Low Income Budget

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
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BL
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Re: Low Income Budget

Post by BL » Thu Jan 30, 2014 7:52 pm

klarose wrote:
BL wrote:
I will be putting $1,000 into a Roth IRA within the next week or two and we will get $250 back on our taxes for the savers credit. Then we will continue to add to it for the rest of the year.
You could look into putting the max for saver's credit into the Roth by using it as your emergency fund. You can withdraw without any cost if you need it. You might lose the saver's credit if you withdraw during that year, IIRC.

It sounds like you are managing quite well.
We have thought about that. But I just don't feel comfortable investing all our cash in case of a market downturn or something.

We will be putting in at least $1,000. I may see if I can scramble and find some more though. I was wrong above. We will be getting 20% back on whatever we put in. That would be nice to get a 20% return just for saving money. Next year we may be too high of an income to claim it.
If you had $1k invested in a Vanguard Target Retirement fund and $1k or more in a money market for real emergencies, you would not be risking the MM cash. Hopefully you would not need it, but it would be there just in case. However, if you don't want to use it for emergencies, then a traditional IRA would let you put more in it (or keep more for other needs) because it saves on taxes, perhaps 15% plus state tax. Sorry, the MM may require $3k.

Don't worry about what others here have or don't have, if they share something helpful, take advantage of it, and if not, ignore it. Everyone must work toward a balance of saving and spending that works for them, even if not for anyone else. Bogleheads preach Live Below Your Means, and you are excelling in that!
Last edited by BL on Thu Jan 30, 2014 9:04 pm, edited 1 time in total.

magazinewriter
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Re: Low Income Budget

Post by magazinewriter » Thu Jan 30, 2014 8:16 pm

klarose wrote:Oh dear. I realize a lot of the people here make a lot more money than me, so it seems like I am living in the poor house. But that isn't so. I live in a very low cost of living area.

Lots of questions! I will try to answer all of them.

Believe it or not last year at this time we were living on about $1,800 a month, but since then have gotten raises and found a new job. We are doing pretty good with our income, for our area. We are in the higher end. Neither of us make minimum wage. My husband makes double the min.

We won't be joining the military. I am completing a degree in Website Design this year. And I do supplement my income with freelance work (I didn't count it in my figures), which hopefully will be picking up since my degree will be done and I have more experience.

I know not everyone agrees but tithing is the first thing that comes out of our check, and we won't be cutting back. We have plenty of money to tithe with.

The gas is for our cars. We live out in the sticks, my job is 15 minutes one way, husbands is 30 minutes. Can't cut back.

We both have paid off, decent cars. Mine gets over 30 miles per gallon.

We have health insurance. We have an emergency fund. No 401ks offered at jobs.

I will be putting $1,000 into a Roth IRA within the next week or two and we will get $250 back on our taxes for the savers credit. Then we will continue to add to it for the rest of the year.

There is no way we will be maxing it out though. That would be a HUGE amount of our income. Close to half.

I'll try to continue answering questions.
I think that your story is inspirational. Congratulations on your hard work and a lot of good financial moves with your restored home, paid-off cars, health insurance and emergency fund.

As for your web design degree, one of my former magazine co-workers, a young woman in her late 20s, with a degree in graphic design. Her husband was in web design and started his own business focused on web video/web design for corporations. He has been so successful that his wife left her magazine job to work in the family business four years ago and they are doing great. So web design can turn into a nice career.

lisaac
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Re: Low Income Budget

Post by lisaac » Thu Jan 30, 2014 9:14 pm

Why does everyone here think this is a low Income (Including the OP..)? If i'm calculating this correct they are making around 45+K/Year which is just a bit under the US median income. Based on a very low COL location (And statement that she is in the top income bracket in that location) that doesn't sound so bad... Am I missing something?

juanovo
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Re: Low Income Budget

Post by juanovo » Thu Jan 30, 2014 9:48 pm

If you are of the faith I think you are then not tithing is certainly not an option. There are folks who believe that tithing is 10% of gross, other say it is 10% of net and tithe on any tax returns. Only you the poster can decide if you are a full tithe payer.

