Another article about the challenges of saving despite high income

[urn2bfree]

This article about a Seattle area couple with decent income has the usual details of how poorly people manage their finances, but there are no posted comments.
I was curious to see what the wise members of these forums might add to the discussion. I have some thoughts about what I think is missing from the article (thoughts? - maybe outrage- my wife asked me why I was getting so upset about people we don't even know)
I don't want to prejudice the comments that might follow here any further, so give it a quick read and see what you think.

https://www.seattletimes.com/busine...ood-salaries-are-short-on-retirement-savings/

 

[W2R]

I think this article is a good illustration of what a terrible handicap poor to non-existent mathematical skills can be. I thank heavens that I am capable of dealing with numbers and figuring out how to save money when I need to do so.

Meanwhile, they’ve taken matters into their own hands by cutting their spending while they wait for the sale to close.

They’re eating out less often and looking into ways to save money on such things as cellphone service and insurance.

This family is living on $100K-$200K income, and yet they need to eat out less often and save money on cellphone service and insurance? Pul-eeze. They could eat out every day and pay through the nose for their cell phone and insurance, and still live on less than $50K/year if they had any common sense. These measures barely touch the problem posed by their tremendous compulsive spending habits.

I wonder what ever gave them the looney-tunes idea that a real estate appraiser and a Head Start teacher with two kids to send to college, could afford an $850,000 home? "Lifestyles of the Rich and Famous"? And what's with this second mortgage? Using the home as a piggy bank?

I don't think they have a snowball's chance of ever retiring, unless they declare bankruptcy and/or win the lottery. I don't imagine they will ever truly understand or accept that they need to match their lifestyle to their income.

 

[haha]

This article about a Seattle area couple with decent income has the usual details of how poorly people manage their finances, but there are no posted comments.
I was curious to see what the wise members of these forums might add to the discussion. I have some thoughts about what I think is missing from the article (thoughts? - maybe outrage- my wife asked me why I was getting so upset about people we don't even know)
I don't want to prejudice the comments that might follow here any further, so give it a quick read and see what you think.

https://www.seattletimes.com/busine...ood-salaries-are-short-on-retirement-savings/

I'm with your wife. The world is full of problems, this surely has to be one of the very minor ones.

Also, have you not noticed that stupid decisions, unworkable plans, and meaningless preoccupations are seemingly necessary as a civilization runs down?

Ha

 

[scrabbler1]

At least they don't have any credit card debt. They have a lot of mortgage debt. They plan to sell a rental property the husband and his brother co-own, freeing up a decent chunk of money they can use to eliminate their second mortgage and the wife's student loans. Using some of that to setup an EF, perhaps paying down some of the main mortgage, while reducing other spending, will improve their financial picture enough long-term?

 

[daylatedollarshort]

I didn't find the article particularly surprising based on most of the savings and net worth surveys that get published in the news from time to time.

 

[marko]

I wonder what ever gave them the looney-tunes idea that a real estate appraiser and a Head Start teacher with two kids to send to college, could afford an $850,000 home? "Lifestyles of the Rich and Famous"?

We have some neighbors like that who seem to be blind in one eye. They're completely unable to look at a property and instantly realize that they can't afford it.

They could walk into a $100MM estate and, until they got close to making a deposit, would never even occur to them that they couldn't afford the place.

They've looked at dozens of second homes and only after it's time to get serious and sing papers do they think about paying for it.

 

[NW-Bound]

“They’re making a good amount of money,” Vercio said. “But they also have a lot of debt.”
...
The couple’s tight cash flow has some long-term consequences. Under their current financial trajectory, the VanderWaals are likely to run out of savings in retirement, leaving them to rely on Social Security. Fortunately, they have time to adjust.

The people without IRA/401k like this couple will be the ones who get full SS, while people with the same earned income who manage to save money will get penalized.

"To each, according to his needs", and these people will be needy. It could be smart, not dumb as we think.

 

[jazz4cash]

I'm pretty sure their problems are due to the vanity license plates.

 

[OldShooter]

I'm pretty sure their problems are due to the vanity license plates.

IMO that is a symptom of the problem, which is poor judgment on spending.

