There really is a big difference between comfortable middle class income and upper middle class income

One of the things that annoyed me about some advice for working women is the insistence that if you were making more than 100K you should just buy all the things that make life easier, with an underlying current of it being ridiculous if you didn’t.  The person giving this advice, of course, has a husband who makes substantially more than 100K on top of her own 100K+ income.

During our brief time when DH and I were both employed full-time and we were making upper-middle-class $$ (remember all those irritating posts on “what should we do with this extra money now that we’ve maxed out our 401K” etc.), it became really easy to see why when you’re making that much it is easy to believe that just spending money is the solution.  When you’re making upper-middle-class incomes for long enough (and don’t go crazy with spending on really big ticket items) you really can just say yes to everything.  You don’t have to worry about having a large precautionary cushion because in the case of an emergency, next month’s income will refill the gap, or maybe the month after that.  The answer is always, “yes, we can afford that — even if the roof falls in tomorrow, we’ll be fine.”

But now we’re back to having a comfortably middle-class income on my income alone.  Technically we’re in the long unpaid summer, so we have 0 income, but even with DH employed I saved up for the unpaid summer in case he lost his job (and in this case we saved a bit more than that because we knew there was going to be a layoff… and we, you know, had extra money after maxing out retirement).  And now if we want to spend randomly large amounts of money on something, we have to think about it.  We can have some of the things but not all the things.

So… we could get a new car, that’s in our emergency fund (recall mine is 12 years old and has been having regular issues, DH’s is 11 years old but seems fine), but we couldn’t do that and renovate the kitchen, unless we wanted to sell stocks, at which point we’d be depleting our secondary emergency fund.  So, technically, we could have both, but potentially sacrificing our future security for wants.  And since we spend close to my take-home pay when I have income, it would take a while to replenish our emergency funds without cutting back.  We could buy a refrigerator even though the old one isn’t broken and/or I could see a dermatologist to get skin-tags removed and/or hire a personal trainer and/or have someone else fix our sprinkler system and/or eat out every day and etc. etc. etc. on top of all the things we already spend money on but we can’t do all of those things without dipping into savings or cutting down on our tax-advantaged savings.  We have to make choices that involve money, not just time or desire.

We have to think about where on the need/want spectrum something is.  And thinking about that takes effort.  It’s easiest to default to “no” unless something is important or the cost truly is low.  And yes, sometimes it is worth it to pay for help– DC2 is still in daycare even with DH laid off.  But that doesn’t mean that decisions are obvious and easy.

This is true even if we’re still spending a little bit under what we earn, because we can’t predict emergency expenses in the future.  When the gap between earnings and spending is really large, the emergencies aren’t that important.  When the gap is small, those emergencies could set you back, so ironically, you need a larger emergency fund when you earn less than when you earn more (assuming similar spending).  And it’s harder to refill that emergency fund with a smaller gap, meaning you have to cut back more on spending when you’ve got an emergency.  But most likely, the spending that you’re cutting back on is stuff you wanted less than any new thing or service that you think you might want but haven’t purchased yet.

So no, I’m not saying that people making 100K shouldn’t buy things that make their lives easier.  Just that when you’re making 2 or more times 100K, it’s nothing to say “are you crazy, why wouldn’t you buy that?” Purchasing “that” is a bagatelle in comparison to income.  But when you make less, you have to prioritize and not just on really expensive luxuries.

I’m also not saying that 100K is nothing!  It’s a comfortable income in most of the country (yes, you probably do need a bit more to comfortably support a family in some coastal cities, though probably not as much as most people who complain will tell you) that pays for all of your needs, lots of retirement savings, and lots of wants.  But not all the wants.


