Ron Ronnerson wrote: ↑Sat Sep 14, 2019 10:26 am
There was recently a thread about the cost to live a middle-class lifestyle in a VHCOL area. I posted that I’m a teacher in the Bay Area and my wife is a stay-at-home parent and we’re saving half our income. People began questioning how that could be but the thread was derailed and shut down before I could respond.
Here’s my post on that thread from the other day:
viewtopic.php?f=2&t=290304&start=50#p4745967
I thought I’d answer some of the questions that were raised in response to my post and, to keep this actionable, ask for feedback on how to further improve our situation. I owe much gratitude to the people on this forum for providing guidance to us over the years.
These comments were made in response to my post:
-“115K income, live in a VHCOL and you save half your income. Seems VERY suspect. So you can live in San Fran with a family and survive off 4K a month?”
-“The older linked to post states his mortgage is less than $400k on a townhome worth more than $800k. So either bought a while ago, or got family help on the down payment and must live out in an affordable suburb somewhere.”
-“If he’s a teacher and his wife doesn’t work he need only live in a neighborhood with his school to have a reasonable commute. In areas where people are commuting to tech companies the rents and home prices get driven further up. I live in SoCal and the area around my work condos are probably $600k and homes 800 to 1M. And it’s not even the fanciest part of town.”
-“I don’t think many of us find it surprising that you can live in the Bay Area on $115k if you bought your home YEARS or even decades ago and have a stay at home spouse providing free childcare! Childcare and housing are the two largest expenses. Then there is saving for college which you barely have to do if you make $115k.”
So, here are more details about us (in response to the comments above):
We’re mid-40s with a five-year-old. We bought our home in 2010 (new construction) for $500k and did not have family help. We made around $125k at that time and put down 3% (no PMI due to a teacher loan but nor did the loan allow for a larger down payment). We live in the tri-valley in the Bay Area (Pleasanton/Dublin/San Ramon/Danville area). We refinanced in 2012 and have a 30-year fixed-rate mortgage with a payment of $1810. We paid down the mortgage by another $50k or so when refinancing to get the best terms.
Our home is now valued around $825k and we owe $354k. We also pay $10k/year in property taxes (which comes to around $840/month), $290 in HOA dues, and a bit for insurance and repairs. In total, our housing costs around $3100/month. We got lucky with the timing of our house purchase and that shouldn’t be discounted. However, our home would rent for around $3700/month so someone moving here today would only pay a bit more than we are for the same home (though, of course, they’d be renting instead of owning). The median home price in my zip code is $1.2 million.
I live in the East Bay but commute toward Silicon Valley for work. While I do have a commute, it’s not as bad as it could be. A teacher’s schedule helps. I can leave around 3 o’clock and grade papers, plan lessons, and respond to messages from home. I’m also off 180 days a year and have been carpooling the past couple of years too.
Our childcare costs are low because my wife doesn’t work but our household income is a lot less as a result of that too. My wife wanted to spend time with our daughter while she is young so we’re making things work on one income these days.
We actually are saving for our kid’s college but in retirement accounts since we’ll be old enough to tap retirement accounts without penalty when the kid goes to college. My pension, which is expected to be about $100k/year around age 60 (with COLA and 100% survivor benefits) should pretty much cover our retirement expenses. We’ll also get social security and our house should be close to paid off by then.
Annual Contributions/Savings:
I max out my 403b and 457b for a total of $38k (low-cost Vanguard funds). I also contribute $11k/year toward a pension and $11k/year is going toward mortgage principal. We contribute a little bit toward a traditional IRA as well. The total savings are a bit over $60k/year. We do count mortgage principal as savings.
By putting $50k+ into tax-deferred accounts, our MAGI becomes low enough that we qualify for a premium tax credit on the health care exchange that’s worth around $15k/year. My employer, a large school district, provides no health benefits. This is not uncommon in the region (a fact that surprises some). Health insurance is the reason that we are not contributing into Roth accounts at this time.
Our Assets:
•$50k in checking accounts earning 4% at Orion Credit Union
•Mid-six figures in retirement accounts, including $250k in Roth IRAs
•Townhome valued around $825k with a mortgage balance of $354k.
•Two relatively new Toyota Corollas that were purchased with cash
Our Monthly Expenses:
Mortgage Payment: $1810 (half of this goes toward mortgage principal)
Property Taxes: $840
HOA: $290
House Cleaning: $120 – done every 3 weeks
House Repairs/Maintenance: $50 (a good friend helps me with repairs if I buy him lunch)
Cable/Internet: $128 (AT&T U-Verse 200 package with HBO and 100mbps)
Electric/Gas Bill: $140
Cell Phones: $40 (Mint Mobile for two phones)
Water bill: $35
Garbage: $20
Health Insurance: $226 (subsidized)
Auto/Homeowner’s/Umbrella Insurance: $185
Life Insurance: $150 (super preferred rates, 30 year terms for both)
Gas for cars: $160
Car Maintenance/Repairs/Registration: $80
Groceries/Household Items: $800
Vacations: $100 (vacations are mostly paid for by churning credit cards for miles and points)
Restaurants: $250 (we go to inexpensive places like Chinese restaurants or Subway)
Clothing/Shoes/Hair/Nails: $50
Pets: $30
Entertainment: $50 (we tend to do stuff that doesn't cost money like go outside or to the library)
Union Dues: $100
Long Term Disability Taken from Paycheck: $30
Medicare: $130
Federal Income Taxes: $140 (about $1700 for the year)
California State Income Taxes: $0 (we itemize on state taxes and take 3 exemptions for 3 family members and this eliminates all liability)
Misc: $150
TOTAL: about $6100 ($73k a year total but $11k is for mortgage principal so expenses are really $62k)
Our savings plus expenses (including all taxes) are about $125k. My job pays $115k. We make up the $10k difference by churning credit cards & bank accounts for bonuses and through gifts we receive.
We live very comfortably - drive cars that we bought new, have cable TV with lots of channels, have iPhones, go on vacations, go out for meals and coffee sometimes, have a house cleaner, and I wear decent shoes.
My Questions:
1) This forum has always stressed the importance of living below your means. I’ve tried to follow that while still enjoying some of life’s luxuries. My budget is fairly accurate as I monitor expenses closely. Are my numbers so strange that it causes people to not believe them?
2) Should I start saving for appliance/car replacement or is just having an emergency fund adequate?
3) Is there anything that you see which should be changed or could be improved upon? (we're not getting rid of the house cleaner!)
Thanks again, forum.
Ron Ronnerson
EDIT: Thread was revived on 3/24/2021 so I have posted an update on that date (post #517)
I've updated again on 12/31/21.