"Their findings, that millionaires are disproportionately clustered in middle-class and blue collar neighborhoods and not in more affluent or white-collar communities, came as a surprise to the authors who anticipated the contrary."
It really opened my eyes to the fact that most people I think are rich are actually not rich, just extremely completely in debt.
"The authors make a distinction between the 'Balance Sheet Affluent' (those with actual wealth, or high-net-worth) and the 'Income Affluent' (those with a high income, but little actual wealth, or low net-worth)."
Financial freedom comes from minimizing your burn rate. Far less flashy, but you can stretch money amazingly far when you aren't trying to keep up with what you think people expect of you.
While someone making $500k/yr is definitely prosperous, the “rich” are an entirely different category of individual. It only serves the more selfish interests of the truly rich to conflate the two.
I find people often confuse the two and it took me a long time to clear up in my mind.
You can be rich, but live paycheck to paycheck. Even be superbly in debt. Lots of upper middle class lives this way.
You can also be wealthy but poor. These are folks with cashflow problems and a lot of illiquid wealth (like a house you can’t sell)
Short term you wanna focus on being rich. High cashflow unlocks many options.
Long term you wanna focus on wealth. Wealth unlocks freedom and peace of mind.
If you make up your own definitions, you should not be surprised to find people is “confused”.
Are they actually upper middle class (by definition) if they have a low net worth?
You might also be surprised to learn that a $166,000/year household income puts you in the top 5% of US households. Definitely upper middle class but still pretty easy to burn your whole paycheck every month.
I thought that's what working class meant.
Would you call a software engineer making $150,000/year working class? What about a lawyer somewhere in midwest scraping by on $50,000/year?
Now what about an independent plumber making $200,000/year? Working class or not?
Edit: Whelp -- not sure how I missed the link.
Last year I had to go to the hospital for an emergency, I stayed 3 days and paied... nothing. I'm thankfull for this even if I pay for that service.
What you earn is fondamentaly dependant of the place you live. It seems like SF is quite a hard place to live.
$400k income would put you into upper middle class territory.
EDIT: To clarify my previous post - I was talking about the household income.
I agree that it might be tough to buy a median house with median income in some areas, however you can easily afford to buy a decent house almost anywhere with $400k income.
I don't count paying down a debt as "savings". It might be an increase in net worth but not savings.
If paying down debt is considered "savings" now, then the entire USA is "saving money". But I think that not only goes against the definition, but the spirit of the idea.
Let's say you bought a house for $100K and for this argument it can always sell for $100K. And you have a 30 year fixed mortgage on it (debt for 30 years). After paying on that debt for 10 years, the principal remaining on the loan is down by about 20%. Now if you sell the house for $100K, you get back in cash $20K.
See how that works? You "saved" $20K over 10 years by making mortgage payments.
It is a little trickier with student loans because really what it means as you pay down your student loans is that you "owe less". Conceptually, if you decided to zero out your accounts, pay all your debts, sell all your assets. Then the amount of money left over would be "more" if you had spent 10 years paying down your student debt than if you had not. That difference is calculable and adds to your "net worth" (your cash value after zeroing everything out).
The issue most "common people" have is they increase their debt load rather than paying it down.
A common trick people pull in the shitty version of these articles is counting savings as "spending" and then declaring that "At the end of the month, there's $0 left!", because by definition if you count savings as spending, then you never "save" anything.
Let's say I have a $100k mortgage, take in $1000 a month, and spend (in the true sense of the word) $500. Whether I apply the remaining $500 to my mortgage balance or put it in my savings account has no material bearing on my net worth. The unspent money is "saved" whether it goes into cash reserves or debt reduction.
Paying down your debt MAY increase the likelihood that you can borrow again. In the long term not paying interest on it will increase your income over time certainly but in the short term decreased debt and increased savings aren't interchangeable.
a. against that median $30k income, you're building equity, which is net worth. Someone on $30k might be paying rent (and they're not able to afford a mortgage), and thus, that money is just a flat expense.¹
b. w.r.t. student loans, someone making $500k/yr is going to be able to pay vastly more into that loan, and pay down the principal a lot quicker, which will translate to lower interest costs, vs. someone making $30k/yr. (Depending on whether this is parents or the student, if that rate could be refinanced or not, etc., I would also think a $500k/yr might also net you a lot lower interest rate due to the risk of your inability to pay being significantly less.)
¹and yes, houses have their own issues, such as maintenance, and some of that mortgage is going to interest.
