How much money do you need? Let's start with $100K

It's no wonder that people, even those who make an upper-middle-class income, aren't saving for retirement and are spending all that they earn.

By MSN Money Partner Aug 29, 2014 1:31PM

This post comes from Bob Sullivan at partner site Money Talks News. 


Money Talks News on MSN MoneyEditor's note: This is part of a series by Bob Sullivan called The Restless Project.

Family eating burgers © Bananastock/JupiterimagesIt seems like a simple enough question: How much money does a normal American family need to afford to be … normal? You already know what I'm about to say next: Coming up with a realistic average family budget is fraught with peril.

There are obvious geographic problems: What's normal in New York City is not normal in Omaha. There are honest questions about what "need" is: Some parents feel their kids need private school, others don't. Is normal a three-bedroom house in a leafy neighborhood, or an apartment? So it goes.

A brilliant professor friend of mine named David Cloutier, who is working on a book for Georgetown University Press about luxury, kicked this question around on Sunday. His research addresses the issue that people often confuse need and want, and this leads to all sorts of trouble, including financial trouble. (Here's one of his essays).

Of course he's right: We all know folks who spend too much on granite countertops, Wolf ovens, Cadillac Escalades, and a fourth bathroom. On the other hand, I am often in the position of defending middle-class Americans who are slowly slipping further and further behind, even while it seems like they make a lot of money.

I think they are forced to pay too much money for decent housing near decent schools, and that pretty much wrecks every budget, whether or not they splurge on restaurant food and nice shoes. Add in occasional thoughts about lack of retirement savings and college costs, and you have a lot of restless parents.

Back to this weekend's exercise. David and I discussed what kind of income an American family needs to live a normal, decent life. I want you to help us. Below, I'm going to lay out the framework of a family budget, and I want you to say what I'm missing. Or, what's excessive.

There are some ground rules to make the discussion a little more focused, but feel free to break the rules if you like. Just leave an explanation, such as, "Where I live in Columbus, Ohio, a three-bedroom apartment only costs $1,400."

Before we start, a few numbers for context. The median household income in America, the point at which half of households earn more and half earn less, is right now $53,891, according to Sentier Research, which bases its math on census data. Of course, that number stacks families in San Francisco against families in Columbia, Mo., so it's a bit misleading. An interesting starting point, however.

So here goes. For the purposes of discussion, we're talking about a hypothetical four-person household: A married couple with two children younger than 10. We're going to assume both parents work and that the family must pay for child care for one while the other goes to a medium-priced private school. They live and work near one of America's largest cities -- Washington, D.C., or Seattle, or Chicago. The goal is to come up with a number at which a family of four should feel like it's at least paying all the bills.

To make it simple, we're going to have them rent a three-bedroom apartment, rather than pay a mortgage (where they would benefit from the mortgage interest tax deduction but be on the hook for repairs and property taxes).

Also to simplify the exercise (admittedly, a bit farcically so) we are describing the amount of money a typical family spends to be normal, which is very different from income, which would be seriously impacted by a variety of taxes: federal, state, and perhaps local income tax, sales taxes, auto registration fees, and so on. This is the amount a family needs after all those taxes, and all those tax deductions, are taken into account.

Still, with all these limitations, it seems a worthwhile conversation to have, if for no other reason that it's a good excuse to examine the monthly budget, something few of us do very well. Here's my first stab at it. Note that I've gone with big round numbers to make your personal comparisons easier.

monthly budget

When I do my back-of-the-envelope calculation, I come up with a nice round number of $100,000 of spending power. Also, please note the budget includes nothing for emergency savings or retirement, which should be getting at least another 10 percent or so of this family's money. It also doesn’t include emergencies, expenses for elderly parents, or unexpected high-ticket health care costs like braces.

Personal finance columnists keep writing breathless stories about American families not saving for the future, even "upper-middle-class" families who earn between $75,000 and $100,000 annually. This budget shows why.