29 Responses to “There really is a big difference between comfortable middle class income and upper middle class income”

  1. Sarabeth Says:

    We did a similar transition about a year ago. My husband took a non-profit job, cutting his income in half. We are still in the top 20% of HHI in the country, so we’re totally fine. But we’re in a MCOL area and pay a ton for daycare, so it’s definitely no longer the case that we can do pretty much whatever we want – which we could before, because our tastes aren’t extravagant even when we have money to burn. We don’t have a house cleaner anymore, though we are planning to add that back in as soon as the older kid starts public school. Before he switched, we did save up enough money to renovate our kitchen – which needs it BADLY – so we’ll probably go ahead and do that (we’ll still have a solid emergency fund), but we won’t be making any other substantial purchases for a few years. And we do still spend money to make our lives easier. The biggest example is that our kids are in the excellent daycare that is on my university campus – we could save several hundred dollars a month if we were willing do drive them to one of the other excellent daycares across town. But that would mean an extra hour and twenty minutes in the car for one of us every day, and we’d much rather save that time while cleaning our own house.

  2. SP Says:

    Very true. Who are these people giving these edicts?

    My guess is you can support a family in my coastal city with $150k, but housing is a big question. If you bought your house 10 years ago, the number goes down. If you bought it today, it may go up. If you go to the most expensive part of the bay area, it goes even higher.

    • nicoleandmaggie Says:

      I don’t want to get into an argument about coastal cities, but 150K is fine if you’re willing to rent (even in a good school district). You can get pretty decent housing for 5K/mo and less if you’re willing to shop around (which presumably you would be if you were staying a long time). There are a lot of lazy landlords in CA who charge under the going rate in exchange for tenants who don’t complain (which they can do because their property taxes aren’t at market rate). You can’t live in a 3000 sq ft mcmansion, but you don’t really need to either because everything is walkable.

      • SP Says:

        I wasn’t arguing, just throwing out a roundish number that I probably can’t even defend :) I think 100k sounds hard, but 150k seems not too bad… I suppose there is some number between there that is also workable, and I’m sure there are people doing it on 100k… Lots of variables

        I feel we are leaning more towards upper middle class for the moment, but it feels impermanent, so we are mostly trying to minimize future risk (increasing savings, etc.)

  3. chacha1 Says:

    “you need a larger emergency fund when you earn less than when you earn more”

    This is SUCH an important point.

    We have never achieved “upper middle class income,” but have been in the “comfortable” range for a long time. BUT only because we didn’t try to buy a house in L.A. There has never been a time when we have not (well, mostly me, but occasionally also the husband) balanced wants and needs, and chosen not to spend money that we “could” have spent.

    • nicoleandmaggie Says:

      Buying a house in CA is a scary thought. I mean, it’s nice for predictable monthly outflow that you guys have prop 13, but just the sheer size of those monthly mortgage payments is intimidating if one doesn’t have guaranteed job security or a ton of money in easily accessible savings.

      • chacha1 Says:

        A large two-bedroom apartment in our neighborhood just listed for rent for $3825/mo. Buying the comparable square footage (1700 sf) would be more like $7000/mo even with 20% down.

      • nicoleandmaggie Says:

        That is a big difference– one of them we could handle in the event of a job loss, the other we couldn’t!

      • Linda Says:

        That is a huge difference! How is it possible that an apartment can cost that much less than an owned home?

      • gasstationwithoutpumps Says:

        Linda, the price/annual rent ratio varies in different markets, depending on the demand. In San Francisco, it is about 45.88, while Detroit is 6.27.
        In SF a place renting for $3825/month would cost about $2.1million, which would call for a monthly payment of about $10,300 (4% 30-year with 1.25% property tax, which is probably too low for a newly purchased place in SF).

        Rental prices vary much less between markets than purchase prices do.
        When price/rent ratios are high, people sell houses rather than renting them out.

      • Linda Says:

        I’m still missing something here. I think chacha1 is in the LA area, and that charts shows LA at 38.02, but that still doesn’t make sense of such a large disparity.

        I’m not in SF itself, but in the greater Bay Area. I’m far enough away from SF that prices are lower, but still quite high compared to other areas nationally. The difference between what I’d pay in rent and what I’m paying for a mortgage + taxes is only about $500 a month for a comparably sized house. Chacha1’s example is nearly twice as much. That astounds me.

      • nicoleandmaggie Says:

        I think the key missing thing is that in CA you have prop 13 which means that many landlords are paying trivial amounts for property tax. That distorts the rental/purchase market by making landlords more likely to hold onto properties because they’re getting a discount on the future costs that new owners would have to pay, so fewer units are available for sale, and older landlords don’t need to raise rents as high as they would if they were paying more for property tax.

