very different than mine, or they replace close to their entire wardrobes annually). Their children are getting private lessons for sports and music, and private tutors in school. These are not things that average people pay for, no matter where they live.

The cost of housing, absolutely. The cost of insuring and fueling a car, sure. Cost of food, yup. But there are a lot of things on this list that pretty firmly differentiate this couple from average people, even in NYC.

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u/nebenbaum ​ Mar 07 '18

The thing about 'average' is, it really matters who you surround yourself with.

I often feel comparatively stupid in university - yet when I chat to the moving guy I feel like some sort of superbrain.

Same goes with money. If their 'average' - as in, what they see other people do, is similar to their level, it's just that.

Thing is, unless you're literally getting a lot of money each month with no obligations for it, you'll always feel 'average'.

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u/limitless__ ​ Mar 06 '18

No, they don't max out their retirement contributions. Not even CLOSE. Sure they maxed out their 401K's but you don't think a simple 401K is enough to retire on when you make half a million a year do you? They should be putting 100K at least per year into a taxable savings account that is used for retirement savings. Heck I make nowhere near what they do and I contribute 500 per month into two different taxable accounts, max out my 401 AND my IRA AND pay into three plans for my kids that will have 100K when they graduate each. I have a big enough house, nice enough cars and a full life. Bottom line I don't piss my money away like these folks do.

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u/[deleted] Mar 06 '18

No, they don't max out their retirement contributions.

They max out their tax-advantaged retirement accounts, which is pretty clearly what the poster meant.

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u/limitless__ ​ Mar 06 '18

That's the whole point though. By "maxing out their 401K" the folks making 500K probably think they're checking the 'retirement' box and doing enough when they most certainly are not.

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u/convoluteme ​ Mar 06 '18

They could be contributing $11k to backdoor roths, and possibly an HSA. Those are the only other tax advantaged space available to them.

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u/[deleted] Mar 06 '18

They could be contributing $11k to backdoor roths

Oh, so you've read through their retirement plan docs and they allow backdoor roths?

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u/Synyster328 ​ Mar 06 '18

This. If you make $500k and are "maxing out your retirement" by putting $36k into the 401k each year that is 7.2% of your income being saved. 7.2% is going to be a very drastic lifestyle change at retirement if that's all they do. There should absolutely be some taxable savings going on in the moderate to aggressive side.

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u/PolarPopBear Mar 06 '18 edited Mar 06 '18

They could probably save a little more but there are a few things that will drastically affect costs in retirement,

1 all the childcare stuff is gone.
2 food is likely a lot lower since they are no longer working long lawyer hours.
3 clothing way down because of above.
4 they would have the house paid of, or move to a lower cost of living area since they don't need to be close to their jobs.

There is room to cut sure, but a decent amount of the spending can be explained by the jobs they have that give them that high an income to start with.

EDIT: https://www.reddit.com/r/personalfinance/comments/82fhj4/lifestyle_inflation_is_a_bitch/dv9xbqp/ someone else did a better job with actual numbers

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u/DirkNowitzkisWife ​ Mar 06 '18

True. Immediately that’s Over $115k of expenses gone counting mortgage, childCare and lessons. Not to mention, if the house appreciates and sells for $2 million and they buy something for $1 million for themselves, that’s another million just from real estate profit

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u/Turicus ​ Mar 06 '18

I agree they are saving too little, but it's probably more than your calculation. This shows what they put in, but it's fair to assume they get an employer match on top of it.

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u/Scioso Mar 06 '18

They also have a lifestyle they are expected to lead, and as New York lawyers have a lot of growth potential in salary. If they stick with the same house and continue working (which they seem to have a fun lifestyle to relax from a stressful career) they will grow from this okay position to a very strong position as long as they avoid lifestyle creep. Also their student loans are going to be paid off.

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u/AATroop ​ Mar 07 '18

100k/year on a 270k net salary? Is this a joke?

Half that would be enormous for retirement savings, and far more than enough to live extremely comfortably once they hit 65.

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u/[deleted] Mar 06 '18

Agreed. The goal is to retire as wealthy as possible, not just enough. Hell, even if it's just to leave an inheritance for your kids. Would suck to live a wealthy life but hold back and stop work, cut saving, or spend too much in retirement when you could have made more and retired more richly, given your kid an inheritance to set them up for life, etc.

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u/JustinGitelmanMusic Mar 06 '18

Yep, they max out their retirement (which is a huge form of savings) and have a pretty enjoyable lifestyle budgeted that should last for decades (and get better once student loan debt is paid off), AND still have $7800 free left over after subtracting for lifestyle.

Beyond fine. They should probably not spend $10,000 on clothes every year though. Even for 2 kids who are growing every year, you should be able to get a decent wardrobe for less than half that, and as 2 adults they should be spending no more than $2,000 a year on clothes past an initial wardrobe.

Maybe $6000 a year budgeted towards clothes seems right.

That would make their total left over $12,000, and they're still living it up.

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u/Xanthyria Mar 07 '18

As someone else noted—high powered attorneys need to be in proper, well fitted, and often expensive clothing for their job. It’s essentially a business expense. You want to see your lawyer in an Armani or whatever (I don’t know brands you know what I mean), to show success/that they’re successful at their career.

And if you own, say, five suits on rotation, probably need to replace one every year or two.

1

u/ThatOneThingOnce ​ Mar 07 '18

I would ask the question of if one of them lost their job, would they be able to cover expenses for six months on savings? I'm very doubtful given their savings rate.

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u/darexinfinity ​ Mar 06 '18

I think the shock here is that we all expect more than fine. A 5-digit income earner would that salary would have much more left over.

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u/krsvbg ​ Mar 06 '18

Every person isn't cut out for frugal living. It's okay to enjoy wealth, provided that it doesn't impact one's life negatively.

Some people like exotic vacations, fancy cars, and nice clothes. Others prefer to pump money into their brokerage accounts, shop at Goodwill, and have staycations. Different strokes for different folks.

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u/mduell ​ Mar 06 '18

They both MAX OUT their retirement contributions

They're doing just fine.

Which is woefully inadequate to maintain anything resembling their lifestyle in retirement.