Marketwatch ran an article about how one can still be broke despite earning half a million a year. Preposterous, you say? They do show the breakdown of sample spending for the rich family compared to an average family with $80,000 in yearly income.
Let’s break this down in an itemized manner:
- 401k contributions: a good thing, especially given the tax bracket
- Taxes: unavoidable, but the rich family should be looking to diversify more into legal tax shelters like mortgage interest deductions and maximizing HSAs
- Child care: I can’t explain this discrepancy. Does the wealthy family choose to use a premium service as opposed to the McDonalds of child care? Does that really provide any benefit? Both families have the same number of kids, so there’s no reason for spending to be any different. And besides, those in the know opt for live in Hispanic au-pairs so their kids can get a head start in life
- Food: both families eat way too much. I spend $40 per week on groceries (that includes household items like detergent) for myself. Multiply that by 4 gives you $8480 for a whole year. Even if you spend a bit more on eating out, you will still may just top out at what the average family spends. What does the rich family get by spending more? More calories? Whole grain organic quinoa?
- Housing: this is a big opportunity to cut back by living in a smaller house for less. A bigger house just adds to the housework, not necessarily truly improving happiness. Likewise, this allows for a corresponding reduction in property tax and insurance
- Gas: no reason that this needs to be different between the two families
- Life insurance: just self-insure by saving more. This is one of the biggest cons out there
- Clothes: do you really need to wear better clothes than the average family? If anything, standing out more in this era of Occupy Wall Street just makes you more of a target
- Children’s lessons: I’ll admit, probably a good investment. If anything, Asian families in the Bay Area spend much more in this category
- Charity: cut back on this, especially if you’re living on the edge
- Debt repayment: probably unavoidable, but you can save on this by studying overseas or in state schools
- Miscellaneous: I don’t even know what this means
Notice how I didn’t include vacations on this list? Generally, I will allow one budget busting “splurge”, either in clothing, house, car, or vacations. Among those, the one that gives the most lasting happiness is vacations.