        Which isn’t to say there aren’t distortions in markets that have property taxes at value, but they’re probably much less stark.

      • nicoleandmaggie Says:

        (There’s a lot of variation in what Chacha’s talking about in the bay area as well– though maybe not so much in your market for whatever reason.)

  4. CG Says:

    Great post. Your post and chacha1’s comment also both underscore the importance of not immediately scaling up your spending to match your income as it increases. Always living below your means (and I don’t mean anything drastic here) can reduce the chances you’ll get into a bad financial situation if one partner loses a job or is unable to work, and also preserves options if one partner chooses not to work for a period of time.

  5. Linda Says:

    Oh, yes. Single earner here, so my need to have a robust emergency fund is critical. I don’t have a partner’s income to fall back on if I lost my job or were unable to work for some reason. I make a very, very good income, but since I am now in area where housing expenses are high I have to manage my expenses carefully.

    I don’t have LTD insurance that will 100% replace my income, and I’ve had a few health challenges in the past few years that have ratcheted up my anxiety about this. (I tried to get LTD insurance after my divorce in 2009, but was denied by two different companies and advised to wait a couple years. With my current medical issues, there’s just no point in even trying.) I do have LTC insurance, at least, and I’m pretty sure my current retirement savings will be enough to live OK.

    Even though I have no children or dependents, I’m actually supporting three on this single income: current me, future me, and an elderly dog. I’ve been allowing the latter to eat up most of my monthly discretionary income, so my savings rate (beyond retirement savings) isn’t that high right now. I know this is a choice, and I sometimes think I need to stop her monthly acupuncture treatments and switch her to cheaper food, but…well…then I see how much she struggles on walks, or how her stance shows her pain, and I just can’t bring myself to taking away the things that bring her a small measure of relief.

    I recently had to pay out of pocket for a surgery I really needed on my eye. My health insurance company was/is being not helpful and I couldn’t wait for them to get to their act together. (This wasn’t impatience on my part; delay meant I would lose more vision, and I feel that I’m too young to lose more than I have already.) That meant I had to dip into the money I had set aside for house maintenance/repairs that are really needed before winter. This is not my emergency fund money, because I think that should be reserved for income only if I lost my job; it is money I saved from my tax return. Now I’m hoping I get reimbursed by health insurance before the winter rains come.

    • nicoleandmaggie Says:

      LTD is harder to get outside of employment– there’s a lot of adverse selection in the non-group market. With LTC, there’s the advantage that a lot of people who get it die before using it which lowers costs so the death spiral isn’t triggered (it’s still a big and very official “puzzle” why more people don’t purchase LTC insurance– lots of papers written on the topic in economics).

      Pets are important! We’re definitely guilty of spending a lot on ours.

      Good luck with the reimbursement! That’s really scary about them being medically slow on getting their act together.

      • chacha1 Says:

        I’m not getting LTC insurance because I don’t want LTC. It almost always means “nursing home care” and I would rather die than live in a little box with no pets, none of my stuff, no peace & quiet, and no physical freedom. My parents feel the same way.

      • nicoleandmaggie Says:

        That definitely makes sense. After watching my MIL deal with DH’s mom’s decline from Alzheimer’s and eventual death from kidney failure, I have a much stronger understanding about what I will want if/when I get to that stage. (Whereas I didn’t when we put together our wills.)

      • Linda Says:

        If there’s anything I’ve learned from my (relatively minor) health challenges over the past three years, it’s “never say never.” I didn’t interpret LTC to mean exclusively nursing home care. And even if it did, I think the standards for that type of care have been changing over time. A local friend had to spend a bit of time in one of the facilities in town while she recovered from some surgery and it was surprisingly home-like and nice. They had animals on site (a bird, a cat, a dog, and fish), allowed her own dogs to visit, and had a lovely inner courtyard with a garden. The food was freshly prepared on site and not institutional-like. This was all covered on her Medicare, too, so it wasn’t super pricey. I have no dependents who will take care of me if/when I need such help and with the way things are going I won’t have a partner to do so, either. I’m going to have to pay someone to do it. The LTC insurance should cover that, I hope.