I have paid tithing in the past in appreciated stock. The benefit of paying in stock includes 1) Meeting your personal spiritual covenants 2) getting a tax write-off on the APPRECIATED value, not on the basis. 3) Avoiding long or short term capital gains while complying with 1 and 2.

This is potentially significant. By investing now you may provide a stream of future tithing funds you can pay while avoiding capital gains taxes on money you would have paid in tithing anyway. To be clear the church (or charitable organization) you tithe/donate the appreciated assests don't pay taxes on the profit either, that's why their a non-profit.

Here's an example:
you make $100 dollars
you pay $1 in Tithing
you pay $1.50 in Taxes (for simplicity)
then you invest a $1.

Ten years later make $200 (I hope more but you get the idea)
Your $1 has increased in value to $2 (That is an excellent rate of return)
You pay $2 in tithing from the stock
You now owe taxes on $198 (not $200). This translates into a tax savings of $2x .15=.30
You do not pay ANY taxes on the capital gains of the $1 increase of your investment. That is another $.15 of avoided taxes.
Total tax savings $.45

This deal only gets better as your tax bracket increases. Make no mistake here, this will not make you money. But one does not tithe to "make money" per se. But this will save you tax payments while keeping your tithing commitment.

I don't necessarily recommend investing your money now to pay tithing in a lump sum at the end of the year. You don't know in such a short time if the value of the stock/mutual fund/asset will have appreciated over such a short time (in fact it may never). I assume that you are interested in paying a regular tithing. But over the long haul, assuming mean reversion, it could be a great way to pay future tithing while avoiding a 15-28% tax take. This of course would have to come from a taxable investing account, not your IRA, or 401k to be worth your while.

This is probably more of a long term strategy for you given your current budget numbers, but it is still worthwhile to keep it in mind.

I'm not an accountant so don't take this as tax advice. I probably did one of the calculation above wrong, or missed something etc. But fundamentally the concept of using appreciated stock for charitable giving has significant benefits vs. donating out of one's earned income.

mathwhiz
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Re: Low Income Budget

Post by mathwhiz » Thu Jan 30, 2014 9:56 pm

Why does everyone here think this is a low Income (Including the OP..)? If i'm calculating this correct they are making around 45+K/Year which is just a bit under the US median income. Based on a very low COL location (And statement that she is in the top income bracket in that location) that doesn't sound so bad... Am I missing something?
It's probably the bias of the board to high cost of living/high income areas. I'd say the majority of bogleheads are in the top 10% of median incomes. Certainly, in net worth. It can leave your perspective a bit skewed about how the other 90% live.

mlipps
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Re: Low Income Budget

Post by mlipps » Thu Jan 30, 2014 10:43 pm

mathwhiz wrote:
Why does everyone here think this is a low Income (Including the OP..)? If i'm calculating this correct they are making around 45+K/Year which is just a bit under the US median income. Based on a very low COL location (And statement that she is in the top income bracket in that location) that doesn't sound so bad... Am I missing something?
It's probably the bias of the board to high cost of living/high income areas. I'd say the majority of bogleheads are in the top 10% of median incomes. Certainly, in net worth. It can leave your perspective a bit skewed about how the other 90% live.
Yes unfortunately the general perception around here is sometimes that anyone earning less than $100k is living in a dirt hut on the brink of bank of bankruptcy. They just can't fathom living on such a "meager" income...

MathWizard
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Re: Low Income Budget

Post by MathWizard » Thu Jan 30, 2014 10:55 pm

lisaac wrote:Why does everyone here think this is a low Income (Including the OP..)? If i'm calculating this correct they are making around 45+K/Year which is just a bit under the US median income. Based on a very low COL location (And statement that she is in the top income bracket in that location) that doesn't sound so bad... Am I missing something?
I don't get $45+K/Year.

From OPs first post, her bi-weekly check = $470, his = $860, 26 bi-weekly checks per year.
($470+$860)*26 = $34,580 , so just under $35K/year, not $45K + .