- Makes $6000/month
- Has an interest-only mortgage payment of $1000/month (yes it's still possible to get interest-only mortgages)
- All other expenses are $4000/month
- Puts $1000/month in a savings account
- Makes $6000/month
- Has a mortgage payment of $1000 interest + $1000 principal = $2000/month
Person #1 and #2 are saving the exact same amount of money. Over time if nothing changes Person #2 will actually be saving more, because the interest portion of the mortgage payment will decrease and the principal portion will increase.
It gets worse for person #2. The house is probably changing in value. If the house goes up in value person #1 is ahead because that money is all his, on the $10k investment, person #2 has a much larger investment to get the same return. If the house goes down person #1 has at most $10k to lose, while person #2 can lose the entire value he has paid in so far.
Of course eventually person #2 has the house paid off and has $2000 to work with.
You show the change in net worth, but they're saying that they see savings as different and I get what they mean.
Person 2 in your example has the same net worth but not the same access to the money. If a sudden bill comes in then being $2k lower in my debt vs $2k in a savings account are functionally very different.
That's not to say one is right or wrong, but they are different.
Why would anybody ever do this?
1) increasing home equity, which increases your net assets
2) increasing earning potential via education, which increases your ability to acquire future assets
Both come with assumptions of course (like the home value stability/appreciation or the education actually resulting in higher earnings).
If I can invest with a 10% return, and can borrow at 0%, I'm better off borrowing as much as I can to invest.
But if I have to borrow at 10% and can only invest at 0%, paying off debt is better than saving.
> Nothing beats being debt free.
Depending on your risk appetite, being debt free can come more quickly by investing than by paying off debt.
Your suggestion would mean nobody saves for retirement while they have a mortgage, for example. Fine if you are happy with very little risk, but for many that would be a bad option (waiting until you are 50 to start paying into a pension).
Savings, net worth and other similar things should always be worked out in context.
Paying down debt is setting money aside to pay for something you bought at some point in the past.
Saving is setting money aside to pay for something you might buy at some point in the future.
So, far from thinking about credit availability or credit worthiness, if you just think of debt as negative savings, you can see debt and savings mutually annihilate (like matter and antimatter), and sum to zero.
Debt is a wonderful, powerful invention -- but for many people who are unaware that debt costs interest, this simple model can help them reason about debt and decide to pay it off rather than letting it linger or taking out more debt.
Debt is tied to enforcement, often punitive enforcement.
There is an element of freedom buried in these that I am trying to suss out. I am reluctant to use evocative words to describe what lies beneath the obligations of debt, but I sense there is a qualitative difference under the surface.
If I had everything invested and nothing saved in bank account, I might get into situation when I need to liquidate my investments ASAP, which could be very unfortunate, timing-wise.
I'm not sure it's really a useful conversation to have though. We live in a world where there are essentially an infinite number of things you cannot have. So feeling rich is pretty much a choice once you're beyond probably double the average household income for the area you're in.
Make $50k/yr allows you to do more, but still not a lot.
Making $100k/yr opens some doors you didn't have access to before.
Making $200k/yr puts you in pretty good comfort overall, but doesn't enable you to go get that supercar/yacht/private jet you wanted
Making $300k/yr-$500k/yr probably puts you in $1m home, $200k supercar territory depending on how badly you want to stretch it.
I think when you look at it as "income + wealth unlock levels", it makes more sense.
I can't really go on lavish vacations, but nobody making $30k/yr is going to feel bad for me.
I can't go reasonably buy $20k jewelry, but somebody making $500k/yr probably could.
Then you get to yacht / private jet level of wealth that I know very little about. :P
You need to earn 500k for a handful of years, save vigorously, and you're done. Am I missing something?
I have seen both sides up close so I guess it's more a rhetorical question, but it's not pretty when you didn't save that 300k and approach retirement in a changing job market...
How many people make $500k/yr, but live like they make $80k/yr?
Lifestyle inflation is a real thing. Even if you aren't just accumulating junk, you aren't going to live in a bad neighborhood if you don't have to, right? Might want to start buying organic food, might want to drive a nicer car and wear nicer clothes?
The richer you get, the definition of "nicer" changes.
What the hell?
Their biggest line item is completely unexplained yet they are trying to explain where their money goes?
I live a fairly indulgent life and I spend less than that on everything in a year. I can't imagine spending six figures on "misc" unless there's a lot of hookers and blow involved.
