How to live on $110,000 less income each year?

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miamivice
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How to live on $110,000 less income each year?

Post by miamivice » Mon Jun 06, 2016 11:14 am

So, a friend makes $80,000 a year and has a stay at home wife, so his total family income is $80,000.

My wife and I both work, and I work extra hours, so our family income has been $190,000 for the past several years.

I'm slightly perplexed at how we could possibly reduce our expenditures to live on $110,000 less income each each (to be in a similar spot as my friend).

The big differences that I see:

Childcare: They have no childcare expense (stay at home wife) while we have 2 kids in daycare. Differential: $30,000/yr.
Housing: We own a nice house while they rent. Difference in total costs (including differential in insurance, utilities, maintenance, etc) $20,000/yr.
(The downside to them renting is they are not accuring equity in their house while we are in ours, in terms of asset appreciation).
Retirement: We currently set aside maybe $22,000 of our after-tax money into retirement. While I don't know how much they save for retirement, a guy could change this to $0 and make up a big chunk of the difference.
Taxes: My friend pays probably $10,000 less in taxes (wild estimate) due to the less income.

As far as I can tell, our lifestyle is relatively basic. The remaining amount we spend goes toward basic needs and not disposable needs.

So, I am calculating a $82,000 difference. What additional steps could we take to reduce our budget by the remaining $28,000 so we could live on $80,000 a year?

Also, would it be smart to go from owning a nice house to renting a small multifamily place? I'm not thinking that would be a wise financial move.

We are contemplating a lifestyle change that might change our salary to match his family income of $80,000, and I'm trying to wrap my mind around how I can survive a drastic cut in income.
Last edited by miamivice on Mon Jun 06, 2016 11:29 am, edited 1 time in total.

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hand
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Re: How to live on $110,000 less income each year?

Post by hand » Mon Jun 06, 2016 11:21 am

Not sure I agree with your premise or your math...

Focusing on matching someone else's lifestyle is a losing proposition, better to focus on what makes sense in terms of income, savings and lifestyle for you given your current / future situation.

On the math front, you are missing the major impact of taxes with income of $190k vs. $80k - the difference to your lifestyles is much less than $110k

ved
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Re: How to live on $110,000 less income each year?

Post by ved » Mon Jun 06, 2016 11:22 am

One difference - your friend's tax bracket maybe in the 15%, while yours maybe 25% (depending on deductions both of you take). That will be some chunk of $$ you are paying UncleSam more than your friend is :D

N10sive
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Re: How to live on $110,000 less income each year?

Post by N10sive » Mon Jun 06, 2016 11:24 am

I would not rent a house when you are already gaining equity in your current house.

Do you have any debt? How do you know your friend is living well off the 80k? They could be struggling to get by but not show it.....I only say this is I work with a tech who makes 50k less than me, has 4 kids, wife was just laid off and he shows up in a nissan 350z, buys all the new tech apple laptops etc, goes diving...But I know he is partially living off CC's, no retirement, and his father bails him out quite a bit.

Not saying your friend is like this but you never know the real story.

After your calculations, the 72k will be hard to cancel out unless you have say a car payment, etc.

Edit: Like others say check about the taxes and then maybe redo your calculations with an 80k salary.

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englishgirl
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Re: How to live on $110,000 less income each year?

Post by englishgirl » Mon Jun 06, 2016 11:25 am

You need to track your expenses so you can see what you are actually spending money on. If you don't already use a service like mint.com, I suggest you sign up. That's what I did when I was looking to drastically cut my spending - now I can't even tell you what I used to waste money on.

Is moving on the cards? The choice is not necessary the nice house you currently have vs. renting - are there smaller/cheaper houses that are still nice but maybe don't cost as much? Lower HOA costs? Do you have the premium cable package, full home security system and gym membership?

When one of you stops work, will there be other savings - do you both go out to lunch every day? Both wear suits or other expensive clothing? Have high commuting costs? Blow money on eating out or getting takeout in the evening because you think you're too tired to cook?
Sarah

stoptothink
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Re: How to live on $110,000 less income each year?

Post by stoptothink » Mon Jun 06, 2016 11:26 am

I'm confused as to what you are asking. I'm sure the differences (savings, entertainment, cars, etc.) are very easy to see if you just write them down. A much better way to go about this is to write down your own expenses and go from there.

JCrack
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Re: How to live on $110,000 less income each year?

