![]() ![]() Part 2 covers the discretionary expenses and other miscellaneous expenses of the family. This post covers the pre-tax deductions, taxes paid by this family, and the family’s non-discretionary expenses. Given the level of detail I want to provide on their household expenditures, I’ve decided to break the post into 2 parts. Note: This post is part 1 of a 2 part post examining the household budget of a family of 4 making $1 million a year. ⇒ John works for a major retailer and Jane works in financial services. There are the 2 working adults (John and Jane Smiths) and their two school-aged children (Michael and Michelle). ⇒ There are 4 members of the Smith household. In this case, since I live in New York City, it is easier for me to use New York City as the home for this family. ⇒ The family lives in a high cost of living area. It isn’t just how much you make that matters it is how much you can keep.ĭon’t assume just because someone has a high income, that equates to a high net worth.īackground of this theoretical family (the Smiths) making $1 million a year combined: We have all heard stories of bankrupted professional athletes and they made millions to tens of millions per year in their prime. ![]() A household with an annual income of $500,000 might spend $50,000 on vacation.Ģ8% of higher-income earners (those making more than $200,000/year) live paycheck to paycheck according to a recent LendingClub report. While a higher income can produce a higher savings amount, it is not a certainty that will happen.Ī lot of the reasons why a high earner might have difficulty saving are similar to a middle class family – except with bigger numbers.įor instance, a middle class family making $50,000 a year might spend $5,000 on vacation (10% of income). If I made that income, I can also achieve that level of financial success.” When confronted with an article about someone who has achieved financial independence in his or her thirties while making $150,000 in peak earnings, a common reaction I’ve seen is along the lines of: “of course, it is easy for the person to make it, look at that income. They think that there are just too many expenses for a middle class family that prevent them from saving a large percentage of their income. ![]() People whom I have seen pushed back on the idea of savings are people who rationalized that it would be hard to save a high percentage of a middle class income ($50,000 – $75,000). This is one way you can achieve financial independence no matter how much money you make. Saving a high percentage of your income is one key to achieving financial independence. It Is Hard To Save – Even For High Earners What the high-income earners imagine as a measure of success can cause them to spend a large portion of their income. The big house, nice cars, and exotic vacations are what come to mind for a large number of the population in picturing the lifestyle of the rich. There is also the societal expectation of what being financially successful means. This is based partially on my own household budget with certain modifications to incorporate other high income families I know.Įven with a $1 million income, it might still be very challenging for a family to save enough money to one day be financially free given their spending level. I put together a hypothetical budget for a household making $1,000,000 a year and how that amount might be spent. To learn more about relationship-based ads, online behavioral advertising and our privacy practices, please review the Bank of America Online Privacy Notice and our Online Privacy FAQs.Are you interested in how a household with a $1,000,000 income spends its money? These ads are based on your specific account relationships with us. In addition, financial advisors/Client Managers may continue to use information collected online to provide product and service information in accordance with account agreements.Īlso, if you opt out of online behavioral advertising, you may still see ads when you sign in to your account, for example through Online Banking or MyMerrill. If you opt out, though, you may still receive generic advertising. ![]() If you prefer that we do not use this information, you may opt out of online behavioral advertising. This information may be used to deliver advertising on our Sites and offline (for example, by phone, email and direct mail) that's customized to meet specific interests you may have. Here's how it works: We gather information about your online activities, such as the searches you conduct on our Sites and the pages you visit. Relationship-based ads and online behavioral advertising help us do that. We strive to provide you with information about products and services you might find interesting and useful. ![]()
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