Middle Class? Live Small, Control Depreciating Assets

If your prospects of bringing home a combined yearly salary of $125,000 or less per year, read carefully to what I’m going to write in here. Chances are very high that your family belongs to the middle class at best. Big houses, luxury cars, fancy dinners, extravagant parties and hobbies are likely to cause unwanted effects on your long term financial stability.

Let’s start with the basics. In the United States, a combined family salary of $60,000 per year is technically $48,000 or $4,000 a month after taxes. Right off the bat, American families standard of living is impacted quite substantially after taxes are taken off. No wonder why people in this country hate to pay taxes.

Then, there is health care. Although the price of health care varies in premium and policy based on how much risk Americans plan to taking,  the price of health coverage is high for a middle class family, regardless. According to an CNBC report, the average American household spends $5,000 in health care costs per person per year, which is twice more than what families used to spend in 1984.

The average cost of health insurance premiums varies by state.  The individual cost of acquiring health insurance in Alabama is $357.63 per month. A 40 year old person seeking a top of the line insurance in this country pays $732 a month for platinum coverage, according to LendingTree. That’s a lot!

Neither of these plans above pay 100% of the bill. At best, the insurance companies pay 90% of the cost for the top insurance plan. For a family of three, I’ve been paying between $660 to $800 each month with average coverage. Of course that premium price doesn’t account for co-pays, 80×20 costs splits (or 70×30 or 90×10), and other costs like the price for prescription drugs, eye care and dental.

I’m going to budget $12,000 in family health costs per year for my calculation. Now, that $60,000 combined salary a year is technically $36,000 when taxes and healthcare premium are accounted for. Let’s keep calculating…

If we want to retire one day, we need to put money aside for such aspiration. Social security costs us 6.2% in contribution per paycheck each month. For a combined family salary of $60,000, the monthly value contribution is $3720 a year. A minimum 2% contribution in a TIAA-CREF account a month would cost a middle class person $1240 each year. Please refer to the following equation if you please.

Combined Family Salary of 60,000 – Taxes – Health Care Premium – Retirement =  $31,040 per year.

If a person lives in the state of Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming he or she pays no personal income tax. Well, the states of Tennessee and New Hampshire, don’t tax wages either, only tax investment and interest. So, if a person lives in any other state, he or she should discount state income taxes sometimes local taxes, as well. State taxes in the state of Georgia, for example, is 5.75%. The average state income taxes rate varies by state and income. Let’s use a 5.75% rate for the practical purposes of this writing piece.

31040K – 5.75% local taxes = $29256 per year.

$29256/12 equals $2438 per month.

Which fancy houses, luxury cars, costly dinners, extravagant parties and hobbies can a middle class family earning $60,000 can afford?

Sure, not all middle class families bring home $60,000 a year. Some families bring more, a lot more families bring less which leads to my conclusions:

  1. Live small
  2. Control depreciating assets costs (House and cars, for example)
  3. Wake up

Hope you found this piece useful. Dr. A.