Post by JCrack » Mon Jun 06, 2016 11:27 am

The only other categories that you didn't discuss that I can see making a material impact include:

- Vehicles (car type, lease vs buy)
- Entertainment (including vacations and eating out)

MathWizard
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Re: How to live on $110,000 less income each year?

Post by MathWizard » Mon Jun 06, 2016 11:30 am

Taxes:
Figure last year's taxes as if you made $80K rather than $190K. My guess is that you pay lots more in taxes.
Remember to include SS and Medicare taxes and state taxes.

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BL
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Re: How to live on $110,000 less income each year?

Post by BL » Mon Jun 06, 2016 11:31 am

You would save a lot in taxes, maybe 1/3 or so.

You could perhaps have some savings with a stay-at-home parent and homemaker, depending on the person. Of course more free time could mean more time to shop, which could be good or it could be expensive.

N10sive
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Re: How to live on $110,000 less income each year?

Post by N10sive » Mon Jun 06, 2016 11:31 am

I just did a quick federal tax lookup. You are most likely paying 3 times the taxes on 190k as you would at 80k.

Like others have said, make an excel or use mint.com to go over your expenses each month. Then account for the different tax bracket and do your math again. You will probably still find it hard to manage on the 80k salary but cuts in eating out, etc can help a lot....

Definitely look at your finances and adjust. You can never know what another person has going for them.

yellowgirl
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Re: How to live on $110,000 less income each year?

Post by yellowgirl » Mon Jun 06, 2016 11:32 am

We are tracking our expenses the last few months.

Income 120K, Texas no state income tax

Monthly bills:

Mortgage $500 a month
Daycare, swimming lessons, after school activities $1,000 a month
Electricity $30 (solar panels)
Gas : $0 no gas service
Water and trash $50
Internet, cable and Netflix $70
Cell phones $55
Car ins $165

Debt: to my dad $300 a month

Groceries and supplies $500 (Aldi and Costco)
Fuel $60
Copays and med $50 ( estimated, usually $0)
Home maintenance and repairs $400
Car replacement $100
Travel $100
Birthday and Christmas gifts $50
Eating out $100 (Starbucks and lunches)
Entertainment $50
Cars maintenance $25
Clothing and other stuff $100

Total $3675

delamer
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Re: How to live on $110,000 less income each year?

Post by delamer » Mon Jun 06, 2016 11:40 am

MathWizard wrote:Taxes:
Figure last year's taxes as if you made $80K rather than $190K. My guess is that you pay lots more in taxes.
Remember to include SS and Medicare taxes and state taxes.
I too think you are underestimating the impact of income and payroll taxes. Remember you are paying Social Security and Medicare taxes on two incomes. But you also should take into account any tax savings if you are deducting mortgage interest and property taxes or contributing to a 401(k).

Try using the Taxcaster app to estimate your taxes if your income goes down.

And don't ignore the possibility that your friend's lifestyle is being supported by parents or grandparents.

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miamivice
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Re: How to live on $110,000 less income each year?

Post by miamivice » Mon Jun 06, 2016 11:43 am

As to how much we spend, we spend about $36,000 - $40,000 per year for gasoline, food, car repairs, amusement park season passes, meals out, furniture for house, utility bills, smartphone charges, and the like. In addition to the expenses listed above (daycare, mortgage, retirement savings, etc), we do not spend anything else on an annual basis.

I have no debt other than mortgage.

One poster is confused about my question. It is, very simply "If I choose to go from my current $190,000 income and replace it with a $80,000, what am I giving up? What am I gaining in life by earning $190,000". There are a lot of non-economic parts of that question but this thread is focusing on the economic parts only.

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miamivice
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Re: How to live on $110,000 less income each year?

Post by miamivice » Mon Jun 06, 2016 11:45 am

I did forget about the tax impact. I've edited the original post to reflect.

My analysis indicates:

1) Switch to renting rather than owning
2) Stop saving for retirement
3) Stop saving for non-retirement
4) Still have $28,000 gap to close.

It looks difficult in my opinion to move to an $80,000 family income.

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Meg77
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Re: How to live on $110,000 less income each year?