One adjustment this hypothetical family might make is for the older child to attend free public school and the younger child to stay home with a parent. That saves $3,000 monthly and lowers annual expenses to $63,600, but it also means the family must live on one income instead of two.

So, what did I forget? What line item is unrealistically high? How does this budget match up with your budget?

More from Money Talks News and Bob Sullivan


Aug 29, 2014 1:53PM
$2200 for rent?  That seems high, even for living close to a major metro area...

The real problem - the average household is getting kicked in the teeth from both sides.  Not only has their income dropped almost 10% in the last 5 years, but their cost of living has gone up almost 20% during the same stretch.
Aug 29, 2014 3:34PM
Important to reiterate: that is $100,000 of spending power AFTER taxes. Include taxes as a line item, and you'll see why nobody can save for the future.  
Aug 29, 2014 2:03PM
Many should think twice about having those kids. Given divorce rates, abuse rates, and poverty rates it would seem they're often not actually part of any serious thinking by the adults.
Aug 29, 2014 5:00PM
How can ones budget be 100K when Median Household income is 54K. You talk about wants and needs. I don't believe anyone needs to spend $2200 a month in rent. If that is the case downsize. Buy a big trailer house and live in that till you save enough for a down payment. My house, land, woodshed, and garage is worth about 140K. I have about 3 years to pay on it and never paid more than $450 a month on it. I started in a trailer house. I am 49. Cell phone cost can be $12 a month for 250 min and 250 texts and 10 mb data. That's all any one needs unless you need more for  your job. Any one can grow food at home to cut down on costs. Instead of house plants make it vegetables. Car and insurance. Buy a used car and you pay less on insurance also. My yearly budget if I ever figured one out would probably be less than 40K.
Aug 29, 2014 4:29PM
I must be doing something wrong.  I make quite a bit less than this example.  Pay two mortgages on two separate houses.  Go on a few vacations a year and still manage to put over 10K in my 401K per year.
Aug 29, 2014 4:28PM

Problem in this list is need versus want - let's get closer to needs..

Rent - chop 800 off that rent, you may lose a bathroom and the home office and the nicer finishes, but cut it down to what is needed. Why increase a landlord's net worth with so much of your take home? Say each are grossing 50,000 - roughly $25 per of you is working 90 hours to pay that 2,200 rent each month, roughly..keep 32 of those hours for yourself.

Cell phone - chop 100 off that, there are 4-person plans for 100/mo out there, IF you must have them. 

School tuition - drop it and spend some time with your child doing homework, it'll be ok

Clothing and other supplies, cut that in half - save 250 - bury misc school supplies here.

There, 800 + 100 + 1,500 + 250 = 2,650/mo.  31,800 per year. 

What to do with that - Save, between the 2 of you, 20,000 a year for retirement (will help bring taxable income down, saving about 3,600/yr if done pre-tax too).  Sock another 6,800 away per year in a beginning emergency fund.  Put 2,000 aside and teach yourself how to invest.  Put 2,000 toward future tuition to assist the kids in paying for their college. 8,000 each when it comes time will help, but will require THEY get some skin in the game too.

Child care is expensive, but it won't be but a couple of years and that 18,000/yr expense is gone - increase retirement savings and set some aside for a substantial down payment on a home when that ends.  To alleviate some of the expense during the early years, if you have shift options - have one spouse work earlier, the other a later shift - cut those child care expenses in half or more.

This could be a reasonable way for a $100,000 household to live normally AND look forward to retiring some day.

Aug 29, 2014 4:33PM

Interesting perception, but the real answer to his question on what's missing, well just like other posters... taxes, gas, savings and chairity. That said, what he thinks is needed may be close for some, but what I find more truthfully is that that's why our debt is so high. People think they need what they want and not really what they need. Like most posters, I could cut those cost down based on real need.