 

[Walt34]

It seems that IF they get their financial act together they do have a chance at a decent retirement but it is going to take major lifestyle changes to do it. The question then becomes if they have the maturity and self-discipline to make those changes. Going by their past behavior, I doubt it.

 

[Red Badger]

WRT W2R, I don't think math skills are the problem. I think it is more emotional thinking overruling logical thinking. Why is he "parking" the souped up money pit instead of selling it. Also, eating out less often - - - should be no eating out until retirement future is on sound footing.

My math skills are fairly challenged. But, I didn't need much computational talent to know that staying out of debt, owning modest homes, and maxing out my 401K (especially in peak earning years) where foundational to a life of leisure in my later years.

Been doing that life of leisure thing about 15 months now. Love every minute!

 

[Fedup]

I’m with your wife. There is no reason to get upset about people you don’t know. I don’t get upset about people I know even. I had to LOL at your wife’s comment. This is why I read the internet. Comedy relief. Priceless. Everything else there’s MasterCard.

 

[MrsHaloFIRE]

IMO that is a symptom of the problem, which is poor judgment on spending.

Agree!!

 

[Walt34]

WRT W2R, I don't think math skills are the problem. I think it is more emotional thinking overruling logical thinking.

That's the issue with a lot of people, and it's why I think the whole idea of the 401k plan is going to be a societal tragedy. A former BIL passed away a while back and he was making payments on two different vehicles. He retired from the FAA as a GS15 so he certainly wasn't stupid, and when he was married to my sister I actually liked the guy in small doses. At the time he passed he had about $800 in a checking account and a pile of debt for his son to sort out. He got away with the high spending because he had that CSRS pension, but if he'd worked in private industry he'd have been living under a bridge in retirement.

I can think of a bunch of people who can't stand to see a dollar in the bank and think the solution to every impulsive "I wanna..." is to charge it or take out a loan. Unless they're lucky enough to have a DB COLA'd pension those people are going to have a very rough time when they can't work any more.

 

[braumeister]

I can think of a bunch of people who can't stand to see a dollar in the bank and think the solution to every impulsive "I wanna..." is to charge it or take out a loan.

Exactly.
You spend your entire working life indulging yourself because you know there will be another paycheck coming in soon.
Then when you stop working you have to completely change your mindset.
Some can do it, others can't.
Those who succeed had prepared themselves for a long time because they were able to look ahead. The rest just grabbed that marshmallow as soon as the experimenter left the room.

 

[gayl]

owe about $27,900 on a $50,000 secondary mortgage; they used the money to pay for such improvements as fencing and kitchen upgrades.

says it all IMHO

 

[ncbill]

I think this article is a good illustration of what a terrible handicap poor to non-existent mathematical skills can be. I thank heavens that I am capable of dealing with numbers and figuring out how to save money when I need to do so.
This family is living on $100K-$200K income, and yet they need to eat out less often and save money on cellphone service and insurance? Pul-eeze. They could eat out every day and pay through the nose for their cell phone and insurance, and still live on less than $50K/year if they had any common sense. These measures barely touch the problem posed by their tremendous compulsive spending habits.

I wonder what ever gave them the looney-tunes idea that a real estate appraiser and a Head Start teacher with two kids to send to college, could afford an $850,000 home? "Lifestyles of the Rich and Famous"? And what's with this second mortgage? Using the home as a piggy bank?

I don't think they have a snowball's chance of ever retiring, unless they declare bankruptcy and/or win the lottery. I don't imagine they will ever truly understand or accept that they need to match their lifestyle to their income.

Seems scarily common over on bogleheads to see posts like:

"Our combined income is $150,000-$200,000 but we live in a HCOL and so need to buy a $800,000-$1,200,000 home."

Here in my LCOL area the professions in the article would pay ~$90,000 in combined income.

But you can buy 3BR/3BA townhouses (~2,500 sqft.) like mine for ~$200,000.

 

[urn2bfree]

Number one- of course my wife is right- that should go without saying.