Post by Meg77 » Mon Jun 06, 2016 11:46 am

It appears to me that the biggest differences in your two budgets (that we know of based on estimating his) are 1) taxes, 2) childcare and 3) housing. And of course savings. You'd need to save less (and have to save less) if you cut your income by more than 50%. But that doesn't mean you have to take all savings to zero. It's still necessary to put 10-15% into retirement and save 5% or so in cash; it would just be a lot smaller numbers on a much smaller income.

Your additional $20K or so in housing costs may well go mostly toward home equity buildup (through maintenance that increases the value of your home as well as principal repayment), but whether you call it "savings" or "housing" it's still an increase over what he allegedly pays. Definitely smart to keep it especially as you already own the home.

Taxes are the big thing you wildly underestimated. Once you have a kid or kids you get additional write offs, plus the difference in net taxes on $180K versus $80K is huge. In addition, the tax code was established to favor households exactly like your friend which have one working individual making upper middle class wages and one stay at home spouse. Two working spouses making about the same are penalized - they pay more as a married couple in taxes than they would combined as single taxpayers - at most levels of income.

Childcare expenses can be dramatically cut with a stay at home spouse. Not just typical daycare costs that would evaporate, but also you can reduce the cost of summer camps and other additional babysitting that two working spouses would require. Further, lots of quality time with the kids and free time to get creative with activities can reduce the impulse to spend top dollar on extracurriculars like one-on-one tutoring and classes like music and languages that many dual working couples feel compelled to "invest" in.

Plus you may not realize how much the "little" expenses such as work clothing, dry cleaning, eating out/fast food lunches, commuting, etc can drop when one worker stops working. Plus that spouse (eventually) will have more time to shop deals, make meals from scratch (which is cheaper), do work that may otherwise be hired out (housecleaning, lawnmowing), etc.
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Re: How to live on $110,000 less income each year?

Post by stoptothink » Mon Jun 06, 2016 11:49 am

miamivice wrote:As to how much we spend, we spend about $36,000 - $40,000 per year for gasoline, food, car repairs, amusement park season passes, meals out, furniture for house, utility bills, smartphone charges, and the like. In addition to the expenses listed above (daycare, mortgage, retirement savings, etc), we do not spend anything else on an annual basis.

I have no debt other than mortgage.

One poster is confused about my question. It is, very simply "If I choose to go from my current $190,000 income and replace it with a $80,000, what am I giving up? What am I gaining in life by earning $190,000". There are a lot of non-economic parts of that question but this thread is focusing on the economic parts only.
I'm confused because it is straightforward, write down what you spend and compare. How exactly could this board help you with that, especially when you haven't listed your costs?

livesoft
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Re: How to live on $110,000 less income each year?

Post by livesoft » Mon Jun 06, 2016 11:50 am

Here is the $200,000 family thread: viewtopic.php?t=79510
It might give you some ideas.

You could hire someone for much less than $30K a year to take care of your children. Your kids will age out of needing daycare.

You all should be putting $18K + $18K + $5.5K + $5.5K = $47K into 401(k) and Roth IRAs. The other guys might be putting in much much less. You will be able to retire early. The other guys will have to keep working.
Last edited by livesoft on Mon Jun 06, 2016 11:55 am, edited 3 times in total.
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TOJ
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Re: How to live on $110,000 less income each year?

Post by TOJ » Mon Jun 06, 2016 11:52 am

Virtually every facet of your life would need a cut.

Eliminate or reduce TV/internet bill.
Eliminate restaurants.
Bring lunch to work.
Eliminate almost every non-required monthly expenditure.
Lower savings rate.

Essentially your paycheck pays for the house, food, utilities, and gasoline. Keep cars till they die, do not finance new ones. Fun budget greatly reduced.

The good news is your taxes go down so you can adjust withholdings to make the paychecks bigger.

Plenty of people do it, and do it on less. We do it on slightly more. Plenty of positives about this lifestyle.

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Re: How to live on $110,000 less income each year?

Post by DaftInvestor » Mon Jun 06, 2016 11:53 am

You made a statement in your "Reality-Check" post/thread that you don't budget nor track spending nor see a reason why you should. This is the first thing you need to do in my opinion - there are a lot of little things that can add up to thousands over the year if you don't pay attention. Until you know where the money is going I'm not sure how you can figure out how to spend less.

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Re: How to live on $110,000 less income each year?

Post by Meg77 » Mon Jun 06, 2016 11:54 am

miamivice wrote:I did forget about the tax impact. I've edited the original post to reflect.