If you're living hand to mouth, look at the difference between what you need, verses what you want. Cable TV and iphones are nice, but you can't eat them.

Aug 29, 2014 5:40PM
$100k per year? If that be the case about 3/4 of the families in America got no reason to live! WOW
Aug 29, 2014 6:09PM

I'll play your game. Let's say your goal is to save 10% of your income, or $10,000 a year. - Cut out the private school ($18,000). That will do it.

If your goal is to save 20% of your income or $20,000 a year, cut out the private school ($18,000), cut out the cell phone ($2400). That will do it.

Let's say you're 35 years old. That leaves 35 years to retirement. $20,000 a year invested at 6% will be worth $2,228,695 in 35 years. How much do you need ? 

Aug 29, 2014 2:55PM
In North Texas the rent would be less and school expenses would be less.  Food and insurance would be more.   I can assure a famiily is not going to make 100,000 annually in the community where I live.  The figures still shocked me.   It is just my wife and I and we don't have most of those expenses.  Raising children is sure expensive.
Aug 29, 2014 2:38PM

Crazy numbers, for at least for 90% of the country, and no mention of all the taxes the local-state-federal governments put on you.

Most can live comfortably on half, and in fact, most do.  Out of touch and making numbers up is what qualifies as "brilliant" now?

Aug 29, 2014 5:11PM
Every where is different,  living in a rural area is more expensive when it comes to gas/commute & small town local grocery stores charge twice what a walmart would for much of the healthy food.  I live 22 miles from my community/job out in the country. We are a family of 5 (2 kids only w us half the time) & our expenses taxes incl. Some are annual expenses that ive broken down monthly:

Mortgage $1000
Home equity loan $150
Heat/electric $300
Phone/TV/Internet $175
Cell phone (2) $185
Child Daycare (1) $600
Food $475
Kids lunch/public school supplies (2) $55
School clothes/sports fees/equip (1) $75
Car loan & insurance (2) $300
Student Loan $50
Clothing/shoes $25
Car repair/maintenance $100
Toiletries/necessities $25
Home insurance $125
(Minimal) Birthday/holiday gifts $100
Gas for commute $750
400 $175

My total comes to $4,715
This is pretty bare minimum if we want to have a maintained & clean house as well as healthy meals. It does not include our annual $600 property taxes, nor does it include any emergency expenses, savings or any luxury items, entertainment activities or vacations we may occasionally try to work in!  

Aug 29, 2014 9:06PM
We had our 1st kid in private school, but when we had our second we realized we couldn't afford tuition for 2. So we sold our house and moved to a better school district. We put what would have been tuition payments towards our house budget and were able to move to a great area with great schools. Why pay taxes for education and tuition?
Aug 31, 2014 2:31PM
I'm just gonna make smart decisions with my money so I don't end up with an empty bank account:

1) Paying off my debts as they come to me. Never holding a credit card balance longer than a month. If this means living in a small studio apartment and eating ramen, rice, and beans, so be it.
2) I will always buy small, fuel efficient and durable cars. I drive a 2006 Honda Civic now. It costs me nothing to fill up and next to nothing to insure ($25/month from Insurance Panda… woohoo!). I will not drive when I don’t need to, and use public transportation whenever possible.
3) Developing multiple revenue streams. Doing side jobs. Building up small businesses. Doing contract work. Basically doing whatever I can to generate income from multiple sources.
4) Grow my revenue and assets no matter what. Make sure I am always expanding and develop them to the point that they consistently generate reliable cash flow.
5) The most important one - make as much as I can. Save as much as I can.
Aug 29, 2014 11:20PM
For $2200, you can be paying on a mortgage for a nice house and have more than enough left over for maintenance. In the Baltimore Suburbs - with higher than avg. priced real estate, you can rent a single house on a 1/5 acre for $1200 to $1400/month.  If you're saving for a house you could get an apartment for less.  Additionally, in another 5, 10, 20 years, the amount of your fixed-rate mortgage will not change much and will drop to the equivalent of something like $500 in today's dollars,
So if you're including families that have been in their home for a while, that $2200 is likely to be closer to $1000.

