Earning $250K Per Year, And Learning How to Not Live Paycheck to Paycheck
There is no shortage nowadays of couples earning $100k, $200k, or even $500k and living paycheck to paycheck. The numbers only seem to be getting worse.
Overall, the national average card debt among cardholders with unpaid balances in December 2022 was $7,279 with an average APR of 21.19% (3rd QTR 2023). The median US home sales price was $430,300 as of the third quarter of 2023 with 30-year fixed-rate interest up 7.89%. If you think that’s high, auto loans aren’t too far behind, hitting a record $1,000 per month as of QTR 2 2023.
With student loans in the mix, the average American household is spending $3,000-$4,000 per month on fixed expenses. That’s around $40,000 in flat debits annually while the 2022 median income of a full-time employee falls to $54,132 per year. This brings the burn rate to nearly 85% (after tax). Unfortunately, this explains why most people feel squeezed. Add a dab of hourly social media FOMO, the two-income trap has been activated.
As you can imagine, this narrative plays well for social media. But, it doesn’t have to be that way.
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High Earning Not Quite Rich Yet, But Spending
Earning a high income is one thing, you would think this solves the money-expense problem but it doesn’t.
My wife and I fall into the HENRY (High Earner, Not Rich Yet) category. Another social media made-up term, HENRYs typically earn a high income—anywhere from $100,000 to $500,000—but spend a large portion of their earnings on expenses and extravagant discretionary purchases rather than on wealth-building through investments.
Consequently, many find themselves spending on inflated lifestyles loaded with long-term debt trappings. In the end, bad money habits turn bigger paydays into higher debt limits. In contrast, the true goal is to live a life well-earned with high-value experiences, surrounded by people you love. That kind of life has no dollar range.
My wife and I are making nearly $250k per year and aren’t living paycheck to paycheck. Why? Simply because we don’t want to. You don’t have to (either). We will break down in detail where our money goes (later on), however, the old adage is true.
Money can’t buy you happiness. It just buys you more stuff to be unhappy with. But this doesn’t mean that poverty will help you reach nirvana either.
How Much Does it Cost to Live in the Mid-East?
Based on the US Bureau of Labor Statistics, the 2022 average annual income was $94,000 before taxes (up 7.5% from the prior year). This amount would be more than enough for a family living in a mid-sized city. However, our family lives in the DMV (District of Columbia – Maryland – Virginia).
In this area, that’s just about enough to prepare financially for the future, however, a big paycheck can’t outperform over-the-top lifestyles, fancy restaurants with bite-sized meals, and weekend boozy entertainment.
Washington, D.C. is the fourth most expensive city in the US and a bastion of eateries paired with casual costly $5 per hour parking.
With a cost of living 53% higher than the national average, according to the US Bureau of Economic Analysis, Personal Consumption Expenditures by State, 2022, expect to pay as much as $85,732 per year.
Housing costs are on a whole other level; 144% above the national average, with utilities are 18% higher, and transportation is 10% higher. The Mideast is shaping up to be very expensive. To offset this, employees are compensated (sort of).
In 2023, the median income in the DC Metro area was $152,100 for a family of four and $106,500 for a single-person household. The DC Metro area’s median income increased by about 7% from the previous year. Here are some other median incomes in the DC Metro area:
- Washington, DC: $134,091
- Maryland: $90,203
- Northern Virginia: $140,511
- Residents aged 25 to 44: $109,135
- Residents aged 45 to 64: $97,226
Not sure how much it helps with the average 3-bedroom going for $600,000. As of 2023, my wife and I earn nearly $227,500 in annual gross salary (dual income) and around $10,500 in out-of-state rental income. But prices are going up (another 4%)!
So How Much of That $250,000 Paycheck Do We Get to Keep?
Over the last 10 years, I’ve been chronicling the path from zero to automatic millionaire status.
While we didn’t start off making $250k per year, my wife and I learned some incredible lessons along the way. When it comes to personal finances, “Cash Flow is king.” At this rate, we are able to pull a near 30-30-30-30 split of Investments, Fixed Living Expenses, and Debt Repayment. Followed by an extra 10% in taxes.