From http://www.census.gov/prod/2013pubs/p60-245.pdf ,
I see $75K as the median income in 2012 for a married couple.

The following site uses information from the Source:
U.S. Census Bureau, 2012 American Community Survey

It shows $34,580 as 17th percentile for a households filing as a married couple.

This is only about half the median income of such households. That is the reason people
refer to this as low income, but not as poorhouse level.

YttriumNitrate
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Re: Low Income Budget

Post by YttriumNitrate » Fri Jan 31, 2014 7:35 am

MathWizard wrote: I don't get $45+K/Year. From OPs first post, her bi-weekly check = $470, his = $860, 26 bi-weekly checks per year.($470+$860)*26 = $34,580 , so just under $35K/year, not $45K + .

My impression was that was take home pay. Don't forget to factor in income taxes, social security, medicare, and employer deductions for healthcare.

lazyday
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Re: Low Income Budget

Post by lazyday » Fri Jan 31, 2014 10:05 am

klarose wrote:Truly I am happy and comfortable at my income.
....
Maybe bogleheads isn't the right forum for me. lol.
Happiness is the important thing for me.

Happiness in a broad sense of the word; for the long term and for today; for myself, those I care about, and for everyone. For me, money is involved with happiness, but not the most important factor.

On a financial/investing forum, it is easy for us to become focused on money. Making more, saving more, higher investment returns, and better financial security. But for most people, it shouldn't be the highest priortiy in life. A means, not ends.

Some people here have put a lot of energy and study into financial and investing topics, and some of their advice may be very helpful. From your posts, it sounds like you are doing fine deflecting the advice not appropriate for you.

Topic Author
klarose
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Re: Low Income Budget

Post by klarose » Fri Jan 31, 2014 10:17 am

ddj wrote:
I'd like to ask for clarification on a couple things:

1) You mention that you have an emergency fund, and you also say "as soon as we get a large EF." What is your goal EF? If it is not there, set your $$ goal, and contribute $$ until you get there.

2) You've got "savings 300", "savings / bill overage 100," and "remaining 280": what are these? To me, it looks like you've got $680/mo (a handsome sum) to do your bidding each month. My advice for this money: make it automatic. Whether some goes to checking/cash, some goes to EF, some goes to the "Home Remodel Fund," and some goes to retirement, set up automatic transfers and let the machine hum. Then, reassess every few months. Ask: "Can more go here?" "Should less go there?" "Do I need an 'Anticipating a Baby' fund?"

3) I also live in a low cost of living, rural area. Your expenses look similar, though somewhat more frugal than mine (I too have outsized Car Fuel costs). Do you think there's room in one of those categories for cuts?

4) Start thinking (or continue thinking) about your long-term financial goals. Do you have an IPS? (http://www.bogleheads.org/wiki/Investme ... _statement) That can be a helpful way to put down in writing your goals. It sounds like you already have some in mind: tithe x%, maintain EF of $x, to which you're working on adding: contribute to retirement x%/$x.

Again, well done. Keep plugging away!

Comment: funny/irritating that tithing is oft advised here as a "first to go" item, even though you've said in no uncertain terms, "it stays in the budget," even in light of your relatively-healthy financial footing (no high-interest debt, >20% of income available for non-consumptive goals).

1.) We have one months expenses set back right now. We also have another month of expenses set back for various other saving goals that we could tap into if need. I'd like to get my dedicated EF up to 3 months expenses.

2.) The savings $300 goes straight to the EF. The other $100 savings/bill overage is used up when our electric bill is higher over the winter, or if someone leaves the hose running and the water bill is high. Otherwise it too goes to the EF. The $280 extra is used for short term saving goals, new clothes, eating out, home projects... etc. It is our discretionary money.

3.) Honestly I don't think there is room for any cuts. We were budgeting $200 a month for groceries. But we had to increase it because every month we would run out of food money and I'd have to steal some of the savings money. With the newer higher budget for food we should be able to stay within it. We don't have any memberships to anything, or cable or internet. Really no "extra" bills besides the necessities.