My analysis indicates:

1) Switch to renting rather than owning
2) Stop saving for retirement
3) Stop saving for non-retirement
4) Still have $28,000 gap to close.

It looks difficult in my opinion to move to an $80,000 family income.
Living on $80K is not particularly difficult. Moving from $180K to $80K may in fact be quite difficult. This is because you have probably already set up your lifestyle (size/cost of house in particular) to be unaffordable for a household making so much less. Therefore moving to a cheaper home may well be required to keep your housing costs in a good range. You may need to move down in car slightly. You may need the cheaper off-brand wireless plan. You may need to shop at discount stores instead of department stores. Special dinners out may need to be at national chains instead of trendier eateries. Etc.

When you're making close to $200k you count money in thousands. When you're a family living on less than six figures, every hundred dollars counts. It's a mindset shift to be sure. But it's completely doable. Most American families live on far less.
"An investment in knowledge pays the best interest." - Benjamin Franklin

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Re: How to live on $110,000 less income each year?

Post by N10sive » Mon Jun 06, 2016 11:54 am

If you have a 36-40k spending for those things, you will have to dramatically cut that out. Just do a federal income tax estimate on 80k your net income would be around 55k. Maybe a little more due to write offs.

36-40k on gasoline,food, vacations etc. seems like a lot unless your commuting, extravagant vacations, old cars that need constant repair etc. Unless you can drastically cut this to say 10k you cannot sustain an 80k income even sacrificing not saving for retirement etc.

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Re: How to live on $110,000 less income each year?

Post by TOJ » Mon Jun 06, 2016 11:55 am

One good thing is that the 529 argument becomes completely moot. You couldn't afford to fund it if you wanted. :P

Jeff P
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Re: How to live on $110,000 less income each year?

Post by Jeff P » Mon Jun 06, 2016 11:57 am

You talk about after tax retirement but not pretax. Are you putting $36k into 401ks while he is putting in minimum or none?

tedclu
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Re: How to live on $110,000 less income each year?

Post by tedclu » Mon Jun 06, 2016 12:00 pm

if your friend max out the pre-tax retirement accounts. he might not have to pay any fed taxes.

As for you, start by maxing out your pre tax accounts 401k, 403b, regular IRA etc. "forced" to live on less.

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BL
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Re: How to live on $110,000 less income each year?

Post by BL » Mon Jun 06, 2016 12:03 pm

If you keep income under $110k you may qualify for Child Tax Credit of $1k/child. This would knock off $6.7k of taxable income for each child. Be sure to max out 401k and Roth IRA.

There should be less stress with someone handling more of the household and child needs.

Try saving most of second income now (less taxes and child care.) The only way to know is to try it.
Last edited by BL on Mon Jun 06, 2016 12:07 pm, edited 1 time in total.

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MikeWillRetire
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Re: How to live on $110,000 less income each year?

Post by MikeWillRetire » Mon Jun 06, 2016 12:03 pm

Make sure you think about the implications of this decision on your retirement. Your neighbors likely can't save as much as you can, and your spouses social security check will probably be much larger too.

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goingup
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Re: How to live on $110,000 less income each year?

Post by goingup » Mon Jun 06, 2016 12:05 pm

So you want to become a one-income family? Many people make that lifestyle choice if they can make the numbers work.

Comparing yourself to your friend probably just confuses the issue. Work through your income and expense scenarios. :happy

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BeBH65
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Re: How to live on $110,000 less income each year?

Post by BeBH65 » Mon Jun 06, 2016 12:06 pm

Hi Miamivice,

I am confused about your expenses
miamivice wrote: our family income has been $190,000 for the past several years.
...
Childcare: $30,000/yr.
Housing: Difference in total costs $20,000/yr.
Retirement: $22,000
Taxes: My friend pays probably $10,000 less in taxes (wild estimate) due to the less income.
miamivice wrote: We spend about $36,000 - $40,000 per year ...
we do not spend anything else on an annual basis.
So if I calculate correctly you spend 98k on taxes and your house; (190k - 30k childcare - 22k retirement - 40k daily expenses) does this seem correct? To succeed with his 80k your friend has to be spending a lot less on these 2 items.

Regards,
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence). | Have a look at https://www.bogleheads.org/wiki/Outline_of_Non-US_domiciles

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Re: How to live on $110,000 less income each year?