Savings anywhere from 30%-40% annually translates to retiring earlier than most Americans. Our goal is financial freedom so that we can explore and do some real good in the world.
How you use your paycheck is critical to your financial journey
Most people reduce personal finances to either complicated math or just investing in a perfect stock. It’s involved if you want to hit F.I.R.E. (financial independence and retire early) but it is quite simple to apply. Spend less than you make and invest to our advantage. This is why we start off on the left-hand side of the equation.
By making investment contributions into our 401ks, we earn an extra $10,000 in matching contributions from our employers. The match alone, invested at the historical average of 8%, is worth over $500,000 over a 20-year career.
Refer to our Quarterly Investment Google sheet, if you want to see our investments in near real-time.
These contributions also translated to bigger tax savings along with capital gains growth.
On the right-hand side, we have our expenses. Our total housing costs, for two mortgages, ends up being $2,775 per month. Food costs creep in at around $900 per month with utilities setting on average at $525 per month. After that, we have the miscellaneous expenses, along with our travel, in which we dish out about $20,000 per year.
In total for 2023, we are coming out of pocket $115,050 after taxes for expenses. That being said, every year is not always this expensive. We incurred higher than average medical and dental costs, as well as electrical repair costs. My wife has Type-1 diabetes; it’s perpetually expensive.
By all accounts, we are still living a good life. It would be disingenuous to say that we are struggling. We are blessed with how we process the world. We stretch our paycheck where needed. Some of the areas we save on, include my wife doing her own hair, meal prepping, and not going out for the heck of it. I was also trained by brutal Marines; I’m built to endure about 3 years of isolation at this rate.
In the end, we really strive to be intentional about what we love to do. It’s more fun than just going with the flow (or what’s trendy). Nothing is more costly than spending for social acceptance. It’s way too flighty to keep up with, and most celebrities and influencers end up broke.
It’s Always Been More Than Enough for a Comfortable and Happy Life
Our primary home is a 1,000 sq ft 2-bedroom condo and we also have two cars. All four combined are still less than the median rental in the DMV. That slight advantage is extremely valuable. Instead of cutting back on small subscriptions (which also works), you will really start to cook by slashing big-ticket items.
Travel, for us, is a super splurge.
It’s definitely not a NEED however it’s still something we value. We are even starting to jump into the Micheline experience (overseas). Instead of micro-dates every week, we casually date when we feel like it. This ends up freeing space in the budget for unique travel experiences. I still can’t get the back alleys of Sevilla or the castle stay Quebec out of my mind. And those are just two of the many great locations that we’ve been in.
It doesn’t mean you need to go far for unique eats. Some local places we love include Junction Bakery & Bistro. We opt for cozy and happy over opulent and expensive. For us, life is about the experiences and the people. You can be in a high-priced establishment and still be pretentious and cold. So, opt for the better value overall.
Investing More, Paying Down Debt, and Giving Is Easier
Because of our ability to save and cut costs in the places that matter, we are able to save $7,000 per month. With our current balance, investing at this level means that we can retire early with a portfolio worth over $4.5M in 15 years. It’s a no-brainer for us. Besides, the main reason that we invest more today is that we cannot predict tomorrow.
Contrary to popular belief, Americans are living to around 80. Yolo won’t cut it if you are broke by the time you are 65.
With the extra money remaining, we are still paying off credit card debt, and other consumer loans. Turns out that having a financial plan that works for you, adds more value to your life. Don’t let your spending habits trap you into a lifelong slavery.
How you value your paycheck at your income bracket, and with your ability to save, means that you don’t have to worry too much about unexpected or sudden expenses. We are striving not to overspend to give room for family emergencies. Our parents are aging, we are aging. The next big strategic move is to save as much as $25,000 in our Acid Emergency Plan.
It pays to stay prepared.
Your income as you scale up should translate to a life of fewer anxieties. Can you imagine approaching life’s challenges with more control? Hopefully, this gives a glimpse of how to move away from the paycheck-to-stress model. It’s a lot easier than advertised.
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