4.) I have lots of goals written down thanks! :)

Topic Author
klarose
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Re: Low Income Budget

Post by klarose » Fri Jan 31, 2014 10:22 am

allenneal99 wrote:klarose,

I don't see any issues with your budget. I would suggest maybe breaking it down a little further on the expenses, if they apply to you, by delineating:
- home insurance (if any)
- property/home taxes (if any)
- utilities
- internet
- pet costs (if any)
- home repairs (rough guesstimate)
- memberships/fees/dues
- groceries (unless you eat out a lot)

I would also suggest considering a Traditional IRA instead of a Roth IRA. I suggest because, if you qualify for it, a) you and your significant other do not seem to have a 401k or other retirement plan, and b) this could offer some near-term tax benefit to you/both--you are at the income level where you may be able to fully deduct it from your taxes (consider it an employer match, but from the government). Check with a tax expert first. However, there is nothing wrong with putting your money in a Roth (or both when you can afford to). But consider the money untouchable for decades either way.

Put emergency fund money into a different type of account like a regular savings and pretend the retirement fund stuff doesn't even exist, except for contributions.

I think you are on the right path. I was once close to your income situation about a dozen years ago, except I had a lot of credit card debt, vehicle loan debt, and small student loan to contend with. I eventually climbed out of the debt and started a vigorous savings plan.

Your tithing doesn't hinder you at all. I have tithed and donated money going back to when I had a minimum-wage job. It's been somewhat of a psychological boost to me because since I've tithed/donated money I've never had a lack of funds--and this includes 3 bouts with layoffs over the past 14 years. I always had enough to tithe without ever breaking the bank.

Your next decision should be once you have some money in your Roth IRA or Traditional IRA, where to put it? You can keep it in cash/money market until you get to a comfortable level to invest in something. I would suggest you put it all in Total Stock (VTI or VTSMX - Vanguard Total Stock Market) -- learn what they are and the difference between the two first. And then just ignore it, but keep adding to it every year.
Home insurance and property taxes were included in the $800 a month for bills. No internet. No membership fees. I have a farm, and breed livestock, so pet money is completely separate from the budget and they pay for themselves. Except I do buy one bag of dog food and one bag of cat food a month out of our food money. Grocieres were the $300 food money. That includes all our toiletries and paper products too.

I don't really need the tax breaks now. So I'm sticking with a Roth. I'd rather pay the tax now when I'm in a low bracket, then later when the money has compounded and I'm in a higher bracket.

Our EF is in a high interest savings account.

I will be going with a Vanguard Target Fund for now for my Roth IRA. May change later on when I have more to work with and more knowledge.

Hope I answered everything. :mrgreen:

GeauxBR
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Location: Baton Rouge

Re: Low Income Budget

Post by GeauxBR » Fri Jan 31, 2014 10:23 am

Not really budget info, just encouragement.

You are on the right track. My wife and i were 21/23 when we got married in '06. We made just a bit more than you do now (offset by a slightly larger mortgage so it's a wash). Tithing and savings were very important to us as well. The first ~4 years we both had 2nd jobs on the weekends at a restaurant just to get ahead and build our e-fund a little faster so that we could start investing outside of our company matches at work.

It really felt like we were just spinning our wheels with nothing to show for it at first, (paying down cars early, getting debt free except for the house) it looks good on paper but it takes a strong mind to keep working so hard with no "stuff" to show for it. But we believed in our plan and stuck with it. We've been married almost 8 years and with gradual raises (and added expenses: baby) we've managed to keep sticking to it. Last year we opened a roth with 1k and didn't add another dollar to it. We wanted it open though, just to keep from putting it off any longer. This year we'll max it out with the money that had been going to e-fund savings (e-fund is set now).

Yall are definitely on the right track. Don't quit tithing or it'll be even harder to start back up. Just keep working the plan and you'll come out great. My wife and I still have to encourage each other to this day. We'll go to a friend's house with the brand new car or the nice new whatever and we just have to say how nice it'll be to not have a mortgage at 40, and to retire with a nice nest egg one day.