Post by Runner01 » Mon Jun 06, 2016 12:09 pm

You need to track your expenses and understand what you are spending money on. My wife and I went from $100k household income to about $65k last year when our son was born. However, we planned for this years in advance and had no problem at all when our son was born. Also, at this income level we pay $0 in FIT and save around $18k per year.

Also, it helps to keep in mind that 50% of all households in the U.S. earn less than about $50k per year.
Last edited by Runner01 on Mon Jun 06, 2016 12:13 pm, edited 1 time in total.

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Re: How to live on $110,000 less income each year?

Post by Jags4186 » Mon Jun 06, 2016 12:11 pm

I find this thread somewhat amusing. Someone who makes nearly 400% the average household income wondering how someone who only makes 60% more than the average household income survives.

Everything comes from perspective. You may not feel like you live a lavish lifestyle but your friend could be incredibly envious of your lifestyle (they never have to worry about money, if they really want something they just go and buy it). I know that's how I feel about friends who make a lot more than me sometimes...

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Re: How to live on $110,000 less income each year?

Post by Mike Scott » Mon Jun 06, 2016 12:12 pm

Half of American families live on less than about 50K per year. For many of these families, 50K looks like being "rich". To cut, you have to reframe your mindset, perspective, expectations and minimize your bottom line expenses. You will probably have to give up some of your current "needs".

Maybe this mental exercise will help people understand why so many have little or no savings.

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Re: How to live on $110,000 less income each year?

Post by TOJ » Mon Jun 06, 2016 12:17 pm

OP may feel like he doesn't splurge on material items, and he may be right. But, $22k in after tax money to retirement (plus some pretax?) is more per year than many 30-somethings have total saved. That is likely your largest luxury item the other guy can't afford. He probably gets the company match and that's it.

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Re: How to live on $110,000 less income each year?

Post by JW-Retired » Mon Jun 06, 2016 12:19 pm

miamivice wrote:Taxes: My friend pays probably $10,000 less in taxes (wild estimate) due to the less income.
More less than that. I think your friend pays only about 1/4th what you pay. A very rough TaxCaster MFJ estimate taking std deductions and no tax deferred savings says you would pay $34k in Federal income taxes and friend pays $8k.

It's a graduated income tax.:)
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Re: How to live on $110,000 less income each year?

Post by yellowgirl » Mon Jun 06, 2016 12:25 pm

miamivice wrote:As to how much we spend, we spend about $36,000 - $40,000 per year for gasoline, food, car repairs, amusement park season passes, meals out, furniture for house, utility bills, smartphone charges, and the like. In addition to the expenses listed above (daycare, mortgage, retirement savings, etc), we do not spend anything else on an annual basis.

I have no debt other than mortgage.

One poster is confused about my question. It is, very simply "If I choose to go from my current $190,000 income and replace it with a $80,000, what am I giving up? What am I gaining in life by earning $190,000". There are a lot of non-economic parts of that question but this thread is focusing on the economic parts only.

Keep your expenses low and max out everything. This way you don't have to work extra hours and pay very little in taxes.

Oh, I get it. Are you complaining that you guys are making too much money?
Last edited by yellowgirl on Mon Jun 06, 2016 12:39 pm, edited 1 time in total.

TOJ
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Re: How to live on $110,000 less income each year?

Post by TOJ » Mon Jun 06, 2016 12:32 pm

Runner01 wrote:You need to track your expenses and understand what you are spending money on. My wife and I went from $100k household income to about $65k last year when our son was born. However, we planned for this years in advance and had no problem at all when our son was born. Also, at this income level we pay $0 in FIT and save around $18k per year.

Also, it helps to keep in mind that 50% of all households in the U.S. earn less than about $50k per year.
In the time leading up to this change, did you save money for the express purpose of bolstering your future lower monthly cash flow?

cpw84
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Re: How to live on $110,000 less income each year?

Post by cpw84 » Mon Jun 06, 2016 12:40 pm

miamivice wrote:As to how much we spend, we spend about $36,000 - $40,000 per year for gasoline, food, car repairs, amusement park season passes, meals out, furniture for house, utility bills, smartphone charges, and the like. In addition to the expenses listed above (daycare, mortgage, retirement savings, etc), we do not spend anything else on an annual basis.
Could you break this out line by line? Something like Mint would help you out a lot to pinpoint where the spending is. If you limited your eating out to $200 per month, you would be amazed at how much you save in buying groceries and cooking at home, especially if you primarily use Aldi or Costco. How long are your commutes to work and how much do you drive otherwise? With what kind of mpg? Amusement park season passes are a luxury item. Furniture doesn't need to be constantly replaced. If you have a lot of wi-fi access and don't mind waiting to use data until you're in wi-fi range, you could both get a plan for $50 per month total if you're careful with data.

