Tuesday, April 21, 2009

I Want My Quarter Mill

As of yesterday, and thanks to the incredible ability of the Wall Street Journal OnLine and Yahoo Finance to ferret out the information, we have a definition of “getting by” in these uncertain and scary economic times. I would like to publicly thank the Wall Street Journal for their service.

In case you missed it the Journal did a story titled “The Wealth-Less Effect” which discussed how much a quarter million buys today especially in light of President Obama’s proposal to raise the tax rate on people making $250,000 plus from 33% to 36%.

The story featured a family near Knoxville, TN who believe that they’re not doing much better than getting by on their $260,000 annual income. Gee, I guess if I lived in Sevierville, TN I would be tempted to fix a casserole and maybe a box with some of my old clothes and take it over to this unfortunate family of seven.

According to the article, “Taxes, premiums for medical care and deductions for Social Security and their 401(k) contributions cut the gross to about $12,000 per month”. Now, that means that all those things are costing this family about $10,000 per month. They’ve got deductions for 5 kids, but yeah, health insurance, a fully funded 401K, fully funded 529 college savings plan, etc. would put a dent in the pay check.

Their mortgage, second mortgage and payment on land they bought is nearly $4,000 a month. That’s a bite, and they live in a 2500 square foot house. They also tithe $1300 per month to their church and after including their family car payment, insurance and college funds, as well as basics like food, utilities and donations to charities, leave them with about $1,200 left over each month—that’s their “walking around” money.

OK, let’s see. After every single expense they’ve got $1200 a month left over. Their $1300 a month tithe is deductible. Health insurance and 401K are paid with “before tax dollars” and I bet that they have a Flexible Spending Account for medical deductibles, etc. also funded with pre-tax dollars. (That means that if they’re in the 33% bracket then each dollar spent on health insurance, 401K and FSA really only costs 67 cents because it’s money that isn’t part of taxable income—a good deal that people should always take advantage of).

This family commented that they lost $60,000 in equity in their 2500 square foot house this year. Hey, the people who owned a house across the street from me got their 900 square foot, 70 year house foreclosed. They bought it for $400,000 and it recently sold for $175,000. I have to admit that 7 people in a 2500 square foot house is a bit tight but it’s still a lot more than many people have.

Now, what I take umbrage to is that this family doesn’t see themselves as affluent. According to the wife, “I'm not after sympathy. We are blessed. What I want is a reality check on what rich means. I can pay my mortgage and I can buy some clothes. I'm not going without, but I'm not living a life of luxury."

If this is "not living a life of luxury" then where do I sign up?

Let’s look a little deeper at their community. The median family income of Sevierville, TN is $37,972. Only 1.4% of families in this city make more than $200,000 per year. They might not be living a life of luxury—let’s say in the Paris Hilton sense of the word—but they’ve got it pretty good. So I want my quarter million a year so I can not live a life of luxury too. This family has a lot more tax deductions than most others and I’m pretty sure that they’re showing far less than $260,000 a year in adjusted gross income which makes it doubtful that they would be subject to a proposed tax increase.

What gripes my butt is that there are places in Tennessee (probably right in their own hometown) where 10 families could get along pretty nicely on a total of $26,000 per family for the year—and they’d be grateful for it—just go down to the local WalMart and ask a few of their employees if they’d be happy with $26K per year.

There’s no way that a quarter-million plus annual income isn’t affluent, big money or however else you’d like to describe it. Maybe it isn’t rich—or as rich as it used to be—but to suggest otherwise is just plain dumb (I was going to say naïve but dumb is better). I guess it's a matter of "a quarter mill here, a quarter mill there and pretty soon you're talking about real money".

This family is obviously religious. So, give thanks that you’re doing better than 98% of the rest of us. Give thanks that you can live like you do and make the lifestyle choices you do. Thank God each and every day and also pray for the rest of us. And, maybe, pray for just a little bit of enlightenment and empathy.

By the way, here’s the link to the article from Yahoo Finance and Wall Street Journal Online:
http://finance.yahoo.com/retirement/article/106934/Wealth-Less-Effect-Earning-Well-Feeling-Otherwise

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