You're sending your "average" kid to a $18,000 per year private school?  The Catholic Schools in my area are between $6,000 and $13,000.  The public middle school my nephew attends is a Presidential Blue Ribbon school ranked 2nd in Maryland (which is ranked 1st in its schools) based on the standardized tests in math and reading.  The tuition is $0.  The public high school he'll soon attend is ranked 8th in the state and is also a Pres. Blue Ribbon School.
He was asked if he wants to attend a prestigious Catholic High School with a $12,900 tuition.  He replied that that public high school 1/2 mile from his house is rated higher, has higher avg. SAT scores, etc. and he wants to go there.

Those two things alone knock $32,000 off the money needed.

My guess is writer Bob Sullivan is too wealthy to have studied how the average American gets the best bang for the buck.

Aug 29, 2014 3:29PM
I see peole getting by on much less.  In the rural areas it is cheaper to live.   I see many living on social security only.  You can have a heart and feel some empathy or you can cold and wonder why they did not prepare better for retirement.
Aug 29, 2014 4:59PM
I though the food bill was too low, but I saw someone else thought it was too high. If both parents work, they will probably spend more money on food because they will buy lots of "convenience" foods to save time on prep and cooking.  Why do you have to live in an expensive neighborhood with good public shools if you are sending your kids to private school?  I grew up and got a great education in the public school system.  My children are getting a great education in the public school system.  I personally think that private school is a luxury that wealthy people and fools spend money on for bragging rights and social status.  I am not convinced that the average private school student gets a better education than they would in a public school.  Some of the biggest stoners I knew in college came out of private high schools. The really top notch private schools are usually good, but then the cost is probably closer to $4000 per month or more.  There was nothing at all in the budget for recreation, we all need to have a little fun...  All in all, it probably sums things up pretty well.
Aug 29, 2014 2:23PM
His housing costs are a big drain, must live in a high tax area, paid for house costing $1400/mo is excessive. Is he spending $500 a month to heat his pool for the grandkids?  Something doesn't fit on the expense side.  Middle class has been beat up continuosly over the last 10 years by big business keeping wages and salaries low , taxes have escalated as well.  Working to 70 isn't the answer either, good luck, the next government retirement plan will be to supply a rickshaw to every able-bodied senior so they can survive and keep from starving to death while the fat-cats laugh.
Aug 29, 2014 6:59PM
I'm glad I don't  have any housing costs outside of maintenance and utilities. $2200 for rent. Rediculous.
Aug 29, 2014 3:06PM

Hope in one hand and sh*t in the other and see which hand fills up first.

I make (individual) about the median income of $55k a year. After regular income taxes (federal, SS, medicare) my take home is about $3700 a month. That is reality and that is what I live on. Since you used a similar income for your family of 4 scenerio I'll grant you some child credit relief and assume neither working parent makes enough to warrent being taxed above 28% - so we'll call their income $4500 a month. 


Rent                      $1200

Health Ins.             $600

Phone                    $100

Utilities                   $300

School Tuition        $0

Child Care (1)        $1100

Food                       $350

Car                         $400

Student Loan          $500

Clothing / Misc.       $200


Total                        $4750


I'm pretty frugal and this is a scrape by on your belly budget - they're still not making it. Little Johnny is not going to a private school. Little Suzie is not going to a quality daycare, but a wharehouse. Beans and rice and rice and beans. They are screwed as most of us are with stagnant wages and rising rents and prices.


$100k is generous, but I'd say they need at least $75k to make it and not want to blow their brains out. The kids can sell drugs or maybe they can pimp the mother out.


Noone not on the dole should have 2 kids anymore - see above budget for proof.

Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
100 character limit
Are you sure you want to delete this comment?


Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.