There are certainly ways to cut all of these costs at your spending level. My wife and I could probably get by on half of that for those expenses and not feel a loss of standard of living. As others have pointed out though, it is much easier to increase spending than to cut it. You have to look at what you are trading off for (wife at home) and make a value judgement.

avalpert
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Re: How to live on $110,000 less income each year?

Post by avalpert » Mon Jun 06, 2016 12:53 pm

miamivice wrote:
Also, would it be smart to go from owning a nice house to renting a small multifamily place? I'm not thinking that would be a wise financial move.
How could it not be wise financially to downsize from a 'nice house' to a 'small multifamily place' unless the nice house is significantly undervalued or the rent in the small multifamily place way out of line?

The relevant question is whether the lifestyle change is something you want.

Pdxnative
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Re: How to live on $110,000 less income each year?

Post by Pdxnative » Mon Jun 06, 2016 1:09 pm

Op, you probably spend a lot more on nickel and dime discretionary and non-discretionary than you realize. Just as an example, a new set of tires or a root canal (or routine housing upkeep like painting, new water heater, etc.) can easily disappear in the monthly bills when you are spending 150k+ annually, but become big budget-busters when you are spending 70k or less. Maybe this is all part of your 36-40k or maybe not; only you would know. I suspect you may be overlooking items because they seem small within your current budget.

Best way to decide if this change would make sense for you is to start with housing. Can you find a place you would want to live, in a good school district for your kids, at a monthly cost that would fit into a new budget? if so, start with that cost and build a new budget, then look at credit card and bank statements for the last 6-12 months and see which items you've left out (annual life insurance payments, that once a year gutter and window cleaning, the one-time timing belt replacement, etc. Also, keep in mind that the absence of day care will not reduce costs to zero; you would likely want pre school of some sort, and play groups and other activities can end up costing$). Then try to live on that new budget (excluding taxes, housing, day care) for a while.

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Re: How to live on $110,000 less income each year?

Post by mak1277 » Mon Jun 06, 2016 1:15 pm

OP, do you and your wife both eat lunch out while working? Do you eat out a lot for dinners/on weekends? That could be a significant difference in your comparison. The difference between 2 people eating lunches out vs. taking your lunch could be as much as 4-5k per year, not to mention the savings you'd get if you cooked most dinners at home vs. eating out.

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miamivice
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Re: How to live on $110,000 less income each year?

Post by miamivice » Mon Jun 06, 2016 1:23 pm

cpw84 wrote:
Could you break this out line by line? Something like Mint would help you out a lot to pinpoint where the spending is. If you limited your eating out to $200 per month, you would be amazed at how much you save in buying groceries and cooking at home, especially if you primarily use Aldi or Costco. How long are your commutes to work and how much do you drive otherwise? With what kind of mpg? Amusement park season passes are a luxury item. Furniture doesn't need to be constantly replaced. If you have a lot of wi-fi access and don't mind waiting to use data until you're in wi-fi range, you could both get a plan for $50 per month total if you're careful with data.
No, I can't break it out line by line very easily. I just don't have the time or desire to use Mint.com regularly and update categories. Plus, we do a lot of shopping (probably $18k/year) at a variety store where you buy groceries, household goods, kid goods, and the like that the transactions don't tell the story on what was actually purchased.

I agree that amusement park season passes are a luxury item. I think it's something we can afford today but not sure if we can at a reduced budget. That is the type of trades that I am trying to consider.

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miamivice
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Re: How to live on $110,000 less income each year?

Post by miamivice » Mon Jun 06, 2016 1:26 pm

avalpert wrote: How could it not be wise financially to downsize from a 'nice house' to a 'small multifamily place' unless the nice house is significantly undervalued or the rent in the small multifamily place way out of line?
Well, the home I am in has appreciated by about $140,000 in the 4 years that I've owned it. I've probably paid out about $100,000 in taxes and interest, plus will have a little maintenance to do.

The net is that I've lived in my home for free for the past 4 years. If I rented at $1500/month, I would in the hole $72,000.

