Monday, August 20, 2007

How Much More...

Sometimes when I meet people who are obviously wealthier than me, I wonder "How much more money would I need to make to live that kind of lifestyle?"
I was thinking about this in relation to a former boss of mine. She has a great apartment but she's lived there for years and the mortgage is probably quite low and almost paid off. But let's assume it costs her maybe $2,000 a month-- even if the mortgage is paid off, the maintenance on Manhattan co-ops can be brutal. She also has a weekend home in the Hamptons. Again not a recent purchase, so let's figure another $2,000 a month. She has a really nice car and parks it in a garage. I know the garage alone costs over $400 a month, but I don't know how much she spends on the car. If I assume that she leases it, a little online research would indicate that it costs her another $400 a month or so. She has two homes, so let's assume her utility bills are double mine and then some, so let's figure $250 a month. These things alone would require over $60,000 a year of after-tax income, and we haven't even touched things like food, clothing, entertainment, gifts, travel, etc. which I imagine would have to be another $20,000 or more. So if we figure her expenses are at least $80,000 a year, so if you figure about 30% of her income goes to taxes, she'd need to make $115,285 just to break even.
Somehow, that sounds all wrong and I wonder if I am forgetting a lot of things. I don't make that much less than $115k, and I am not even close to being able to afford a second property and a car. Of course, part of that is because I am pretty aggressive about saving money for retirement. If my old boss wants to save $20,000 a year towards retirement, then she would need to make more like $145,000 before taxes.
Even that number still feels oddly low. I mean, it's not low-- compared to most people in the US, it's a very high income. I would guess the person I'm talking about makes around $200,000 a year, though I could be wrong. And I'm probably underestimating her expenses. But still, it kind of makes you realize that above a certain income level, at least for single people without children, you can start to spend your money on all kinds of luxurious things. You need a certain income level to cover the basics like food and a primary residence. But if you don't go too overboard on those, then the rest of your income is just icing on the cake, fun money, a point which is obscured by all the news stories about millionaires who can't keep up, etc.. I just hope I can get to that point someday! It seems much further away than perhaps it really is...

12 comments:

Anonymous said...

Is she single?
I always think that rich people buy their cars, but I'm not sure in Manhattan considering you don't have to drive a lot.
She may have been saving all her life, so now that she is older, she can afford those nice things and not flinch. I guess we'll never know.

MEG said...

I think you're underestimating her housing and utilities costs. I'm not from Manhatten, but I know that in Texas it costs over $2000 a month (mortgage, taxes, condo fees, and insurance) to own a pretty nice $250,000 2bdrm condo in a nice urban metro. So I would think that in NY it would cost more than that. Also, consider what she has to spend on transportation (valet, parking, gas, taxis) not to mention food and shopping and spa/beauty stuff.

In any event, you never know who has a secret $150,000 credit card debt--or a secret inherited trust fund. There's no point in comparing based on lifestyle.

Anonymous said...

I think you're underestimating as well. My husband and I make about $200k and we live in the burbs. You'd think that's a decent amount, right?

We have 1 house with a monthly mortgage payment of about $2300, add another $1200 in utilities and food, car payments for 2 cars (toyota and a mazda), insurance, gas, plus childcare costs.

Add saving for college and retirement and I'm shopping at Target for my clothes.

I've found it's not worth it to try and figure out how people do it -- I assume they're allllll part of the debt crisis. Carrying thousands in credit card debt. ...

hazygrey said...

I also feel you must be underestimating her expenses. The maintenance alone in decent size 2 bedrooms would be close to $2000. And I would imagine the lifestyle of someone with a second home in the hamptons would require more than $20,000 in food, clothing, entertainment, travels etc...

And unless you assume she had help in purchasing those properties, she must have enough room in her budget that she was able to save for the downpayments as well.

Mariette said...

As a former New Yorker I also think you're underestimating. I didn't own property and I certainly didn't earn over $100,000 a year, but I did know plenty of people who made in excess of $250,000, and they still would complain about not earning enough - and they weren't that extravagant! I guess it all depends on what you consider luxuries or what you think you "need".

hazygrey said...

Also, the people I know of who have that kind of lifestyle (ie. home in the Hamptons) earn over $500K. Of course, that doesn't tell you the minimum amount you need to earn to have such a lifestyle.

Green said...

I think it's also important to consider that a lot of people (or so it seems to me) live above their means. Many of the people I know that have luxurious things and look as if they make a lot of money don't make that much, and in some cases I know for a fact they make less than I do (granted, these people are all young like myself and may not be concerning themselves with retirement or other savings yet). It's hard to tell sometimes if a person is the type to spend more than they make and take on debt.

finance girl said...

I totally think you can get to that point someday (key word: someday); envision it .

You already have the habits in place now it's just a matter of time.

She may have inherited the place in the hamptons, or it might of been a fixer upper, or...she may have bought when the market was way down...she likely had some kind of help with both properties though...

Thinking out loud: if you still have a good relationship with this former boss, how about inviting her out to lunch and asking her to advise you on real estate (to get more info and find out if she has any tips)?

Diamond said...

I don't think you can compare lifestyles either.

She may have had very highly paid jobs in the past, had an inheritance, a fat divorce settlement, a compensation pay out, any number of things.

Of course, she may also be in debt up to her eyeballs.

SF said...

200K/year in the San Francisco makes you feel lower middle class. In Manhattan, it would feel even tighter.

Olivia said...
This comment has been removed by the author.
Anonymous said...

Also, if she is making that much, no way she is taking home 70%. After taxes, especially in NYC where you get the added city taxes, she is likely taking home more like 60-65%.