The $100,000 Budget
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I’m often floored by just how much money it takes to keep a family moving forward these days. If we lay out a budget full of things we are told we “should” be doing it comes to a TON of money.
Let’s say a family of 4 earns $100,000 in Arizona. By all accounts a very good income. It sure seems like this family wouldn’t have any money problems. When I was in highschool I would have thought $100,000 was living the high life! No worries about money when you are making 6 figures, right? I mean, come on! That’s a ton of money!
Let’s take a look at what this really buys you these days. I’m imagining a husband, wife, and two school aged kids. An average, not overly frugal family. Just a typical American family earning a good living, right here in my home state.
- Income Taxes: $13,600 (includes FICA, state and federal income taxes, and deductions for health insurance premiums and 401k contributions. Estimated using this calculator)
- 401k Contributions: $15,000 (15% of income)
- Health Insurance: $5,000 ($208 per paycheck, 24 paychecks per year)
We are down to $66,400 and we haven’t even started paying bills yet!
- Mortgage: $14,400 ($1,200 per month)
- Car Payments: $7,200 ($300 per month per car, two cars)
- Electricity: $2,400 ($200 per month)
- Groceries: $6,000 ($500 per month, includes food paper products, cleaning supplies. Anything you typically buy on a trip to the grocery store.)
- Cable/Internet: $1,200 ($100 per month)
- Cell Phones: $1,800 ($150 per month)
- Gas: $4800 ($400 per month)
- Car Insurance: $2,100 ($175 per month for two cars)
- City bill: $1,200 ($100 per month, includes trash, water, and gas. Here the city handles the gas, other places it’s handled by the electric company)
- Home Owners Association: $300 annually (almost everyone in the Phoenix area pays an HOA, $300 per year is on the low end.)
Ok, that’s the most basic of bills. Granted they have two car payments and are contributing nicely to their 401k. But other than that, these are not excessive bills. That leaves us $25,000 for other stuff.
- Savings: $6,000 ($500 per month)
- Birthdays and Holidays: $3,000 ($100 per person for birthdays, $1,600 for Christmas, another $1,000 split for Thanksgiving, Halloween, Mother’s and Father’s day, Valentines day, Easter, and whatever other family holidays/ birthdays they celebrate.)
- Home and Car Maintenance: $1,200 ($100 per month average)
- Eating Out: $2,400 ($200 per month. Includes nights out as a family, occasional lunches from work, etc)
- Clothing: $2,000 ($500 per person annually)
- Vacation: $3,000 (one vacation per year)
- Health Care: $1,200 ($100 per month average. Covers co-pays, prescriptions, OTC meds, etc)
- Entertainment: $3,600 ($300 per month.)
- After school activities: $1,000 ($500 per kid annually. Registration fees and equipment for sports, dance classes, music lessons, etc.)
- Life: $1,600 ($133 per month into a “that’s life” fund. You know, there’s always something. The brakes go out on your car unexpectedly, someone needs some dental work that’s not covered, or you have to work late so you need someone to watch the kids. Try as we might to budget for all these things life likes curve balls.)
That’s it! I just spent $100,000. It’s a nice life for sure. They have two newish cars, kids in sports, a family vacation every year, a fully funded retirement account, cell phones, restaurants, entertainment, savings, and more. But it’s not the big time extravagance that you would think a six figure income would provide. And it assumes a stay at home mom, or older kids. Notice there is no daycare on that list. Another thing that’s not on the list is giving. There are no boats, or expensive clothes, or fancy trips. There are no big medical expenses or student loan payments. There are a lot of things missing from this list that people around me enjoy everyday.
And they only have two kids, lots of families have more than two kids. So that ups the expense in almost every single category.
To me; this is the life of a pretty typical American. Nothing on this is list is outrageous. The costs could even be considered on the low end of things. So that leaves me wondering how is everyone affording this lifestyle? Unfortunately it’s one of two ways, or both ways. Either they aren’t saving enough, or they are using credit, or most likely both.
When you try to live a lifestyle that doesn’t match your income you end up in financial trouble. Not using credit cards is half the battle, but making sure you are saving enough is the other half.
Take a look around you. Who around you is living the lifestyle I laid out here? Do you think they are making at least $100,000? Are you?
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Ashley
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Comments
It is amazing how quickly you just spent $100,000. I would suspect that most are not contributing that much to retirement each year and are supplementing income with credit.
I don’t make $100K, but I also don’t have 2 cars or kids. However, I live in an expensive city -so a majority of my money goes to rent and gasoline (and I don’t even drive that much!) So, I’d have to predict that most people are stretching their “income” with credit cards. Or maybe I’m just underpaid!
