Harvard Professor Elizabeth Warren, whose blog I visit occasionally, was referenced in a Liz Pulliam Weston article as offering a 50% after-tax rule for middle-class families spending on the combination of food, shelter, insurance, childcare, and transportation.
For this Seattle family that is $500, $1430, $90, $910 and $220 ==> $3150. After tax that's 50% of $6300 after tax, which would be about $9900 before tax. In actuality there's a dependent care spending account benefit so maybe $500 out of pocket post-tax: $2740. Still, $5480/month, yeesh.
I had budgeted $4280/month. The spouse brings home $3000/month after taxes, 401(k) contributions, dependent care. Tell us we're spending too much on housing? We've got a 5% for 20 years and $250K in equity: no way are we going to refinance. $220/month for transportation for three vehicles -- expensive? No. Food we could cut down on, that's a gradual process. And childcare, well, that's greatly reduced in September, we have to wait that out.
And Prof. Warren thinks this is doable? I could understand why, if the median debtload is $86000 (including mortgage). I'm going to be in my 40s by the time our debtload goes down that far. Then again, 1-bedroom condos in Seattle go for the cost of a median SFH in America.
My first paycheque is going to be meagre, but I'm hoping to net $1000/week after.
It feels like a struggle to stay in the middle-income segment here. At least I can look at "Your 30s: Now's the Time to get ahead" and not feel I'm so badly off. And who knows, if someone can look at what I post as a typical family attempting to get by without stock options or big inheritances and understand it to be reality, rather than a severe deviation of the norm, that'd make me happy.
Update: read this bit from a Seattle P-I sound off, a parent and homeowner surviving on $130K in Seattle:
"We can afford to go on vacations to Disneyland or even Hawaii almost yearly and we are definitely not the coupon mongering, save every penny types, though we are pretty vigilant about putting at least 10% of our annual income into a retirement account."
And that's with two car payments too. Then again, the children are elementary school age and not costing $1000/each/month in childcare.
I gotta think about what it is we're doing wrong.
'All Your Worth' 50% Suggested Rule
February 19th, 2007 at 11:25 pm
February 20th, 2007 at 04:18 am 1171945128
February 20th, 2007 at 04:49 am 1171946964
I think the book overstates the savings to be had by cutting back on insurance.
February 20th, 2007 at 01:32 pm 1171978324
The last time I figured out my percentage it was well over 60%, also. We're probably in better shape now, but I can't imagine getting it down to 50%--and we don't even have kids.
February 20th, 2007 at 03:45 pm 1171986335
Your post suggests you've read the book All Your Worth. I need to take it out of the library and have a looksee. Our three vehicles: I bought a maxiscooter (400cc) for my return to work, as I was then working at a place that was a two-hour bus commute one way and my husband was then driving to and from work. The commute is short in distance but long on time so I opted for something that was light on gas and would let me fly solo in the carpool lane. My spouse bought a 150cc scooter that I am tempted to argue to be for pleasure alone, but he's taking it to work also. We're lucky in that we have no consumer or student loan debt, not even car payments.
February 20th, 2007 at 08:41 pm 1172004077
February 25th, 2007 at 02:26 am 1172370417
We limit our travel and vacations until spending and debt is "under control". 2006 was the year that happened.
People make do with what they have.