I came across an article this morning that proposes that a six-future income no longer ensures financial security. Here is the breakdown that according to the article's author, is the way a typical American would spend the proceeds from a $200k gross salary.
I would agree that this is probably typical. I think it illustrates why the average American is having trouble making ends meet. Here is what I would do differently.
1. I'd live in a $1000/month apartment and stick the balance ($24,000/yr) into a growth position in the stock market. Since I'm renting, I can bank the $8,000 in property taxes. I can also bank the $3,600 in home maintenance.
2. With my first year savings in home maintenance I'd pay cash for a car - saving me $6,000/year in car payments.
3. 2 vacations a year??? Make it 1. $4,000 in the bank.
4. Children's lessons - nope. Mom and dad can teach their kids twice as effectively for free. $5,000 - bank it.
5. Consumer debt? This must be credit cards. We don't do credit cards. $3,000 in the kitty.
6. Personally, for me, I would make a contribution to my church. So, move the $2000/charity and add $3000 for a total of $5000 tithing.
That's $50,000 a year, plus another $5,700 from "What's left". These two total almost $60 grand a year into savings ($80k if you include the 401K contribution). In 5 years I'd have $3-400,000 plus a few thousand in interest. Now it's time to make a down payment on a house. But a $700k house? Nope. Lot's of nice houses just about anywhere in this country (excluding California) for $250k.
When I was working I lived on $50-75k year. Even in years when I made far more - I still held to that budget. I paid off my last loan in 2001. At age 53, I bought my first new car in 2013. A pick up actually. Still drive it. It just turned 80k miles. I think I'll keep it for at least 80k more. In the old days I would have been called a "cheapskate".
I was having coffee this morning with an old guy - probably 80ish. He was talking about how differently this generation views money from his generation. He said, "in my day people would never brag about money. We might talk about how much we saved when they purchased a product or service. Today, people like to brag about how much they spent". (e.g. my Escalade cost more than your Suburban).
Things don't always turn out the way we planned financially. Some folks fall victim to misfortune through no fault of their own. Others simply make bad decisions. It seems like there is this mentality that if someone is successful, they must have taken advantage of others somewhere along the way. But from my own personal experience it's all about making small adjustments, living well below your means and being consistent.