I always think it’s interesting when people do this sort of breakdown. In your case, and most PF bloggers cases, we insist on putting in the 401k contributions, emergency funds, and the like. And still manage to make it look doable. Then you hear about people who make that kind of money and just can’t make it work. Priorities I guess.
20k in saving is pretty good. The family has a pretty comfortable life and they can cut back for sure. As long as they are saving and have a secure job, life is good for them. A six figure income will give you a comfortable life these day, not luxurious.
This sounds crazy! I’m glad I don’t currently pay for most things on that list because I’m certainly not making $100k!
Just curious: does the income tax calculator take deductions into account? Not that it will make a huge difference, anyway.
@ Jeff: I think I said married/ 4 for the w-4 and then took deductions for the 401k and health insurance premiums. I know the tax part is fuzzy because there could be so many variables. There’s no way to get an actual number without a real life family situation to use.
I keep a low profile lifestyle and max out savings. Then again, my children are grown and we downsized to a townhouse. My only debt is a small mortgage.
What a great exercise! It just goes to show you that money does go quick! What stands out to me is that they are saving. We make more than that, and aren’t saving nearly as much. Of course, I WISH my mortgage was only 1200.00 a month. Unfortunately, it eats up almost $32,000 a year, mainly because we financed it to 15 years to prepare for retirement. Also, I have FOUR kids, two of which I just sent through college and one is married. The wedding wasn’t cheap. This gives me a bit of incentive to get our expenses in line to save at least $20,000 for the year…
@Sharon: I know, I do have them saving a lot but I kinda went with “shoulds” and they say you should be saving 15% and the monthly savings I took it to be saving for the things you mentioned, college, weddings, etc. So even though you might not have saved for those things ahead of time (maybe you did, I don’t know) it was still money spent in the end.
Good for you for taking a 15 year mortgage, I wish that was the norm. $1,200 is on the low end for mortgages as a national average, but it’s the average in my area so that’s what I went with. It just goes to show how much it costs to live these days!
It sure does get eaten up quickly. My parents made almost double this before my dad retired, and it was always a luxury for us to go on vacation. Of course, my mom has had horses, so if we didn’t have those, we possibly could have owned a whole vacation home. Except if she wasn’t into horses, she would probably be more interested in shopping, and driving a nice car, so the money would probably not be 100% saved. (Plus it makes her happy.)
I think a lot of families at this income level are not saving nearly as much as you have this theoretical family saving, because they DO go on vacations, and the kids have ballet class and ice hockey, etc.
Thus proving the pay-yourself-first rule, since you need to put that savings away and THEN decide what kind of lifestyle the remainder will let you live on.
hurts to see how quickly $100K would go in living the good life. for those who earn less, guess the key is to revise the definition of the good life. it can be done!
I look at that and think… 7K car payments? What a waste! The 3K for holidays is also kind of excessive unless it includes travel.
Compared to folks who are making 36K/year or even 50K/year that’s a pretty extravagant lifestyle. How much more does a person need than what is listed there? We don’t have to have mansions and fancy vacations and sports cars and so on. This family has a lot more than what we might consider an entitlement. So 100K is a very nice life.
Granted, my household brings in more than that, but we do not actually spend more than what your above family spends. We don’t need to. So we have more savings than the above family and more in charitable contributions. Both give us happiness, but I would still expect to hear very tiny violins if I were complaining about how difficult it is to live on 100K. (Not to say I don’t deserve to be making more than 100K, but not because it’s so hard to live on that amount.)
That’s nothing compare to Canada. Here’s our breakdown.
Income Taxes: $40,000
Health Insurance: $1,000
Mortgage: $14,400 ($1,200 per month)
Car Payments: $7,200 ($300 per month per car, two cars)
Electricity: $3,600
Groceries: $12,000 ($1000 per month, includes food paper products, cleaning supplies. Anything you typically buy on a trip to the grocery store.)
Cable/Internet: $1,200 ($100 per month)
Cell Phones: $1,800 ($150 per month)
Gas: $4800 ($400 per month)
Car Insurance: $2,100 ($175 per month for two cars)
Municipal taxes: $3,000
and on top of that add 15% sales tax on EVERYTHING.
School tax: $1000
Driving licenses and rights: $500
Total: $90k. You are left with $10k for the rest. (Clothing, entertainment, activities, etc…) Not enough to save anything that will be enough to retire on.
Wow, that added up crazy quick.
And everything is so reasonable, nothing seems over the top spending. It has me thinking how the heck do we do it on a little more than half that. One income and five people.