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.
- 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) (I’ll be cutting this with Republic Wireless soon)
- 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?