My quick analysis indicates that it is better to own than to rent....

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miamivice
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Re: How to live on $110,000 less income each year?

Post by miamivice » Mon Jun 06, 2016 1:27 pm

yellowgirl wrote:
Oh, I get it. Are you complaining that you guys are making too much money?
No, we don't have too much money. I'm seriously trying to figure out how I can make ends meet if I make a certain lifestyle change.

DTSC
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Re: How to live on $110,000 less income each year?

Post by DTSC » Mon Jun 06, 2016 1:29 pm

Also, your friend might be racking up thousands of dollars per year in credit card charges to keep up appearances. You never know.

Hikes_With_Dogs
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Re: How to live on $110,000 less income each year?

Post by Hikes_With_Dogs » Mon Jun 06, 2016 1:29 pm

Jags4186 wrote:I find this thread somewhat amusing. Someone who makes nearly 400% the average household income wondering how someone who only makes 60% more than the average household income survives.
+1 - the op is asking about how 75% of the population lives or so... seems rather silly.

OP, did you ever make LESS than you make now? When I was a graduate student, I made 14k a year. I made it work. Now I make a metric ton more than that. I live a lot higher on the hog, as well. But I remember the transition that took place also.

The nicer house, going out to dinner and not looking at the prices, buying the shoes I want. I remember clearly what it was like to not have any money to spare. The kid, the daycare, the 529 plan... it all adds up.

If you want to live on 80k a year, budget for 80 k a year, it's not that hard.

Hikes_With_Dogs
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Re: How to live on $110,000 less income each year?

Post by Hikes_With_Dogs » Mon Jun 06, 2016 1:29 pm

miamivice wrote:I'm seriously trying to figure out how I can make ends meet if I make a certain lifestyle change.

It takes sacrifice. What are you willing to give up?

avalpert
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Re: How to live on $110,000 less income each year?

Post by avalpert » Mon Jun 06, 2016 1:32 pm

miamivice wrote:
avalpert wrote: How could it not be wise financially to downsize from a 'nice house' to a 'small multifamily place' unless the nice house is significantly undervalued or the rent in the small multifamily place way out of line?
Well, the home I am in has appreciated by about $140,000 in the 4 years that I've owned it. I've probably paid out about $100,000 in taxes and interest, plus will have a little maintenance to do.

The net is that I've lived in my home for free for the past 4 years. If I rented at $1500/month, I would in the hole $72,000.

My quick analysis indicates that it is better to own than to rent....
Your quick analysis is leaving out a lot. What percent does that $140k represent - what would you have made if you had invested the equity in something else? What would you have made if you rented out your house - is it more or less that the $1500/month to rent a smaller home to live in? See you haven't been living in your home for free, you have been living in it at the cost of foregone rental income.

If you are spending $25k a year at a minimum, and rent would only be $18k it is clearly cheaper to rent. The only remaining question is if investing in the house is better than alternative investments (and from an expected return perspective the answer is almost certainly going to be no).

halfnine
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Re: How to live on $110,000 less income each year?

Post by halfnine » Mon Jun 06, 2016 1:45 pm

It could be that income is also just part of the story. Years ago, I had a co-worker making about 80K but his net worth was closer to 2 million. They didn't need a high income to get by so his wife stayed home with the kids as well.

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Re: How to live on $110,000 less income each year?

Post by eog » Mon Jun 06, 2016 1:46 pm

You have to figure out what your current spending is. It doesn't have to be too detailed. Try to figure out what you spend for major categories such as housing, cars, utilities etc. Then you need to figure out what you are wiling to spend less on and whether or not that is worth it to you and your family to make that change. It will probably mean not having as nice of a car, not eating out as much, not as many vacations, not shopping at whole foods and possibly not saving as much. Sure many people live for less than 80K a year but going from budget of 190K to 80K is going to take some serious adjustments in the way you guys handle your money.

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Re: How to live on $110,000 less income each year?

Post by Jeff P » Mon Jun 06, 2016 1:52 pm

I take it by your lack of response that you don't contribute pretax to retirement? Cause that closes the $28k gap right there.

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wander
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Re: How to live on $110,000 less income each year?

Post by wander » Mon Jun 06, 2016 1:57 pm

It always goes back to one simple truth: it's not about how much you make, but it's about how much you save. You do your math. I know people who can make $190,000 should be good thinkers.

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