      • Shannon Says:

        I used to think never about assisted living too, until my FIL moved into one – sort of. My MIL died, leaving him home alone in a big suburban house. He was lonely. So he moved into one of these facilities. Right now, he is living independently in his own apartment, but he’s surrounded by people his age who he is now friends with. He bowls in a Wii bowling league, eat breakfast with the guys, etc. He’s WAY happier now than when he was. The facility does not allow residents to get new pets, but they do allow residents to move in with existing pets.

        And if he gets ill or needs more care, there are other parts of the facility that he can move into – memory care, assisted living, etc. It will allow him to maintain his friendships while still getting the care he needs. Right now, he pays for his apartment as he doesn’t medically need it, but between his savings and the proceeds from his house, he’s fine (he’s a VERY frugal man). LTC insurance will kick in once he needs the care this place will provide.

        I guess what I’ve learned (for me) is that if you’re thinking about this as a potential option, don’t wait until you you absolutely need it. There are a lot of options out there, but none of them are cheap. Do your research and plan on what option may be best for you. And then maybe save a bit extra in case you change your mind.

      • nicoleandmaggie Says:

        With my grandma, she waited too long to try to move to an assisted living community, so by the time she was ready she was no longer a viable candidate because her Alzheimers had progressed too much. I’m hoping that my parents will have taken away from that lesson and will move to one of those step communities (where you start in active living, then assisted, then nursing home, all with the same group) before it’s too late.

  6. Leigh Says:

    Thanks for sharing your thoughts here – I find them fascinating to read! I’ve been thinking along these lines lately as well.

    • nicoleandmaggie Says:

      It will be interesting to see where the next chapter of your life takes you!

      • Leigh Says:

        Agreed! I’ve been learning recently that my parents being so anti-education had a huge influence on why I didn’t go to grad school when I was younger. I’m really surprised my sibling and I both have Bachelor’s degrees even. (One of my parents didn’t graduate high school and the other only finished high school, no education past that.)

  7. Revanche @ A Gai Shan Life Says:

    We both make really good money but I still MUST have a robust emergency fund. This year’s money events showed me that we’re not ready to absorb a truly expensive life altering situation.

    I doubt that, unless we were each making more than $1M each a year, I’d be able to sustain the feeling that we can just buy the thing that makes our lives easier. Especially with the new mortgage! That alone reset all my “we are stable” flags down to “No, not so stable” in case of job loss or any catastrophic situation. This is why I’m looking for extra LTD insurance. If one of us was injured or ill enough to lose a job long term, our situation won’t be affordable.

    We’ll see how I feel this time next year if we stop working on the house for 12 months after we move in.

    LTC – I’ve wanted to but hesitated to buy it in the past because there were too many question marks, aside from the high cost I couldn’t take on yet. I wasn’t sure how to determine if a company was reliable enough to be around by the time we need it. I can now assume we’ll stay in CA long term, so that’s one question answered (what if we leave CA? It’s always possible but unlikely at this point). Recommendations are welcome if anyone has LTC or LTD insurance!

  8. Sandy L Says:

    I distinctly remember a female executive that gave a work/life balance speech during a networking event and she suggested outsourcing your whole life outside of work. Nannies, gardeners, housecleaners. I didn’t want to be working so much that I didn’t have the time to do basic household chores. The work life balance tips seemed to be missing the life and balance part of the equation. (I do have a person who cleans 2/mo though.) It was a condition of living together. Husband wanted one so we wouldn’t fight over dirty toilets.

    We have 2 good incomes but still feel like we can’t buy everything at once. We are also doing pay as you go big ticket house repairs and as much as I’d love a done house, I don’t want a home equity loan, so it’s save up then do a room, rinse and repeat. Most people are comfortable borrowing for stuff like that. I am not.

    I find that being a sandwich generation person also affects this. I pay a crap ton extra on housing to have an in law apt.

    Yes. There is a big difference between making $100k vs $200k. One of us took a $30k/yr paycut and it was felt immediately.

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