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$500k a Year yet Struggling? Let's Do a Double Take

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Re: $500k a Year yet Struggling? Let's Do a Double Take

#61

Post by ajross »

cableshaft wrote: post #14

"Some of these payments are applied to the principal on their loans, which increases the couple’s net worth by either building their home equity or by reducing their student debt. So that’s also savings." I don't count paying down a debt as "savings". It might be an increase in net worth but not savings. If paying down debt is considered "savings" now, then the entire USA is "saving money". But I think that not only…

Paying down debt against an appreciating asset absolutely "counts as savings". Every dollar applied against the mortgage principle is an extra dollar of net worth.

Re: $500k a Year yet Struggling? Let's Do a Double Take

#62

Post by wavefunction »

resters wrote: post #18

Try raising a few kids in a major city and paying private school tuition and child care fees. It easily eats up most of $500K of income.

I mean, this very linked article lays out the finances of some people who are doing just that and it appears to be the result of some very expensive personal choices rather than a fact of life.

Re: $500k a Year yet Struggling? Let's Do a Double Take

#64

Post by deathanatos »

cableshaft wrote: post #14

"Some of these payments are applied to the principal on their loans, which increases the couple’s net worth by either building their home equity or by reducing their student debt. So that’s also savings." I don't count paying down a debt as "savings". It might be an increase in net worth but not savings. If paying down debt is considered "savings" now, then the entire USA is "saving money". But I think that not only…

First, I totally agree that that argument is terribly worded. Nonetheless:

a. against that median $30k income, you're building equity, which is net worth. Someone on $30k might be paying rent (and they're not able to afford a mortgage), and thus, that money is just a flat expense.¹

b. w.r.t. student loans, someone making $500k/yr is going to be able to pay vastly more into that loan, and pay down the principal a lot quicker, which will translate to lower interest costs, vs. someone making $30k/yr. (Depending on whether this is parents or the student, if that rate could be refinanced or not, etc., I would also think a $500k/yr might also net you a lot lower interest rate due to the risk of your inability to pay being significantly less.)

¹and yes, houses have their own issues, such as maintenance, and some of that mortgage is going to interest.

Re: $500k a Year yet Struggling? Let's Do a Double Take

#65

Post by koolba »

p1esk wrote: post #51
astura wrote: post #41

Earlier quoted context omitted.

If its private school tuition then it should have been under the line item of "private school tuition," not "other expenses."

I don't know about that family, but if I was making 500k my kids would probably be going to a private school.

At that income level your neighborhood is likely affluent enough that the public school would be very well funded as well.

Re: $500k a Year yet Struggling? Let's Do a Double Take

#66

Post by lukejduncan »

JohnJamesRambo wrote: post #34

I'll share something I learned myself in another Hacker News comment. https://en.wikipedia.org/wiki/The_Millionaire_Next_Door "Their findings, that millionaires are disproportionately clustered in middle-class and blue collar neighborhoods and not in more affluent or white-collar communities, came as a surprise to the authors who anticipated the contrary." It really opened my eyes to the fact that most people I think…

Isn't this the premise of books like "The Millionaire Next Door"?

Edit: Whelp -- not sure how I missed the link.

Re: $500k a Year yet Struggling? Let's Do a Double Take

#67

Post by saidajigumi »

astura wrote: post #15

103,500/year on unexplained "other expenses??" Over $8,500/month?!! Which is almost double their mortgage payments Um.... What the hell? Their biggest line item is completely unexplained yet they are trying to explain where their money goes? I live a fairly indulgent life and I spend less than that on everything in a year. I can't imagine spending six figures on "misc" unless there's a lot of hookers and blow involve…

They have mortgage payments: it's trivial for a house to just up and eat $10k of your money, for one example. That's the big differentiator: at this level of income, they can afford to just pay random expenses that many folks would have to just jam onto eternal credit card debt.

EDIT: nvm, I misread the parent, and other sibling comments illuminate the actual breakdown of this line item.

Re: $500k a Year yet Struggling? Let's Do a Double Take

#68

Post by ralph84 »

cableshaft wrote: post #14

"Some of these payments are applied to the principal on their loans, which increases the couple’s net worth by either building their home equity or by reducing their student debt. So that’s also savings." I don't count paying down a debt as "savings". It might be an increase in net worth but not savings. If paying down debt is considered "savings" now, then the entire USA is "saving money". But I think that not only…

It absolutely is savings. Compare two people:

Person #1 - Makes $6000/month

- Has an interest-only mortgage payment of $1000/month (yes it's still possible to get interest-only mortgages)

- All other expenses are $4000/month

- Puts $1000/month in a savings account

Person #2 - Makes $6000/month

- Has a mortgage payment of $1000 interest + $1000 principal = $2000/month

- All other expenses are $4000/month

Person #1 and #2 are saving the exact same amount of money. Over time if nothing changes Person #2 will actually be saving more, because the interest portion of the mortgage payment will decrease and the principal portion will increase.

Re: $500k a Year yet Struggling? Let's Do a Double Take

#69

Post by NortySpock »

wilg wrote: post #25
cableshaft wrote: post #14

"Some of these payments are applied to the principal on their loans, which increases the couple’s net worth by either building their home equity or by reducing their student debt. So that’s also savings." I don't count paying down a debt as "savings". It might be an increase in net worth but not savings. If paying down debt is considered "savings" now, then the entire USA is "saving money". But I think that not only…

Can you explain in more detail why you don't consider it savings? Maybe it is obvious but I am curious.

Think of debt simplisticly, as negative savings. If you have debt, your net worth is "below zero". If you have 10k debt and 10k savings, your net worth is still (simplisticly) zero.

So, far from thinking about credit availability or credit worthiness, if you just think of debt as negative savings, you can see debt and savings mutually annihilate (like matter and antimatter), and sum to zero.

Debt is a wonderful, powerful invention -- but for many people who are unaware that debt costs interest, this simple model can help them reason about debt and decide to pay it off rather than letting it linger or taking out more debt.

Re: $500k a Year yet Struggling? Let's Do a Double Take

#70

Post by ChuckMcM »

astura wrote: post #15

103,500/year on unexplained "other expenses??" Over $8,500/month?!! Which is almost double their mortgage payments Um.... What the hell? Their biggest line item is completely unexplained yet they are trying to explain where their money goes? I live a fairly indulgent life and I spend less than that on everything in a year. I can't imagine spending six figures on "misc" unless there's a lot of hookers and blow involve…

That would be the monthly credit card bill :-). It autopays the gym, the uber rides, the gifts, etc etc etc.
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