There is a further breakdown in the linked article: https://www.financialsamurai.com/scraping-by-on-500000-a-yea...
It includes things like food, student loan payments and "children's lessons".
At the risk of repeating what gets said every time this topic comes up, basic financial education should be taught in schools.
(EDIT: And I bet it's still feel inadequately uncultured compared to an even wealthier peer who owns several paintings, vintage wines, attends every big show in the best seating + hires a personal stylist!)
Oh, I didn't add hobbyist activities- if my personal passion was vintage first edition signed books I could probably blow thousands and thousands easily.
You can absolutely resist spending extra on kids that way, but there's always that pang of guilt that they're missing something that might've made their lives a whole lot easier down the road (due to granfalloon-sort stuff, mostly, or knowing the right people). Might they marry into money if you send them to that summer camp? If you send them to a school where it's assumed everyone's doing serious preparation for the SAT and for college applications, might that not bump the school they get into up a notch or two on the name-recognition scale? Most spend at least some on this if they can—a couple moderately-priced activities per year and housing somewhere you wouldn't live if not for the schools, say.
It's all probabilities and chances, but the more you spend the better the worst likely outcome gets, too, and the bottom on that can be quite low indeed—it's not just dirty-ol' middle class envy. It's hard to resist.
$42k for childcare and $23k for food are two of the biggest items listed as "other".
Note that school funding and outcome is not well correlated.
I think that’s a bit of an unfair characterisation. Most parents do want their children to have good educations.
Without having any source or data to back up this claim, I would expect that the difficulties faced by poorly funded schools full of poor pupils are not due to parents not caring about the schools or their children.
It is fair to say I don't know the parents don't care. However whatever the difference is, it is at home not the school.
EDIT: nvm, I misread the parent, and other sibling comments illuminate the actual breakdown of this line item.
2 or 3 years of wealthbuilding at that rate is enough to pay for the median American house in cash.
But someone else pointed out that the figure reflects other things anyway.
Monthly House rent is $3000, Kids schools is $2400, kids activities is $2000, groceries and eating out is $1500, travel expenses averaged is $1000, misc expenses (gas,utils,shopping,car maint) is $2000. We do not have any debt.
We pay over $160k in federal/state income taxes and save $38k in 401k, $15k in 529 accounts annually.
Most of these expenses are regular day to day expenses we can't cut down on to save more.
You don't WANT to do those things - I don't blame you - but that doesn't mean you can't.
Woah... My wife is a teacher and grosses $2000/month.
This is a crazy thing to spend 2,000 on.
I learned a LOT about managing spending in that first year or two. Changing when you are paid changes everything when you are paycheck to paycheck, UNLESS you comfortably have a month of savings in the bank. (For anyone in this situation, I learned to first pay your bills, put some money in savings, THEN buy your food and gas and stuff you can technically do without or have the option to choose cheaper alternatives. You can always remove money from savings, but never do it for something that you don't need to survive.)
Childcare (Two Children)- $42K
Food for four (includes date night every two weeks) - $23K
Home Maintenance - $5K
Property Insurance $2.5K
Gas - $5K
Car insurance - $2K
Life Insurance ($3 million term) $2.5K
Clothes for four people (no fancy bags, shoes or threads) $9.5K
Childrens Lessons (sports, piano, violin, academics) $12K
Total - $103.5 K
I get that they have kids and so must buy new clothes more often, but if you buy designer brands for your kid that's the problem.
Fancy is relative. A lot of people would consider a $1k suit as a cheap baseline suit.
They should just stick the $7,300 into an "Other savings" line item and proclaim themselves to be living literally paycheck-to-paycheck.
People who think it's OK to spend every dime that comes in. They've bought into the recent concept that they deserve everything they want and more... then when shit happens... it's a damn hard lesson.
What I never quite grasp is why "Silicon Valley" job is still seen as a premium, rather than a massive risk.
The sole benefit I can see is that you can flit between jobs and build up your income - but as your income goes up, so does your expenditure/exposure.
I know there are other 'hubs' emerging that are cheaper - but they always seem to be 'emerging'
Is the issue the 'gambler's-dilemma'
or are you on average better off in Silicon Valley
Yes, because they have been running that story monthly since 2017!
I don't think CNBC is trying to drive a narrative here, but I do imagine that they're getting ReallyGoodEngagement™ out of articles like this since they tend to inspire immediate outrage and incredulity.
patio11's take on this: https://twitter.com/patio11/status/1110615594561212416
The neighborhood daycare in the Excelsior charged $1600/mo. This is five years ago.
