Tuesday, September 04, 2007

More On "How Much More"

Thinking back to my recent post "How Much More," I'm still pondering this question, but trying to approach it differently. What if I had, say, $50,000 more annual income? What would I do with it? How much would it change my life?
Right now, my total compensation is about $100k before taxes, so $50k more would obviously make a big difference. (Though I'd still make less money than many lawyers who are 10-15 years younger than me, just to put things in perspective!)
The money I currently make allows me to afford my condo, some travel, plenty of meals out, the occasional taxi ride, etc., all while maxing out my 401k and Roth IRA each year to save for retirement. At least that has been the case up til now-- my housing expenses are more than they used to be so I'm hoping I can still make my budget work!
So let's assume the money I currently make covers all my basic needs and savings goals, and the extra $50,000 in salary is just fun money. Right off the bat, this is unrealistic, because if I had that extra money, I would really rather be using some of it to save even more towards retirement right now, but for the sake of argument, I'll continue to assume I would just spend it all.
That extra $50k might only be around $32k of spendable money after taxes. That comes to about $2,700 a month. So let's say I lease a BMW for $400 a month, and park it in a garage for $300 a month-- I'm assuming garages are cheaper in Brooklyn than in Manhattan, but I don't know if that is actually a realistic price.
So that leaves me with $2,000 a month to spend on a weekend house. If I assume a 20% down payment and a 7% interest rate (I don't know if that is reasonable for a mortgage on a second property for someone with my credit standing), and if I assume a few thousand dollars in annual property taxes, the selling price would have to be less than $325,000. From a quick scan of the NY Times real estate ads online, this price range pretty much rules out the Hamptons and North Fork on Long Island, unless I stumble across some rare, tiny condo. So I can't have my dream beach house, but if I look at places upstate, I could probably buy a house in that price range.
But then what? I'd have a car and an empty house in the country somewhere, and no money left with which to furnish it, let alone lighting and heating it. I could probably spend less than the $2,000 a month on the weekend house, but not all that much less from what I was seeing advertised in areas close enough to New York City. If the drive back and forth starts getting too long, then I'd have to reserve more money for gas, and spending 4 or 5 hours a weekend driving, to me at least sort of defeats the purpose of having a weekend home, which is supposedly about relaxation.

Anyway, so much for my $50,000 fantasy life. For the moment, I'll stick with biking to Coney Island as a weekend getaway that's in my price range!

9 comments:

Anonymous said...

to put things in perspective, you make 2x what I do...

SavingDiva said...

$50k would more than double my current salary!

To be honest, I would just pay off my car loan...max out my 401(k) and Roth IRA...and just put the money aside for a rainy day. I don't really have anything that I want to do (except for buy a house)...

mOOm said...

Obviously you could stay at a hotel somewhere nice out of town for a couple of nights every other weekend and have plenty over to save and none of the hassle of trying to maintain the weekend house if you had this extra money.

Boston Gal said...

Ah the fantasy of a (much) bigger paycheck and how that could change your life... Of course, you could phrase it as - if you met someone and combined households and THEY made $50,000... What would you do with the second salary?

But I digress... If I suddenly had a $50,000 salary bump, my thoughts would also turn to real estate. Specifically to my future retirement home. I would buy a home on or near water and plan to rent it out for now - another investment property. If I had that much extra cash-flow coming in monthly I could see renting the home to a relative (giving them a great deal and me easy access to the property) - the rent would be low, so would not cover the full carrying costs, but I am paying off my future retirement home while helping out a family member and getting a place I can visit and enjoy now...

Anyway, that is what I would do...

Tiredbuthappy said...

For some reason when I think $50K extra salary, I think, great! Then I'd be able to work less.

I guess it doesn't work that way, does it?

Lazy Man said...

I think investing it would be a fine plan. Rather than just spending it all at once and find out it doesn't get you where you need to be, why not just invest it until it can get you there?

E.C. said...

That is a lovely fantasy. As a broke college student, I spent my weekend thinking of all of the exciting things I'll be able to do with the extra ten bucks a week I'm making tutoring this semester. I guess it's all about perspective.

MEG said...

I admit sometimes I LOVE to daydream and plan about my future (higher) income. My income should increase significantly over the next few years as I get my career rolling (new job starts tomorrow!!).

I actually have my current budget in an excel file...with various future (higher) budgets all in columns next to it. So when I get a raise next year (or whenever), I already "know" what I'll do with the money! The most significant unknown factor for me is what my income and budget will look like when (if?) I get married. Which will also happen within a number of years I think. But let's be honest, I already have a budget for that too...

Basically now I save 15%, give 5%, spend 10% on fun money, and 70% on bills/committed expenses. As my income goes up that will change to 25% savings/investing, 10% giving, 10% fun money, and 55% committed expenses.

Anonymous said...

Regardless of what you earn, your previous salary will seem small. This is not even based on changing your spending. I've kept my spending the same as it was when I was earning 1/3rd of what I earn today but when my salary was 1/3rd of today's I thought it was great. Now that seems like nothing. So if you made $150K this year, the $100K you made last year would seem small.