Keep it up.

Topic Author
klarose
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Re: Low Income Budget

Post by klarose » Fri Jan 31, 2014 10:31 am

cowboysFan wrote:It seems you're spending a lot on housing. A $50k mortgage even with 0% down and a 15-year mortgage runs about $350/month for principal and interest according to zillow's calculator. Even adding on taxes, insurance, and utilities, I'm not sure how you're getting to $800/month.
Our house payment including taxes and insurance is about $500 a month.

Our water bill is about $45. Trash is $20. Electric is between $100 - $250. Propane is $100 a month.

Topic Author
klarose
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Re: Low Income Budget

Post by klarose » Fri Jan 31, 2014 10:33 am

lisaac wrote:Why does everyone here think this is a low Income (Including the OP..)? If i'm calculating this correct they are making around 45+K/Year which is just a bit under the US median income. Based on a very low COL location (And statement that she is in the top income bracket in that location) that doesn't sound so bad... Am I missing something?
I personally don't think it is that low of income. But it is a lot lower than most people on here.

Topic Author
klarose
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Re: Low Income Budget

Post by klarose » Fri Jan 31, 2014 10:36 am

GeauxBR wrote:Not really budget info, just encouragement.

You are on the right track. My wife and i were 21/23 when we got married in '06. We made just a bit more than you do now (offset by a slightly larger mortgage so it's a wash). Tithing and savings were very important to us as well. The first ~4 years we both had 2nd jobs on the weekends at a restaurant just to get ahead and build our e-fund a little faster so that we could start investing outside of our company matches at work.

It really felt like we were just spinning our wheels with nothing to show for it at first, (paying down cars early, getting debt free except for the house) it looks good on paper but it takes a strong mind to keep working so hard with no "stuff" to show for it. But we believed in our plan and stuck with it. We've been married almost 8 years and with gradual raises (and added expenses: baby) we've managed to keep sticking to it. Last year we opened a roth with 1k and didn't add another dollar to it. We wanted it open though, just to keep from putting it off any longer. This year we'll max it out with the money that had been going to e-fund savings (e-fund is set now).

Yall are definitely on the right track. Don't quit tithing or it'll be even harder to start back up. Just keep working the plan and you'll come out great. My wife and I still have to encourage each other to this day. We'll go to a friend's house with the brand new car or the nice new whatever and we just have to say how nice it'll be to not have a mortgage at 40, and to retire with a nice nest egg one day.

Keep it up.

Thanks! I know we will get somewhere one day if we just keep chugging along. Congratz on your success and funding your Roth IRA!

yb
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Joined: Thu Feb 14, 2008 10:33 am

Re: Low Income Budget

Post by yb » Fri Jan 31, 2014 2:55 pm

The gas is for our cars. We live out in the sticks, my job is 15 minutes one way, husbands is 30 minutes. Can't cut back.

We both have paid off, decent cars. Mine gets over 30 miles per gallon.
If his commute is longer, let your husband drive the car with the better gas mileage. It might make a small difference in your gas bills.

Topic Author
klarose
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Re: Low Income Budget

Post by klarose » Fri Jan 31, 2014 3:30 pm

yb wrote:
The gas is for our cars. We live out in the sticks, my job is 15 minutes one way, husbands is 30 minutes. Can't cut back.

We both have paid off, decent cars. Mine gets over 30 miles per gallon.
If his commute is longer, let your husband drive the car with the better gas mileage. It might make a small difference in your gas bills.

He is quite attached to his car... me too. There is no way he would switch, and personally I wouldn't want to either. It wouldn't make much of a difference anyway. I work split shifts, so most days I have to drive there and back twice.

Our house is literately at least 15 minutes from.... anything. So driving is a must.

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Will do good
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Re: Low Income Budget

Post by Will do good » Fri Jan 31, 2014 5:07 pm

klarose wrote:We bought a 100 year old farmhouse, and gutted the entire thing down to studs and have completely redone in less than 2 years with cash. We are down to little stuff such as trim, and buying furniture and decorations. We have done 99% of the work ourselves.