We're about to have our fourth child. With the upcoming summer, if we still lived in SF, we'd have four children in daycare. $6,400/mo.
138K for rent.
76K for childcare if all four (might get a nanny cheaper)
Student loans because you both went to an Ivy League
Two cars, cell phones, real organic food, savings..
Maybe one big family vacation.
It adds up.
You won't be flying to Paris every weekend on a private jet.
No idea if this is the right terminology or not, but it makes it sound really weird in a bad way.
The minimum wage for NYC is $15 an hour and ultimately if you pay the minimum you get your pick of the worst employees.
One doesn't acquire the services of mexican's to pick your fruit merely because they work hard. You do so because they will work hard for less.
Literally the only reason to bring in someone from out of country which is implicitly a larger effort is because you have implicit leverage over that person and can use that leverage to extract more work for less money.
Further the broader context was meeting budgetary constraints.
In brief he said that in order to save money you ought to bring someone in from out of country so that you can use your leverage over them to get more work for less money while ignoring your fellow Americans looking for work because they expect things like benefits and fair pay which cost money.
It's awkward phrasing, but you don't know that they meant to compare people to commodities. Lots of people on this site do not speak English as their native language.
> Literally the only reason to bring in someone from out of country which is implicitly a larger effort is because you have implicit leverage over that person and can use that leverage to extract more work for less money.
They don't work for less because you have leverage over them. They work for less because they are not permanent residents of the U.S. and their cost of living is calibrated to their own country, which is typically less developed than the U.S.
But that's if they work for less. The price OP quoted was $2k/month. If you add on $500 in free housing, it works out to the same annual compensation as the $15/hour you cited (assuming 2000 hours/year @ $15/hour). And, FWIW, when I've looked into an au pair in the past, $2k seemed like the lower end of what they cost.
> ignoring your fellow Americans looking for work because they expect things like benefits and fair pay which cost money.
Almost a quarter are from Germany. Most European countries do not consider America to be somewhere with many employee benefits.
Is $24,000 after room and board an unfair wage? What's the cost of a room in NYC?
One of you stay home and raise your kids; that's rather the point of getting married.
> With the upcoming summer, if we still lived in SF, we'd have four children in daycare. $6,400/mo.
If paying other people to raise your kids is even on the table, you're doing it wrong.
$60K / year isn't going to pay for the mortgage on even a small house in Silicon Valley.
No one I know in the Bay Area who has bought a home in the last ~8 years has been able to scrape together 20%, everyone puts down less and gets PMI.
SV is huge. You can definitely get a home for that.
Note: property tax is extra.
I'm in San Jose, with pretty good school district. In this area ~1400 sq.ft. townhomes are about $1.0xM.
My wife & I are raising 2 children in Berlin (a major world city) & earn a lot less than $500k while not struggling at all (in fact I save about 1/3 of my net pay even after deductions for both private and public retirement funds).
Sending your kids to private schools is hardly a must, especially if you live in at least a middle-class neighborhood (which I assume you do on a $500k income).
$500,000 in income is, of course, enough money to pay even expensive bills, being well into the top 1% of family incomes.
No. In fact not at all. It is one of the only capital cities in europe that is a cash drain on the nation it resides in. It is in no way a "major world city". It is not a business centre, a financial centre or a cultural centre. It is not even the most interesting or beautiful city in Germany,
Europe mostly has a much better school system with predictable outcomes that can't be achieved in much of America. The reasons for which are for another debate
Not that you don't have a point of some kind, but you are certainly ill informed about how the world works, and your place in it.
Global Power City Index
The Institute for Urban Strategies at The Mori Memorial Foundation in Tokyo issued a comprehensive study of global cities in 2018. They are ranked based on six categories: economy, research and development, cultural interaction, livability, environment, and accessibility, with 70 individual indicators among them. The top ten world cities are also ranked by subjective categories including manager, researcher, artist, visitor and resident.
Global Power City top 10: 1. London, 2. New York City, 3. Tokyo, 4. Paris, 5. Singapore, 6. Amsterdam, 7. Seoul, 8. Berlin, 9. Hong Kong, 10. Sydney.
It is a burden on its nation*
Smartasset puts the take-home at 333k, 270k more than a household bringing in 80k. https://smartasset.com/taxes/new-york-tax-calculator#gO77UAY...
How are kids adding a quarter of a million dollars per year in costs?