2- the second mortgage for fencing and kitchen upgrades certainly irked me

3 - the author of the article just drops in the little detail about his souped up race car and his weekend hobby of racing it being "on hold" as if that deserves no other attention

The implied sense of entitlement oozing from this article portends disaster for them, and ultimately somebody will be suggesting those of us "ants" with more will need to support these irresponsible "grasshoppers" someday. That's what gets my blood up.

 

[Fedup]

At least they are working and paying taxes, unlike some other bums who preach retirement at 30 and live off their blogs, aka Mr Mustachio. Even then, they don’t rile me up either, I just feel sorry for a wasted life. Trust me, I know, I have one grandfather who never did work a single day. Sure he did live a long and healthy life, but nobody in my family looks up to him. None. Nobody is looking to emulate that life either.

 

[MichaelB]

The implied sense of entitlement oozing from this article portends disaster for them, and ultimately somebody will be suggesting those of us "ants" with more will need to support these irresponsible "grasshoppers" someday. That's what gets my blood up.

That's not anywhere in the article. The message is one of saving and living within one's means.

 

[Aerides]

They are living in a HCOL area, so $850k for a house gets a lot less than most parts of the country... but still, 2500 square feet is a big SF home.

How much their lives could change if they downgraded to a 1900 SF for say $650? Reduced taxes and insurance as well no doubt, and of course that can be found in their zip code, it's not San Francisco.... And yet their Money Makeover guy doesn't even suggest that.

 

[bigcmagor]

Looks like you have bigger problems to worry about Urn2befree. Both Ha and Fedup announced above that they are with your wife!

 

[6miths]

They are looking for help which is good. The house has been a decent investment if current appraisal is to be believed. About a 150K down payment and up in value by 200K in 2 years. They need to get more systematic in their savings and investing and they should be fine. Money for the kids college might be had to do as it looks like the time line is short.

 

[haha]

Seems scarily common over on bogleheads to see posts like:

"Our combined income is $150,000-$200,000 but we live in a HCOL and so need to buy a $800,000-$1,200,000 home."

Here in my LCOL area the professions in the article would pay ~$90,000 in combined income.

But you can buy 3BR/3BA townhouses (~2,500 sqft.) like mine for ~$200,000.

What someone might be able to buy in your area has nothing at all to say about they will pay for shelter where they live and work. Buy or rent, it doesn't matter, in many places that are land constrained like most of the urban Pacific Coast, you pay more than seems wise or ruin your marriage and health with monster commutes. Seattle is not the worst, but the recent tax appraisal on my 670 sqft almost 40 year old condo is $335K. But not many people can walk to work in the center of Seattle's business district in 20-30 minutes, and we can. Also these central Seattle neighborhoods are very pretty. I have been campaigning to get us to commit to spending $45 -50K per unit for some basic let's make things good for another 40 years improvements. Luckily the economy has been good, so most everyone will be able to pay the needed assessments.

Ha

 

[RunningBum]

Not seeing a huge problem here. Certainly nothing to get outraged about.

They didn't buy an $850,000 home, they bought a $659,000 home. Before pointing out their poor math skills, maybe some posters need to improve their own reading skills. And note that house increased in value well over $100K even after increasing the cost by the improvements. Not too bad. Maybe even smart.

If $39K is 1/4 to 1/5 of their income, that's at least $156K. The article also said they are about midway between 100 and 200K, not between 100-200K. Again, reading skills, folks. Though, I don't know why the writer of the article has to be so vague about the income number. In any case, it looks like they were well under the 28% limit most lenders will put on a mortgage/income.

I'm guessing some posters are applying real estate prices in their own area, without knowing what that buys you in Seattle. It sure doesn't look like a mansion from the picture.

Sounds like they have a good plan to sell the rental and pay off all but the mortgage, and still invest some of the proceeds. It should take them out of paycheck-to-paycheck mode, and they just need to have discipline to keep saving. Maybe look at downsizing when the kids go to college.

Oozing entitlement? I didn't really get that. Maybe it's there. Maybe not. Maybe the house was a great buy but with a horrible kitchen that really needed a redo. I doubt the fence was much of a cost, and maybe it was necessary for their situation.

Net worth of $627,000 while in their 40s. Could be a lot worse.