We will be saving for bigger remodeling in a year or two as well as soon as we get a large EF and begin our retirement savings.

Here is our monthly combined budget. $2,660


House Payment & Utilities $800
Food $300
Tithes $270
Lunches/Spending $60
Phone/ Car Insurance $180
Car Gas $360
Savings $300
Savings / Bill Overage $100
______________________________
Remaining $280

You two sounds amazing. Love your can do style :sharebeer

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Will do good
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Re: Low Income Budget

Post by Will do good » Fri Jan 31, 2014 5:12 pm

klarose wrote:
William4u wrote: I am getting my degree from a local public community college. So I didn't spend a ton of getting it. In fact I've cash flowed all the expenses so I will be graduating debt free.

I chose that degree because it was something I enjoyed doing. I don't expect it to make me rich. But it is something I can do freelance from home, and still make some side income.

Thanks for your concern though.
Once you get your web portfolio done, promote the heck out of it. You will be amaze how much free-lance work is out there. If you are lucky and talented your income will shoot straight up. Take it from a old creative director.

jackholloway
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Re: Low Income Budget

Post by jackholloway » Fri Jan 31, 2014 5:15 pm

MathWizard wrote:
lisaac wrote:Why does everyone here think this is a low Income (Including the OP..)? If i'm calculating this correct they are making around 45+K/Year which is just a bit under the US median income. Based on a very low COL location (And statement that she is in the top income bracket in that location) that doesn't sound so bad... Am I missing something?
I don't get $45+K/Year.

From OPs first post, her bi-weekly check = $470, his = $860, 26 bi-weekly checks per year.
($470+$860)*26 = $34,580 , so just under $35K/year, not $45K + .



From http://www.census.gov/prod/2013pubs/p60-245.pdf ,
I see $75K as the median income in 2012 for a married couple.

The following site uses information from the Source:
U.S. Census Bureau, 2012 American Community Survey

It shows $34,580 as 17th percentile for a households filing as a married couple.

This is only about half the median income of such households. That is the reason people
refer to this as low income, but not as poorhouse level.
Note, though, from the same PDF, "Median household income was $51017 in 2012, not statistically different in real terms from the 2011 median of $51,100"

MathWizard
Posts: 3401
Joined: Tue Jul 26, 2011 1:35 pm

Re: Low Income Budget

Post by MathWizard » Fri Jan 31, 2014 7:06 pm

jackholloway wrote:
MathWizard wrote:
lisaac wrote:Why does everyone here think this is a low Income (Including the OP..)? If i'm calculating this correct they are making around 45+K/Year which is just a bit under the US median income. Based on a very low COL location (And statement that she is in the top income bracket in that location) that doesn't sound so bad... Am I missing something?
I don't get $45+K/Year.

From OPs first post, her bi-weekly check = $470, his = $860, 26 bi-weekly checks per year.
($470+$860)*26 = $34,580 , so just under $35K/year, not $45K + .



From http://www.census.gov/prod/2013pubs/p60-245.pdf ,
I see $75K as the median income in 2012 for a married couple.

The following site uses information from the Source:
U.S. Census Bureau, 2012 American Community Survey

It shows $34,580 as 17th percentile for a households filing as a married couple.

This is only about half the median income of such households. That is the reason people
refer to this as low income, but not as poorhouse level.
Note, though, from the same PDF, "Median household income was $51017 in 2012, not statistically different in real terms from the 2011 median of $51,100"
Yes the $51K figure is often quoted, but I was using the figure that fit the situation here, a married couple, and
why this would be considered low income (but not poorhouse level) for a two-earner married couple.

Note that using the all household figure factors in those single households with median incomes of $26K
and $39K and the single parent households with median incomes of $34K and $48.6K. Those medians are all
below the All Households median. It is the higher incomes in the married couple households that brings the
median up to $51K.

Singles can marry and move into a higher income household. A married couple cannot do that.


If you are a married two earner couple, it hardly makes sense to compare that to a single person household.

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